Is staying at home a tactical tailwind that's not long-lasting, or is it here to stay and those who don't get on board will be left behind?
That's the dichotomy we've come to embrace and it has become a ferocious debate. Case in point: video game maker Take-Two Interactive Software (TTWO) , which is a holding of my Action Alerts PLUS charitable trust. You have the best numbers imaginable, the biggest beat we have seen in the group, but we know that a great deal of the beat comes from people who are staying home and have nothing to do.
The thinking, judging by the U-turn in the stock from the $150s to the $130s after management even poses the question, chilled many into thinking that this is all short-term and short-lived and you ought to take the money and run
I think the binary thinking is a false construct and a bogus dichotomy. I am sure this level of engagement with video games is not sustainable. We are not going to shelter at home the rest of our days, the nirvana for gaming.
But at the same time, I think that the taste, the enjoyment and the engagement are new discoveries for many. Once hooked, they will not be unhooked by a reopening. They simply will shift their time to play.
No, the numbers won't stay as strong, but the numbers are so much stronger than they ever would be without the pandemic that you simply can't value the stock as low as it had been pre-pandemic. That's why, even as the stock of Take-Two went down after a big run, I think it's a buy and not a sell because those new gamers are not going to un-game themselves.
Same thing goes for shopping. I know people have been mumbling for years about the death of the mall. But the numbers actually never really showed it. The big mall operators as well as the shopping center and strip mall companies and off-price malls actually were doing well. You heard the negativity and you saw the numbers and you realized these REITS were much smarter than you thought they were and they were able to consistently raise rates.
That's now over, a screeching halt, because of the lockdown. Again, I think most of these landlords will not be able to come back in their current structure. Almost all have too much debt. Hoping people will come back to their tenants may prove to be a false hope because customers found new ways to get what they want. Contactless pick-up at Target (TGT) . Same-day Walmart (WMT) . Amazon (AMZN) next day. All of these, I think, turned out to be superior offerings.
Office space is harder. I think companies have discovered that having workers stay at home can have many benefits in terms of productivity that hadn't been anticipated. I know the REITs, again, tell us not to worry, that they are itching to come back. But if companies in a recession can save money, they are not going to accept the same rents. This canard about how they will need even more space because of social distancing is a painful one. The genie is out of the bottle.
Retail is most stark. The pandemic has changed things for good, it's turned off the brick-and-mortar oxygen once and for all. Some companies, notably, Etsy (ETSY) and Shopify SHOP and now Facebook (FB) , totally get it and are going to make sure that those who might have been tenants or are tenants are going to de-emphasize the physical.
I think Harley Finkelstein, the (COO) of Shopify, put it best: The pandemic has pulled forward retail behavior 10 years. We are now seeing what retailers might have morphed into over a decade.
If you don't have a retail strategy with online as its center, you are risking your franchise. No more bolt-on. No more after-thought. Get a strategy or go home.
