a large green field with trees in the background

THE FRITZ REPORT

The Office

July 22, 2020

One of the "good" things about this pandemic is that I no longer commute into the city. This gives me more time to vegetate in front of my computer. So, good/not good. Since there are no sports (yet!), I have also had a chance to catch up on plenty of re-runs and, without a doubt, "The Office" is my favorite. I don't care how many times Dwight finds his stapler encased in Jell-O—it's still funny.

Many of us are reaching the four-month mark of an experience unlike anything before. Working alone in our homes was once something rare and even awesome. Previously, companies might allow some occasional work from home, but by-and-large people were expected to wake up, put on reasonable attire, get into some form of transportation, stop by the local Starbucks, and head into the office. Lunch! How I miss it. Additionally, for me, there was always a fresh business trip on the fairly near horizon.

Just pause and think about how much has changed. Perhaps forever. The ripple effects are huge.

If you scan my description above, you can already spot the incredible impacts that must be hitting many industries and companies. Let's start with reasonable attire. Many of the people I work with are in the banking industry. I have been to countless banks in almost every state of this country. I don't think I have EVER entered a bank to find neither the receptionist wearing Lululemon leggings and a t-shirt, nor the CEO lounging in shorts and a golf shirt. It just didn't happen. Side note: LULU stock has gone from $128.85 on March 18th, to $329.85 on July 20th. Great news for LULU and other companies in comfort and sports attire, but terrible news for those delivering more formal attire, like JoS. A. Bank or higher-end department stores. A good example of this is a retailer that I have long favored for buying my work clothes, Nordstrom (JWN). It has always been well run: The clerks have always been knowledgeable, and the stock has always been broad, from belts to shoes to shirts to suits. I knew their sales model was effective because any time my wife said she was going to Nordstrom, a big credit card bill soon followed.

In the current world, however, Nordstrom has been crushed. In contrast to LULU, JWN stock has fallen from the low $40's, to around $15. They're about to miss out on their traditional back-to-school traffic, too. Anecdotally, I have heard that the Nordstrom experience is suffering as well. I understand that the available stock is way down, and the clerks are few and far between and not as attentive. This makes me think: I wonder how my dry cleaner is getting by?

How about transportation? My commute in Chicago consisted of a drive to the train station where I paid a parking fee, and then a 45-minute train ride downtown. It used to be that if you were not at the parking lot by 6:30, you would have trouble finding a spot. I went by that station the other day at 8:00 in the morning and there were about 10 cars in the lot. The ripple effects of just this are actually quite large. It has to impact every little town collecting commuter parking revenue. In my town, there are two train stations. Each one has parking for at least 750 cars. At $1.50 a day multiplied by 1,500 cars, that is $2,250 of lost revenue per day; $11,250 per five-day work week; ~$45,000 per month. That adds up! Multiply that by the hundreds of train stations around Chicagoland and we're talking real municipal revenue impacts -from just that one little aspect!

I previously mentioned my business travel. I think the airlines were feeling like things were really going to start to pick up this summer, expecting the pandemic to wane. I came across some really amazing numbers from the TSA regarding airline passenger throughput. At the low point on April 14th, only 87,534 people went through a TSA checkpoint. On the same date last year, they subjected 2,208,688 human beings to their friendly attention. That means we had only 4% of the normal flow this past April. That is astounding. Last week saw 747,442 people herded through security, only 27.5% of the amount on the same date last year when 2,727,355 people funneled through. An increase, but it looks like it is plateauing. Will business travel ever return to normal? Hard to say, but I'm betting it will be quite a while. I'm pretty sure most people don't want a salesperson from another state showing up in their office just so they can be "face-to-face". If you would like to geek out on this kind of data like me, check out the TSA website.

Back to my old normal description: Going to the office was usually included some form of to-go coffee or breakfast snack. This aspect has also dramatically changed. Fast and convenience food companies seem to be adjusting quickly to the new normal scenario. McDonald's did simplify their all-day breakfast menu. Starbucks seems to be doing pretty well in the suburbs. When I drive by one, there is almost always a huge line of cars at their window. However, their huge commuter stores in larger city centers have definitely suffered. It appears that many people working from home find comfort in hopping in their cars for a quick break to grab a coffee—perhaps in the long run, Starbucks will come out ahead, who can say?

Back to my description, and the title: The Office. This is where I really think we are going to see major change. One of the noticeable themes in many earning releases lately is an intent to decrease physical footprints. The large office buildings in the most metropolitan areas have got to be feeling a little (or maybe very) nervous. These buildings are not inexpensive to own and operate. The electricity expense alone has got to be huge. Don't forget security or maintenance either. Not cheap. If many or most of your tenants suddenly want to decrease their footprints, you are suddenly facing a very troubling picture. Many banks have echoed this sentiment, suggesting they want to decrease the number of their physical branches, which may align with customers' new reluctance to bank in person. There is also evidence that residential renters are leaving the city centers. Given the pandemic, no night life, and limited dining, the appeal of living in a big city may be decreasing right now. It's a real shame, because many of these cities have made so much progress over the last 10-15 years. Young people were flocking to downtown areas. At the very least, this renewal has hit the pause button.

I'll end on a slightly more positive note. In my heart, I believe that some form of vaccine or treatment will soon be found. I read an interesting article on a form of testing whereby one can take a quick, at-home test every day. It's basically a saliva test costing $1-2 per day. The suggestion was that students could take this test every morning before school and either attend or stay home based on the result. Even with the decreased accuracy compared to nasal swabs, I understand that the models show that the risk of widespread infections from open schools would go way down under this protocol. There are also several promising clinical trials underway for a vaccine. There are many, many extremely smart people working on a wide range of solutions, so let's keep our fingers crossed. While I know I am not smart enough to understand all of the science involved, I get enough of out of the reports to be hopeful.

By the way, if you need a little chuckle, here is the Jell-O scene I referenced at the beginning of the post.

Final, final thought: Given the chance to go watch a live baseball game at Wrigley this week, would I take the chance? Yes, yes, I would.