While the news regarding coronavirus appears optimistic, with fewer new cases and evidence that containment measures are helping to “flatten the curve,” this week’s ENX Magazine survey of a post-coronavirus landscape indicated that it may take time for pre-virus business volumes to be realized. Indeed, the impact of our national shutdown could have a long-lasting impact.
Dealers constituted the lion’s share of participants once again, representing 70% of responders. Value-added resellers and remanufacturers (5% each) were the second-highest, with the balance a healthy mix of OEMs, manufacturer directs, managed IT firms and software specialists, among others. Thirty percent of responders are based in the Northeast, with 27% in the Midwest, 21% in the Southeast and 16% in the Southwest, with the balance split among the Northwest and southern Midwest.
With many businesses seeing less activity, we asked survey responders “How are your employees making use of extra time?” Technical training was most cited at 67%, followed closely by online learning at 65%. Performing inventories/audits of electronic files was cited by 27%, while 17% said that they are occupied by current workloads, and have no free time.
A number of survey takers pointed out that due to layoffs and furloughs, there is enough work to go around for those still active. Other companies have focused on spring cleaning, building inventories, refurbishing traded-in systems and exploring ways to reduce expenses.
With a majority of states in shutdown mode by April, we asked, “What are the greatest hindrances to sales in April?” A staggering 89% noted that customers are completely shuttered, and 35% indicated customers have mandated a spending freeze. The inability to schedule phone or video conference sales calls was cited by 24%. We gave respondents the option of citing “other” issues, and their answers ranged from clients wanting to wait until the crisis is over to the inability to install because customers won’t allow people into their facilities.
Value-Added Promotions
As clients have been impacted in the way they do business, we asked respondents if they were offering promotions or packages to address remote working needs. Sixty percent indicated they are providing work-from-home “specials” that include hardware and software. Managed IT offerings were cited by 40% and security solutions were noted by 23%. Educational resources, webinars and consultation services were cited by 28%. Only 9% noted they do not have any promotional offerings. “Other” incentives included VoIP systems, document management solutions and 90-day deferred payments.
While the eventual lifting of the quarantine, for the lack of a more precise description of the “all clear” signal, will be phased in on a state (or state-cluster) basis, we wanted to see what the industry resumption might look like. We asked, “If the coronavirus ended today, how long do you think it would take for your business volumes to return to pre-shutdown levels?” The most-cited choice was up to three months, according to 33%. Another 30% predicted three to six months, while 16% believe it could take a year or longer. Slightly less than 10% believe it would return to pre-virus levels within a month, and the same amount project that we could be looking at a “new normal.”
In the event of a “new normal,” we asked what that might look at in terms of reduced volumes. Up to 20% less volume was cited by 38%, while 22% projected up to 10% less volume. A reduction of 30% or more was noted by 19%, while 16% view coronavirus as an outlier with no lasting impact. On the optimistic side, 5% believe volumes will be increasing.
We then asked respondents, “Considering personnel and resources, how poised are you to handle an uptick in activity once normal business conditions resume?” A total of 46% believe they have a strong inventory of resources, parts and supplies. Another 25% feel, “Despite layoffs/furloughs, we should be able to ramp up quickly.” The same amount of responders noted, “Due to the nature of our business, we are able to respond quickly.” Less than 2% feel sourcing parts may be a challenge.
May Ramifications
With the shutdown looming at least midway through the month of May for many states, we asked respondents what measures they would need to take in order to offset the impact. The status quo garnered the highest total, with 68% said they would continue with existing measures. Implementing or increasing furloughs and layoffs were cited by 17%, and 16% would reduce workweeks for hourly employees. Cuts would also impact salaried and executive positions, according to 13% of responders, while 8% said they would implement or increase work-from-home practices.
The uncertainty in the market may cause many business owners to evaluate their long-term strategies, which could include exiting the business. This could provide increased opportunities for companies that are seeking to grow through M&A. We asked respondents, “Has coronavirus impacted your M&A strategy?” More than half (56%) counted themselves as M&A players, and 24% said they are not as active now. Another 19% noted, “Yes, we are capitalizing on opportunities” while 13% responded, “No, it’s business as usual.”
How might customers respond to a lifting of the quarantine? We asked, “Based on what you’re seeing in the market, what might consumer confidence look like in the first 90 days, post-coronavirus?” Of the total, 51% described confidence as moderate, with customers taking a wait-and-see approach. Another 21% predicted confidence would be low, with business extremely limited in the short term. Only 11% feel confidence will be high, with brisk business resulting from pent-up demand.
Our final question asked, “Assuming a quarantine lift by mid-May, what impact might coronavirus have on your company’s revenues and profits for the year?” This produced one of the more interesting reveals, as 68% see a decrease in revenue and profit for the year, while 32% believe it is too early to tell. No one chose the options “increase” or “no impact.”
Analysis
While it is reasonable to assume no one will emerge from 2020 unscathed by the shutdown, the 32% who feel it is “too early to tell” regarding the impact on year-end revenues and profits illustrates the uncertainty of the duration and impact of coronavirus. The numbers suggest companies are still seeking out M&A deals, and anecdotally, some dealers believe the current situation will provide robust opportunities on the backside of the quarantine.
With 68% prepared to continue with their existing measures should the lockdown continue through at least mid-May indicates many industry players have settled into the “temporary norm.” Businesses are poised to resume normal activity, but judging by their responses, clients won’t be as active once the shutdowns are lifted. That 79% of respondents believe a “new norm” could include volumes reduced by 10-30% or more, and 46% believe it will take anywhere between three months to 12 months or more for volumes to return to normal, underscores the belief that the consequences of coronavirus could last well beyond the virus itself.
On the flip side, there are silver linings to the COVID-19 cloud. Companies are making the most of any free time with technical training and learning through a variety of means, including webinars and online tutorials – areas that tend to get lost or deferred in the day-to-day hustle and bustle.
Anecdotally, some chief executives have remarked how they have increased their communications with employees, customers and other business partners, which provides benefits beyond measure. OEMs and other organizations have chipped in to provide personal protective equipment in support of the front-line medical personnel and first responders battling the virus face to face. Thus, while sales will eventually return to offset losses, the notion that the industry and national community as a whole was able to unite in the face of uncertainty will provide long-term value that cannot depreciate.
