What Impact Will Covid-19 Have on Your Business?

By Phil Latz | 27th March 2020 |

Things have certainly been moving fast since my March newsletter. What was already a major concern is now a full-blown global pandemic.

Every day, the situation is changing, so there’s little point in discussing the latest news within this article. Instead I’m going to project forward and try to help you get a picture of what may happen over the coming weeks and months.

I’m going to break this article into two parts. The first section will look at the bigger picture and the second will home in on what are the likely impacts upon the Australian and New Zealand bicycle industry and what you can do to navigate your business through this storm.

Given the massive impact of this pandemic, I have been closely studying information from the most reliable sources, to distil this summary for you. Of course, no-one knows exactly what will happen next, so feel free to disagree with any of the opinions that I express in this article and make a comment below.

Bigger Picture

Clearly, we’re way beyond containment. Every country on earth will be impacted and the infection and fatality counts are going to get much higher before the virus is contained, quite possibly into the millions.

I think it’s helpful to see the pandemic from two perspectives: health impacts vs economic impacts. These will happen on different timescales.

Health Impacts

The health impacts will ramp up sharply and be terrible, but the worst could be over within a few months.

Although we’ve heard repeatedly that it takes many months, even a year or more to develop a vaccine, what’s been less widely talked about is that trials of existing drugs are already underway.

Scientists are suggesting that there’s a good chance that a range of existing drugs, developed for previous outbreaks such as SARS, Ebola and even HIV-AIDS might be helpful in combatting covid-19. Even if they don’t cure the disease, imagine if an existing drug helped reduce the severity, so that say 25% fewer patients needed to be hospitalised. That would have a huge positive impact at a time when hospitals will be stretched to the limit.

It’s rapidly becoming apparent that there’s a vast contrast between the effectiveness of each nation’s response to this crisis. This does not just relate to the quality and structure of the medical system but to the proactive leadership of those in charge, particularly the respective prime ministers, presidents or monarchs.

For example, compare the data from Germany and Italy. These figures are increasing daily so of course they’re already way out of date, but the difference in death rate between the two countries is continuing. As at Saturday 21^st March in Germany the infection number was 18,323 and the death toll was 45. That’s a death rate of one person per 407 infections or 0.2%.

In contrast Italy’s infection number was 47,021 the death toll was 4,032. That’s a death rate of one person per 12 people infected, a death rate of 8.5%. Notwithstanding the high likelihood that Italy’s infection number is significantly under-reported, that’s 28 times higher death rate in Italy than Germany.

Why such a massive difference?

Italy did not take early action. Although a first world economy, Italy is not as wealthy as Germany and its government and health systems are more chaotic and fragmented. In terms of minimising death rates it’s all about flattening the curve so that hospital systems can cope with the peak. If this does not happen, then people will be literally left to die untreated, which is what is happening in Italy, and no doubt in other countries such as Iran, where media is restricted.

I predict that the toll in the USA will also be extremely high, reflecting both poor leadership and a range of social issues including the unique privatised structure of their health system that locks out millions of poorer citizens.

Fortunately for us, Australia and New Zealand’s responses have been early and largely well considered and our systems are more equitable. So we’re more likely to finish up closer to the German end of the spectrum than Italy or the USA. We also have the advantage of being island nations.

As business owners and employers, we need to put the health considerations of our staff and customers ahead of business considerations, even though the financial cost will be significant.

Economic Impacts

Our economic system will be impacted for years and quite likely some things will never go back to how they were before covid-19. These could include further casualisation of the workforce, more mainstreaming of online study, virtual meetings, working from home and the digitalisation of our economy in general.

Interest rates are likely to stay low now for years. There will be so much debt in the system by the time this pandemic is over that even a slight rise in interest rates will cause a dramatic slowdown in the economy, so central banks will be very cautious slow to raise them.

There’s little doubt that most nations will have at least some period of recession over the coming months. The unknown question is how quickly things will return to ‘normal’.

One big unknown so far is secondary impacts and secondary waves of infection. For example right now, the data out of China shows that they’ve been remarkably successful in containing the first wave of the virus. But as factories reopen and isolation restrictions are now being relaxed, will they be able to keep a lid on things or will they see a second wave of infections?

Given that so many bicycles, parts and accessories are made in China, the answer to this question will have a direct impact upon our industry here.

Meanwhile, from the end of Wednesday 25th March, New Zealand has gone into a much tougher level of lockdown that has so far been seen. And also tougher than anything currently announced in Australia.

The New Zealand lockdown has effectively closed most bike shops. They’re still allowed to service essential bicycles, such as delivery workers’ or health workers’ bicycles, but they’re no longer allowed to be open for regular trade. This lockdown is initially in place for four weeks.

For employers in New Zealand who can’t facilitate their employees working from home, which is the case for many bicycle industry workers, the NZ government is offering a leave payment of NZ$585.50 per week for full time workers and NZ$350 per week for part time workers.

Bicycle Industry Impacts

There are multiple areas of possible impact to our industry.

Our supply chain from China was the first to be impacted. So far, talking to a range of wholesalers, the impact, although significant, has not been too severe. Fortunately, Taiwan, also an island, has been very diligent and successful in avoiding the Chinese contagion, so their production is less effected, apart from component parts coming from China.

As second rapid effect has been the devaluation of the Australian dollar. After trading for months in the low 70’s, generally around 72 US cents, the Australian dollar has dropped approximately 20% and at the time of writing is trading at 58 cents, having dropped as low as 57 cents. Wholesalers and retailers will have no option but to pass at least most of the resultant price increases onto consumers, so just about everything they buy will now be more expensive.

A sign of the times… any customer heading to inner city Melbourne shop Saint Cloud on Thursday 19th March was greeted with a half closed roller door and with a series of notices attached to it. The staff were still busy in the workshop inside.

Here are the details of the main notice.

As for bicycle retailers, it won’t all be bad news.

So far we’re hearing of workshops being busy, sales holding up pretty well and in one case even growing.

If you’ve got stock of indoor trainers, they’ll be big sellers. We’re already hearing reports of increased demand and wholesalers selling out of available stock. The as yet unanswered critical question is how quickly they can land new shipments of stock. It’s likely that importers from every other country will also be ordering extra stock from the respective factories that manufacture indoor trainers. So combining that factor with other challenges relating to direct virus impacts on factory staff, production, freight and so on means that getting more shipments landed quickly might be easier said than done.

Although the data so far in Australia is mixed, there would well be an increase in bicycle commuting as people look to avoid trains, busses, trams and ferries. Early reports are suggesting that workshops are busier than ever right now.

Some new cyclists are going straight to purchasing an ebike, rather than the traditional pattern of a low end hybrid or MTB as their first purchase.

Another potential upside will be more discretionary consumer dollars looking for an alternative use. Just think how many billions of dollars in Australia and New Zealand will not be spent in the coming months on planned international holidays, airfares, cruises, theatre tickets, football tickets, restaurant meals and so on.

Not only is there the money saved, but the lack of all these usual recreational outlets, plus the shut down all sporting competitions, gyms and a host of other recreational pursuits. A family bike ride in the park will now be one of the few options still available.

Once again, although we don’t have hard data, we’re hearing stories of more families out and about on bikes, also enjoying quieter vehicle traffic conditions.

All of this will also mean busier workshops.

Of course, if the family’s breadwinners have just lost their jobs or their business is suffering, then they’ll be watching every dollar. But most people including government workers, medical workers and many others, who have secure jobs will hopefully be more confident to spend.

Finally a critical question is whether bike shops will be included in the shut downs that government imposes or exempted as a essential service. Bicycle Industries Australia’s Executive Officer Peter Burke told The Latz Report that he has contacted every state and territory government plus the federal government asking them for bike shops, in particular workshops, to be on the exemption lists that allow them to keep trading.

“We’re highlighting the need for bikes, ensuring that they’ve considered our industry when they may not have done so previously,” he said.

“Our main emphasis is workshops, particularly as government have identified home deliveries as being important. Many of these are already done by bicycle so ongoing workshop service is critical.

“Local MP’s have also been contacted by specific bike shops and will be pressing our case.”

Other countries have exempted bicycle shops from having to close, in recognition of cycling as an essential transport service. For example, when the UK government announced it’s latest tightening of activities on 23rd March, bicycle shops were exempted.

Find Out What Assistance You Can Get

Another important step that every business should take is to study what financial relief measures are available to them from all levels of government, the banking sector and other sources and to take full advantage of these. I’ve included a list of useful links below.

Finally, there are potential impacts relating to the safety of your business, customers and employees. Some shops are restricting customers to one at a time or by appointment only. Others are business as usual.

Even if we go into an extreme lockdown, I’m hopeful that bike shops will be considered an essential transport service and allowed to continue trading. By the time you read this, that decision will probably have been made.

You should be doing your best now to plan for every eventuality including yourself or a staff member becoming infected and not only having to self-isolate themselves for 14 days but potentially infecting others in your business and even closing entirely for a period.

We’re certainly living in unprecedented times.

Light at the End of the Tunnel

However acute this crisis becomes, it will pass. Those businesses who have been the most proactive in facing the challenge will fare the best both through the crisis and in the aftermath. It’s tempting during such unprecedented and challenging times to shrink back and even fall into negativity and inaction. But now is the time for all of us to stand up and make whatever difficult decisions are required to ensure the best outcomes for our businesses, staff and families.

Even during a crisis, perhaps especially so, a bit of humour is a good idea…

At The Latz Report, we’d like to help in any way we can by sharing relevant information and best ideas throughout our industry. Please use the forum below if you’d like to make any suggestions or ask questions.