If you’ve been bored this year, you’re not alone. While some people have been happy to devote time to their hobbies during the Covid-19 pandemic, others have bemoaned the lack of entertainment options, as restaurants and bars close, restrictions limit travel, and sporting events take place in empty stadiums.
Investors have tried to gauge how much pent-up demand will help experiential stocks in a post vaccine-world. Robert W. Baird warns it may not be as much as bulls hope.
Analyst Peter Benedict takes a look at some of the latest consumer data, and found that people are spending more, if not at pre-pandemic levels yet, but that long-term shifts in behavior may mean that the at-home stock plays aren’t finished rallying yet.
Consumer spending increased by 0.5% month over month in October, to about $14.6 trillion, and while that’s still down about 1% from 2019 levels and 2% in early, pre-Covid 2020, he writes that “a significant portion of the decline in spending due to the pandemic has been clawed back.” That said, what consumers are spending on has changed: Discretionary experiences rose 2%, but that’s still about 24% below last year’s levels, and only slightly better than September’s 26% year-over-year decline.
Overall, spending on accommodations, theme parks, theaters, and public transportation is still the most depressed when compared to pre-Covid levels, whereas food services and even gambling have jumped and are about 90% recovered.
“Given the behavioral changes that will likely endure beyond the pandemic (including more time at home, outdoor activity), this basket of ‘experience’ spending presents an intriguing wallet share opportunity for many retail sub-sectors in the months ahead,” Benedict writes.
He believes that theirs is still “significant… longer-term spending power that could still be up for grabs:” He estimates some 3% of retail sales—or more than $150 billion—could be repurposed, even if food services and gambling see roughly a 95% recovery from Covid and other experiences like travel and theaters get to the 80% mark.
Benedict thinks people will redirect their money toward home improvement and furnishings, eating at home, and outdoor activities. That’s been borne out recently, given big gains in home improvement retailers, as well as an uptick in appliance purchases and fitness equipment we’ve seen in recent earnings reports.
His Outperform rated stocks are
BJ’s Wholesale Club
Bed Bath & Beyond
Floor & Decor
Barron’s has also noted that the pandemic has altered consumer behavior–in some ways that may endure after the virus is no longer a threat–even as some companies try to recapture the benefits of experiential retail.
Write to Teresa Rivas at [email protected]