The 2020 election unleashes the new Hedonism Economy
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🥂 The Big Business of Hedonism 🥂
The Buy/Sell/Hold Analysis
Since the start of the Covid-19 lockdown, Americans have fallen hard for the sin industries — drinking harder, gambling more, and smoking more marijuana. But the election has made that streak clearer than ever: Five states — most of them red — legalized marijuana. Arizona, New Jersey, Mississippi, Montana, and South Dakota all passed pot measures, with all but Mississippi allowing recreational use. Oregon went even further, voting to allow the use of hallucinogenic psilocybin mushrooms for medical use.
And that’s not all. Three states also okayed various forms of online sports gambling. With the approval by voters in Louisiana, Maryland, and South Dakota, online gambling stocks took off. DraftKings’ shares were up as much as 6.2%, and Penn National Gambling rose 6.1%. There was good reason: According to Morgan Stanley, online betting in the three states could be worth $537 million a year. And it will only mushroom from there.
(Forwarded this email? Sign up here.)
No one knows to what degree the surge in consumer sin habits will stick once most people are vaccinated and out of lockdown. But for now, Americans are drinking 14% more than they did before Covid-19, according to a RAND study published in September. They are spending tens of millions more betting online on fantasy sports. In California, Governor Gavin Newsom went so far as to declare pot merchandising an essential business during the pandemic.
For now, letting loose is going hand in hand with the locked-down economy, but you can see people itching to make up for lost time once they leave quarantine. The combined trend lines of laxer state laws and pent-up consumers suggest people are prepared to take bigger social and personal risks.
The long-awaited return to normal — already a far-fetched conceit after the economic and social shifts catalyzed by this crisis — could look a lot less “normal” and a lot more impulsive. When the bars and casinos fully reopen — those that actually survive — expect to see lines down the block. And the already-burgeoning cannabis industry, feverishly gathering steam across the past decade, might have just gotten the kickstart it needs to go fully mainstream.
Verdict: Hold
— Steve LeVine
⚡ Lightning Round ⚡
⚡ Walmart passes on automation, because people are evidently also capable of scanning boxes. According to the Wall Street Journal, the retail giant will stop using robots in certain stores to scan inventory. The reason for this about-face on automation isn’t the ethical concerns of replacing people’s jobs, but the simple fact that Walmart found human beings were just as good at scrubbing floors and scanning shelves as six-foot-tall automatons. Regardless of the reasoning behind the move, there’s reason to celebrate that more people won’t have to look for new work in the midst of a battered economy. Buy.
⚡ The great mall reckoning is just getting started. Even before lockdowns kicked off a treacherous year for physical retail, America had too many malls: Credit Suisse declared in 2017 about a quarter of the nearly 1,200 malls in the U.S. needed to close. Fast forward to this Sunday, when CBL & Associates Properties and Pennsylvania Real Estate Investment Trust — which own a combined 130 malls, shopping centers, and other retail properties — declared bankruptcy. According to Bloomberg, each is hoping to keep operating after renegotiating “complex” debt structures. With an estimated 14% of U.S. malls behind on mortgage payments, this is likely just the beginning. Hold.
⚡ The biggest IPO in the world just hit a roadblock: the Chinese government. When Alibaba founder Jack Ma’s fintech giant Ant Group filed for its IPO in August, it was looking to raise a record-breaking $30 billion. But on Monday, Ma and two Ant Group executives were called in to meet with Chinese financial regulators, and by Tuesday its IPO was suspended. So what happened between August and now? As Axios notes, the missing link could be a speech made by Ma at the end of October, in which he criticized international financial regulations, saying among other things that, “There’s no systemic financial risks in China because there’s no financial system in China.” If you’re looking for the fastest possible path to cancelling your plans to go public, it’s giving the CCP an opening to show you who’s boss. Sell.
⚡ Gap voluntarily serves as an election-anxiety punching bag. As Election Day extended into Election Week, the mood on social media was stuck somewhere between high anxiety and sleep deprivation. The Gap — apparently believing that all press must be good press — decided to redirect some of those bad vibes at itself by tweeting out an image on Wednesday of a half-red, half-blue sweatshirt with the message, “The one thing we know, is that together, we can move forward. 💙❤️”. It quickly deleted the tweet after Twitter absolutely tore its hackneyed, saccharine tone to shreds. A Gap spokesperson told the New York Times’ Sapna Maheshwari that “It was just too soon for this message.” While the retailer willingly placed itself in the election crosshairs, others were dragged in against their will — like Sharpie, which is currently suffering the backlash of a false conspiracy theory propagated by Trump supporters claiming ballots marked by its felt-tipped pens are invalidated. Leave the office supply company alone! Sell.
📈 The Number: $45 million
The profit earned by rental car company Avis Budget Group in the third quarter of 2020, following a loss of $481 million in the second quarter.
Rental car companies have seen their fortunes swing wildly during the pandemic: While quarantines and lockdowns initially led to a collapse in travel, the demand for cars began to surge as urbanites looked for a means of escape from cities and tight quarters. This led to more demand for car rentals as well as rising prices on the used car market, which also benefits rental car companies that sell off their older inventory. Avis sold 75,000 cars from its fleet during the quarter, a record for the company.
The immediate collapse, followed by a sharp increase in demand, mirror what Airbnb witnessed during the pandemic, too, as people who initially quarantined at home began looking for remote work getaways within driving distance. However the timing of the turnaround could have been better for Hertz; it racked up more than $24 billion in debt and then filed for bankruptcy in May. Still, the car rental company had some good news from its industry’s turnaround, as it secured $1.65 billion in financing last month to help it continue operating as it works through bankruptcy proceedings — news of which caused its stock to climb 20% before dropping down again, despite the fact that those shares are likely to be rendered worthless at the end of bankruptcy proceedings. Chances are that once again, it’s novice investors on Robinhood leading the surge.
— Kaushik Viswanath, Senior Editor, Marker
📖 Longread of the Week: Can Amazon-owned Whole Foods ever live up to the enlightened capitalist gospel of its CEO John Mackey?
🔎 Marker’s New Fixation 🔎
There is arguably no greater relic of domestic consumerism than the Tupperware party, where independent reps — historically, suburban women — sell the iconic kitchenware brand’s colorful plastic food containers from someone’s home in return for a commission. I grew up observing these soirees thanks to my mom, an Army wife and homemaker, who hosted Tupperware parties with military wives and Korean church ladies eager to show off their natural flair for sales, and gossip, while noshing on small bites. For years, Tupperware struggled to remain culturally relevant as the brand failed to connect with customers. But the pandemic has offered the plasticware company an unexpected lifeline: Home cooking is on the rise, in turn creating a demand for airtight storage containers for all the leftovers. Tupperware sales soared 72% in Q3 — the highest growth the company has seen in 20 years. And though it’s hard to imagine the Tupperware house parties of my youth happening during Covid-times, Modern Retail reports that its legacy lives on via virtual parties on Zoom, Facebook, and TikTok. This 21st-century update, harnessing the power of interpersonal relationships and community despite physical distance, is almost enough to convince me to throw my own virtual Tupperware party — if I weren’t trying to wean myself off of plastic.
— Gloria Oh, Ideas Editor, Marker
You are signed up to receive emails from Marker. You can adjust your settings at the link in the footer of this email.
(Not already signed up to receive Buy/Sell/Hold? You can sign up for it here.)
