Prospects for new businesses amid COVID-19 trends
With many businesses becoming casualties of the Coronavirus pandemic in the last few months, there are gaps opening up in the market for goods and services that were found in abundance before the pandemic started. Discovering these sweet spots in the market and capitalising on new business opportunities are not that easy, though.
You might be considering starting a new business or investing in commercial property to take advantage of new businesses popping up as the economy starts growing again post-pandemic. What, then, is the outlook like for starting a new business that can perform in the new gaps opening in the market? And what would the outlook be like for commercial property once the pandemic finally ends?
To answer these questions, there are essentially two things to consider:
- The trends that we see emerging from the pandemic.
- The projected trends for the commercial property market as the pandemic eventually dissipates.
What are some of the trends predicted post-pandemic?
While South Africa waits with bated breath to see how long COVID-19 infections will continue to increase, many people have been turning to alternative forms of services than they would normally use. For traditional retail stores and entertainment venues, the future may look somewhat hazy as it seems like the world is quickly trending towards relying on online alternatives.
It is said that necessity is the mother of invention. Nowhere is this clearer than when we consider how technological advances have been made during the pandemic. While in some instances, post-COVID-19 trends will revert back to ‘normal’, others have accelerated away from traditional trends, while some new trends are developing as well.
Retail
Naturally, when the lockdown started, all retail stores (apart from those selling essential goods) had to close for some time. Until the pandemic ends, most retail stores will not be operating at optimal levels, while e-commerce sites draw more and more traffic. As is, a large part of the retail industry can operate at ‘normal’ capacity (barring their duty to safety), but is hindered by the weakened economy.
For South Africa, the market trend, especially with a large portion of the population low-income earners, won’t shift considerably towards e-commerce for some time. Regardless, international trends seem to indicate that the retail market should start to stabilise and grow again from its losses during the pandemic, although e-commerce will grow significantly in affluent countries. As with most commercial industries, future success depends heavily on economic recovery.
Hospitality
The hospitality industry was one of the hardest hit sectors of the economy, which is clear from the many businesses, such as restaurants and hotels, that have gone under because of COVID-19. Even when at Stage 3 of the lockdown, when many of the establishments started opening up, many restaurants were still struggling because of the ban on alcohol that made up a large portion of their revenue. Places of accommodation were similarly restricted, as only business travel was allowed for a few months. Restrictions remain stringent on other forms of hospitality like casinos, cinemas, and entertainment complexes.
While things do not look very positive for the industry right now, the easing of restrictions and new opportunities in the form of market gaps may soon make new businesses a plausible, and possibly profitable, venture. This is largely due to the growth in local travel, since many South Africans are still wary of the limitations and hassles of international travel as long as COVID-19 remains a real threat.
Personal Care services
Similar to the state of affairs in the hospitality industry, those in personal care services (such as hairdressers/barbers, beauticians, and masseuses) were heavily restricted by the lockdowns that shackled the economy in the first few months of the pandemic. Apart from the sale of products, which contributed minimally to the losses of these organisations, revenue in this industry was non-existent for a couple of months and has forced the closure of some small businesses.
While these services have taken a big knock as a result of COVID-19 safety concerns and restrictions, the industry should make a full recovery once COVID-19 takes a bow. Those who will continue to stay at home to use their own hair clippers will be few and far between.
With many commercial businesses having closed down during the ongoing pandemic, it means that there are new opportunities for businesses to take their place to fill gaps in the market.
The bad news first
For those considering purchasing commercial property in order to capitalise on the influx of new business opportunities once the lockdown ends, forecasts indicate that the commercial property market is facing a three-year negative capital growth rate of -15% that will last until 2022. This means that moving immediately to procure properties that have been forfeited as a result of the COVID-19 pandemic may be a very risky move, with growth plausible only after around 5 years (even if inflation is ignored).
For many people, such an investment may be inconceivable; although, it does open up avenues for acquiring prime property from places of business that have not made it (or will not make it) out of the pandemic. Yet, it may take a long time before you start seeing any real returns on your investment in commercial property.
Another threat to commercial property values and purchases is the increasing advancement in technology. The movement towards online work and e-commerce is increasing. This means a smaller demand for office space and retail space (at least for non-essential goods) in the long run.
On to the good news
Conversely, for those who are considering investing in commercial property for their own benefit and use, the interest rates available on bonds right now make purchasing commercial property much more affordable. Naturally, as the market value of property decreases, property prices become cheaper. With commercial property taking a more significant knock than residential property as a result of the weakened economy, it could spell opportunity for those thinking of starting a new business.
If property has been an issue in your dream to start a new business, right now seems as good a time as any to enter your chosen market (at least when it comes to bond repayments). By purchasing commercial property before the economy starts growing again could also mean that you get a head start on your competitors that may emerge later.
COVID-19 also presents unique opportunities for new business owners as there is more room for starting smaller and upscaling your business as the economy starts growing. This means fewer overhead costs during the initial stages of your business’s trade and also that diminished national economic activity in the short run serves as a boon rather than an omen.
Ready to take the plunge?
If you have assessed the risks and feel like you are ready to start your own business to capitalise on a gap that is starting to form in the market, purchasing commercial property may be something you should consider. The first consideration to make, however, is that commercial property purchases are often much more restricted in terms of use and rights than residential property. Consulting your property attorney becomes a necessity to ensure that you are fully aware of the additional fees, levies and limitations that may apply to the property you are considering purchasing.
Capitalise on lower property prices and lower bond payments, and start that business you’ve always wanted to show to the world!
References:
Industry Insights by SAP: The Global Impact of COVID-19 on the Professional Services Industry, 20 May 2020.
- https://www.mediacom.com/en/think/reports/mediacom-identifies-post-lockdown-trends-around-the-world
- https://www.news24.com/fin24/Money/Property/10-things-to-keep-in-mind-when-investing-in-commercial-property-20171218
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).
2020 was an immensely difficult year. Because of the economic downturn in the country, it left a lot of businesses with insurmountable odds to make things work and so, many businesses have had to shut up shop. While this has been unfortunate for many business owners, it does present those who have been able to continue their business successfully with new opportunities and new questions to ask themselves.
Not least of these is knowing whether your business is scalable (even after a torrid economic year). In fact, scalability is often made possible because of economic downturn. Despite the disaster of 2020, it does look as though the economy will grow by quite a margin in 2021 (as is normal after a recession). There is no doubt that business will pick up and that businesses that have fallen away as a result of the pandemic have opened up space in the market, leaving clients ready to be picked up.
Here are some things to think about as you consider growing your business in 2021:
Scaling a business is an endeavour that should never be taken lightly, but should come as a result of good deliberation and forethought. That is to say that scaling for scaling’s sake is a risk that endangers all stakeholders in the business. Make sure that it is something you want to do and are ready for before taking the plunge.
The more opportunities you have to turn down shows that there is room for expanding your business in some way or another. You will have to evaluate what kind of opportunities it is that you are turning down – even if these are outside of the regular scope of your business. Is it perhaps an opportunity to bring in someone with greater superiority and experience in a related business activity? Is it time to increase the workforce with just one or two people to fill the gap? Are the opportunities you are turning down due to seasonal demand?
Note that there are many reasons why you might need to turn down an opportunity, but getting down to the root of the cause is the only way to determine what your next step should be (dissecting your finances is one way to assess your situation before you decide to proceed or not).
If you’re finding that your cashflow is strong but you are perhaps are unsure what to do next to take your business to the next level, a strategic financial review may do wonders to show you where you are over- and underspending. As soon as you are aware of the areas of your business where you can reasonably focus more attention (whether that is in infrastructure, staffing, product/service development, or somewhere else), you will be able give your energy to those aspects that lead to business growth. In order to make the most of this step, it is will be of great value to speak to your financial advisor.
One important consideration in and after a recession is that while there may be businesses that have closed, their customers will need to go somewhere to have their needs/wants met. This means that there is great value in rounding up the customers and clients who are looking for someone else to fill a gap that was created. Take time to find out who your target market is and how to reach them. Also, don’t be afraid to broaden your horizons: if the COVID-19 pandemic has proved anything, it is that new trends can form very quickly as people reprioritise their lives. The faster you move to engage with the lost consumers and clients, the more opportunity beckons your business’s growth.
If you do not have the necessary infrastructure in place (or if you cannot reasonably expand your infrastructure to increase your capacity), scaling can be extremely difficult, if not impossible. If you have assessed your available assets and resources and deem it to be a good foundation on which to expand your business, you may just have what it takes to increase your revenue by accessing a larger part of the market share in your industry.
Are you ready to assess your business and take the necessary steps to grow and take advantage of the gaps created due to the COVID-19 pandemic? If you do, the world may just be your oyster.
References:
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).