How have different business sectors performed?

Last month I reviewed how COVID-19 has affected us personally in our priorities, physical distancing, personal responsibility, etc. I share below how different business sectors have performed according to our research (Googling, really).
As before, I’m using the “star system” to rate my predictions –  1 star = NOT,  3 stars =  TBD,  5 stars = Score! (so far).    First let’s look at personal consumption.

OVERALL PERSONAL CONSUMPTION

It probably comes as no surprise to you that, overall, personal spending has come way down:

According to Deloitte, overall real personal consumption expenditure (PCE), which accounts for a little less than 70% of GDP, fell by 10.1% in Q2 2020 compared to Q1 2020, the sharpest quarterly contraction on record. This contraction in demand, in turn, pushed wider economic activity down in Q2 by the most since national accounts records started.

2020 through September, compared to 2019 (U.S. Census Bureau statistics):

  • Building material, garden equipment and supplies – up 8%;
  • General merchandise stores – up 8%
  • Health and personal care stores – up 7%;
  • Food and beverage stores – up 1%;
  • Sporting goods, hobby, musical instrument and book stores – up 1%;
  • Motor vehicle and parts dealers – down 8%;
  • Miscellaneous store retailers – down 8%;
  • Furniture and home furnishing stores – down 8%;
  • Clothing and clothing accessories – down 6%;
  • Gasoline stations – down 4%;
  • Food services and drinking places – down 1%.

Within personal consumption, spending on services vs. goods have diverged.  Consumer spending on services contracted by 13.3% in Q2, much worse than the dip in spending on durable goods (-2.9%) and nondurable goods (only down 4.2%).  So, we’re not getting haircuts, eating out as much or hitting the gym, but we’re certainly still buying stuff – but what stuff?

SECTORS I IDENTIFIED IN APRIL 2020

  • Walking accessories – Shoes, socks, outerwear, umbrellas
  • Home exercise equipment
  • Bicycles
  • Golf & Tennis
  • Recreational vehicles – Campers, boats, etc.
  • Gardening and lawn care

WALKING ACCESSORIES – SHOES  – 4 Stars

Related stock performance:

  • Crocs: $10.86 on 3/18/2020 to $58.33 on 11/6/2020
  • Nike: $62.80 on 3/18/2020 to $132.09 on 11/9/2020
  • Adidas: $90.09 on 3/18/2020 to $176.79 on 11/9/2020
  • Asics: $6.82 on 3/19/2020 to $15.00 on 11/9/2020

Looking at weekly dollar sales compared to the same weeks last year, September grew each week compared to the same period last year; however, this August still generated higher weekly sales volumes than September, further supporting this shift.

Anticipating a rise in outdoor activities this fall/winter, cold weather boots and hiking shoes began selling notably well.  In August and September this year, sales were up 49% and 24%, respectively, compared to last year, according to NPD’s Retail Tracking Service.

HOME EXERCISE EQUIPMENT

Related stock performance:

  • Nautilus: $1.29 on 11/23/2020 to $22.86 on 11/9/2020
  • Peloton stock: $19.51 on 3/12/2020 to $103.78 on 11/9/2020

A new analysis by Verify Markets shows the U.S. Home Gym Equipment Market was valued at over $3.8 billion in 2019 and is expected to reach revenues of over $7.5 billion by 2026. The market is expected to witness a double-digit growth rate during the forecast period. Innovation, the use of cutting-edge technologies, monthly subscriptions, live or on-demand video exercise classes, voice-led workouts, and, of course, the COVID-19 pandemic are driving growth within this market.

In an effort to replicate the gym experience in their homes, consumers have been purchasing smart exercise equipment and enrolling in companies that offer online fitness programs. Obe Fitness has increased its online membership; Mirror interactive fitness system sales have doubled, and demand for Peloton’s exercise bike has increased.

BICYCLES

In April, bikes sales grew 75% year over year; in June, 63%. Those numbers were even greater in categories like inexpensive leisure bikes (203%) and mountain bikes (150%), as those represent the styles most used by those driving the boom.

GOLF AND TENNIS  

Closed golf courses a/o 4/21/2020 – 51%  Closed on 8/11/2020 – only 2%

COVID-19 has been a boon for golf.  Golf Datatech, which specializes market research for the golf industry, notes that there was a 20.6% rise in the number of rounds played nationally in August from the same month last year. That’s after being down 18% from January to April of 2020. The year’s forecast, if weather permits, suggests a record number of rounds (up 4-8%), largely due to 13.9% and 19.7% increases in June and July respectively, according to National Golf Foundation’s research.

Tennis has also benefitted from the pandemic – According to the Texas Medical Association, tennis ranked as one of the least risky activities during COVID-19. “On a scale of 1 to 10, with 1 being the safest, tennis is a 2, the same as pumping gasoline or ordering takeout. Swimming in a pool is a 6, while playing basketball or football is a 7, the same risk as hugging a friend or shaking hands. Working out at a gym is an 8.”

RECREATIONAL VEHICLES

Related stock performance:

  • Thor Industries: $34.61 on 3/18/2020 to $80.29 on 11/9/2020
  • Winnebago: $20.57 on 3/18/2020 to $45.12 11/9/2020
  • Camping World Holdings: $3.87 on 3/18/2020 to $24.22 on 11/9/2020

Not unexpectedly, those with travel lust have driven sales of RVs well up.  North American retail sales are expected to rise 4.5% in 2020, according to the Recreational Vehicle Industry Association. Considering that the start of the year was a bust that included both the recession and supply chain and labor disruptions, this bump is remarkable. Next year’s record-breaking outlook is even stronger, with a projected 19.5% rise over this year’s projected sales.

The trend is not fed by seasoned buyers. Dealers estimate that 50-80% are first-time buyers., up from between 25 and 35 percent last year.

GARDENING AND LAWN CARE

Related Stock Performance:

  • Home Depot: $152.15 on 3/20/20 to $269.97 on 11/9/20
  • Lowes: $66.36 on 3/20/20 to $153.45 on 11/9/20

Van den Berg-Ohms, of Kitchen Garden Seeds, said sales are up 40 percentRenee’s Garden, a seed company in Felton, Calif., also sells online and through retail seed racks.  The normal spring peak is around 350 orders daily; in 2020, it was up to 2,000, she said. According to the U.S. Census Monthly Trade Report in June 2020, revenues from gardening retail rose 8.79% year over year.

CONCLUSION

The data obviously suggest that, for the moment, COVID has changed spending patterns as a result of its imposed lifestyle changes.

And, as a result, there have been spectacular investment opportunities, even relative to the overall strength of the markets (look at Nautilus, Peloton, Thor and Crocs!).

Be on the lookout over the next few months for more on the other sectors I highlighted last April.

Stay safe!

Bruce