BIG DATA TO BIG PROFITS

With President Trump and many people around him being treated for COVID, it is clear that COVID can and does touch everyone. Even if you are not infected, you are experiencing a new economy and a new world. COVID changes have been challenging. Many of the changes we are experiencing will stay with us for years, I think. Some are unexpected and will have long-term impacts to our society and economy. Here are some predictions of economic and financial changes that will stay, even after we have achieved victory or control over COVID.

1. More Delivery Business Models: Delivery was looking for a break. It has that break now. Americans tried it and liked it. Some delivery models are still too expensive because they build delivery on top of retail. Amazon has had a banner year. Guess what, delivery was around before we all had cars. It was what defined customer service in retail. Expect more challenges for retail, in-store dining, and shopping at big box stores. Expect new delivery firms to rise up, and expect Amazon, Walmart online, and other e-commerce services to enter a mega-growth phase. Who even wants to open a new retail chain or store today? Well, maybe Amazon with delivery.
2. Unconventional Learning: Here at UW, we are online and for my graduate students, the move to Zoom is not ideal, but it still allows some transfer of the information. For elementary schools, where learning is about more than information transfer, 2020 has been a year of pause. It has required students to do more on their own. Parents are already maxed out. Expect the push of online learning in elementary school to drive more youngsters to explore the Internet and their curiosities, for good and bad, but probably for more good than bad. I see more self-driven exploration for everyone and less structure in learning going forward. More free-styling and a greater pursuit of personal interests, versus standardized learning and exams. This will also be accepted, encouraged, and rewarded. Many graduate schools and universities have moved away from the SAT, ACT, GRE, and GMAT. I believe these tests have a limited future when unconventional learning is appreciated.
3. Work from Home: WFH is not going away completely. Here in Seattle, REI, sold is new (not yet used) campus because it is moving to a WFH model. Many people can do their work away from the office. Technology has enabled this. This will drive some other changes, which are already happening, in the price of assets and how and what we do at work. I expect many people will also prefer WFH over going to the office and this will require firms to be more accommodating and offering of WFH. This is also bad for business attire firms and all the services tied to working at the office. We do more with less when we work from home. Firms and employees will both appreciate that new optimum.
4. Corporate Real Estate: COVID is a mega disruption to corporate real estate. With retail being replaced by e-commerce, restaurants moving to more delivery and pick-up models, and large firms enabling work from home, the future of corporate real estate is cloudy at best. Of course, we will still need some buildings, but less, and probably ones that can easily integrate with delivery and pick-up models. If call center work can be ported to home offices and that is preferred by both the employee and employer, for instance, then what is the future of large call centers? And department stores? Strip malls? Office parks? The property owners are facing an uncertain reuse of such buildings.
5. Residential Real Estate: More home offices will be required. More space for personal working out, too. More space and more amenities, overall. The suburbs should see a boost, but only in those states with a strong economic trajectory (Sorry, Illinois, people are still leaving in large numbers). Could this be the impetus that finally brings Millennials to the suburbs? I think it will. However, it may be that suburban condos are preferred over single-family homes. Gardening is real work and the new burst in gardening might not last.
6. Social Distancing: I was recently in a lumber store in the Seattle area that has erected a large set of sneeze guards. These are everywhere. I think these will stay up in many places, especially in doctor’s offices, governmental offices, and this will set something of a trend. We will have more barriers between ourselves in daily life. Even if and when the masks go down, the barriers will not. It will change customer service and bring a new focus to “preventing the next pandemic.” Why take down the guards if the employees want the added protection?
7. Deflation: The COVID crisis has occurred at a time that the US is experiencing the greatest generational hand-off ever, that being the one between the Boomers and Millennials and a slowing of the birth rate. These demographic forces are already leading to deflationary forces in various assets, like cars, real estates, and even personal belongings. Now, with COVID, demand for some real estate, vacations, travel, in-person services, and a large swath of services related to those will change for the worse. Many people have figured out how to cut their family members’ hair at home. Will they return to barbers and salons? Will we just all hop back to Europe for vacation when it is safe? I don’t think so. Some of us will or have found value in more do-it-yourself approaches to services. Buying food by pick-up over dine-in, removes the need for and tip to a server. Less service is consumed. Less for barbers, gardeners, and well on and on. I anticipate changes in consumer consumption will drive down some service consumption, and for a service economy that will be a deflationary pressure.
8. Transit: Here is a hidden feature of deflation from changing consumption and changing work patterns. If more people are working from home, will we have as many cars on the roads? Will we need new and more mass transit? Probably not. I expect usage of transit to decrease remarkably. Many of the largest transit systems in Chicago, DC and elsewhere are reporting massive downturns in usage and huge budgetary impacts. This will make financing and justifying new projects much harder. Stay home, nobody is on the roads, anyway.
9. University Tuition: COVID has wrecked universities and attacked all of their revenue streams at once. Reduced tuition, no athletic TV rights (or less), few to no dormitory fees, and well on and on for every enterprise at the university. As a side note, I still am charged for parking on campus, but I have no way to use the parking lot. COVID has also exposed the finances of many universities. It has also brought a focus to who subsidizes whom. Only a few leading athletic programs generate a profit. In most mid-tier to smaller schools, sports are subsidized, by, um, tuition. Should it be? There will be a massive revisiting of what fees and costs are reasonable in education. Some schools have closed money losing sports, like wrestling, track and field, etc. But for many schools, all sports loose money. The same examination on majors and programs will reveal some uncomfortable truths. Which programs attract and sustain the most tuition dollars? For some schools, it will be a challenge to support money-losing majors. I expect some entrepreneurial schools will seize the day, however. Consider that the option of an in person education at a private university is over $50,000 a year. What if someone could take (some) online classes and earn credit for those elsewhere? What if employers say OK to that? For instance, will Cal-Berkley accepted a Stanford online course for degree credit? How about the reverse? I think some students will be able to create an on-line curriculum and apply for credit elsewhere. Living on and being on campus is still special, but a new generation of tuition-paying (and debt taking) students have learned to ask for tuition discounts (and get them) and question how tuition is used to subsidize ventures across the university that are not directly beneficial to students’ interests. Suppose the whole student body withheld tuition payments for a year or quarter in disagreement over fees. It is easy to imagine that happening and easier to imagine that the university would have no choice but to acquiesce.
10. Governmental Guarantee: With the Democrats and Republicans at the verge of spending another $2 trillion in crisis funding, the total federal bill for COVID stimulus funding will soon exceed $5 trillion. I’m not here to argue whether it is right, wrong, too much, or too little, but rather to observe that society and government see the federal government as the ultimate guarantee of our economic ills. The price to prevent, end, or otherwise reduce a recession has been mighty. Of course, the burden of millions without work is hard for them, families, and their employees. The government is the only body that can help and simply because it can dole out money. I expect more generosity to makes its way into our laws – such as forgiving (some) student loans, providing a minimum salary (as in Scandinavia) and more grants or gifts to business. The political and economic system is now hyper-sensitive to unemployment. The Federal Reserve Chairman, Powell, has signaled that unemployment will be their most critical economic measure for policy decisions. Firms (big and small, but probably more for bigger ones) will have leverage over governments to seek tax breaks, grants, subsidies, all in the name of protecting and preserving jobs. The alternative would be to place these workers in a federal program. In all of these offers to cure what is bad, the federal government will be called upon to pay the bill or borrow the money to pay the bill. These bills will be with us for a long, long, time. It will be interesting to see what society will think of this spending spree in 20-30 years. As every action has an equal and opposite reaction, in a generation or so, I expect a revisiting of the implicit governmental guarantee of our economic woes. Until then, Uncle Sam is picking up the tab.

About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is teaches at the Foster School of Business at the University of Washington. His most recent book, From Big Data to Big Profits: Success with Data and Analytics, by Oxford University Press (2015), explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.

You can find him at @RussWalker1776 and russellwalkerphd.com and bigdatatobigprofits.com

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By Russell Walker, Ph.D.  -      
Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics. As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy. Russell Walker can be reached at: russell@walkerbernardo.com @RussWalker1776 russellwalkerphd.com

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