Post #70: Rubicon revisited

When trying to arrive at a convenient metaphor to describe the shifts in behaviour that the pandemic and subsequent lockdown have brought about, nothing captures things better than the notion that we have now crossed the digital Rubicon.

Even without a digression into the military strategies of Julius Caesar, our contention is clear: there is no turning back from the digital by default world that has been embraced. The genie is out of the bottle whether one considers online shopping, electronic payment or many other areas of everyday life. Expect to see the phrase ‘digital Rubicon’ appear regularly in our commentaries going forward.

It’s easy to forget, however, that in order for us to enjoy the digital life that we increasingly take for granted, we need the infrastructure to support it. Functioning supply chains and automated warehouses aren’t quite as headline-grabbing as ‘click and pay’ consumption, but equally important.

If the current crisis has taught us anything, then it is imperative for businesses to build higher inventory levels in order to ensure more robust supply chains. The data are quite noteworthy in this respect. Many industries stand out, at present, for having very lean supply chains. The food and beverage industry in the US carries an average inventories-to-sales ratio of just 0.7 and the healthcare industry’s ratio is just 1.1 (per US Census Bureau data for 2018). The pandemic is likely to force a re-assessment of these, prompting businesses to invest in more logistics and industrial real estate.

Interestingly, the two industries cited above have among the lowest shares of e-commerce as a percentage of overall revenues. Online purchases of food and beverage account for just 2% of total sales in this category in the US, with the figure for healthcare at 12%. Compare these statistics to electronics at 33% or sporting goods at 28% (per Euromonitor 2019 data). In other words, the runway ahead is significant. Even prior to the current crisis, 87% of organisations said that they planned to increase their warehouse size and 86% stated they will increase the volume of items shipped (per a June 2019 study by Zebra Technology). Our best guess is that these figures will be even higher now. 

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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