Discretionary Retail Dynamics Will Look Like 1st Class Carriages on The Paris Metro – Less Crowded and More Expensive.

Summary:  Facing a grinding, random virus threat, people will self-regulate to keep crowd density at “comfortable” levels.  Meaning sparse retail traffic.  Meaning anemic economic activity.  Continuing until an effective vaccine has been widely administered (not just invented).

The Virus Will Remain a Random, Omnipresent Menace.

Lets set the stage with this likely scenario from the “Epsilon Theory” blog.  I’ll take this to mean that “everyone” will eventually at least know someone who’s either died or gotten horribly sick.  Or gotten sick themselves.  But with herd immunity elusive.  Like a horror movie where some unseen, stalking menace picks off members of the party one by one.

Covid-19 is now endemic in the United States. That means it is everywhere. That means it is something to live with rather than something to eliminate. That means Covid-19 is now being “handled” as a chronic disease rather than an acute infectious emergency, a chronic disease where – every day while it remains endemic – 15,000 to 20,000 Americans will get so miserably sick that they will seek treatment and be officially diagnosed, and 500 to 1,000 Americans will die.

15,000 to 20,000 Americans really sick. 500 to 1,000 Americans dead.  Every day.

Paris Metro Pricing Tells Us How People Will Respond.

A brilliant friend (Andrew Odlyzko) wrote up the human/economic phenomena of “Paris Metro Pricing” ages ago in the context of a possible Internet “quality of service” pricing scheme (PDF Here).  It hit me today Paris Metro pricing also perfectly captures the likely dynamic we’ll see in retail stores.  Quoting Odlyzko

Until [1991] the Paris Metro operated in a simple fashion, with 1st and 2nd class cars that were identical in number and quality of seats. The only difference was that 1st class tickets cost twice as much as 2nd class ones. (The Paris regional RER lines still operate on this basis.) The result was that 1st class cars were less congested, since only people who cared about being able to get a seat, etc., paid for 1st class. The system was self-regulating, in that whenever 1st class cars became too popular, some people decided they were not worth the extra cost, and traveled 2nd class, reducing congestion in 1st class and restoring the differential in quality of service between 1st and 2nd class cars.

This seems to be a perfect model for behavior in an endemic epidemic.  Self-regulating  congestion management driving sparse retail traffic.  If a store/bar/restaurant seems “too crowded,” people simply won’t enter.  If a place starts to feel “too crowded,” people will head for the exits.  Self-managing ourselves into an informal, low-level, self-policing quarantine.

That means crowds will remain sparse.  At least in any sort of discretionary retail activity.   Non-discretionary shopping (grocery stores, etc) might end up retaining their metered entry congestion management systems.  Or opening at longer and odder hours to spread out crowding.

Likely a Price Premium

Less crowded retail tends to be more expensive retail.  Shops, restaurants, bars, airplanes, etc… If nothing else, paying the same rent per square foot costs more for fewer people vs more people.  Meaning a higher ticket price per person.

Some of that price “premium” will come via stealth by lower discounting.  Once retailers offload unsold pre-virus stock, they likely take advantage of the traffic dynamic to charge full price.  Consumers will be more inclined to just buy whats on the shelf versus shopping around for the best deal.

Antibody Carriers Are Likely Spoilers

The already-infected crowd will (presumably) feel less constrained by this dynamic (glossing over whether prior infection does actually lead to immunity).  They will presumably not care if stores or bars are crowded.

In the Paris Metro model, they will just barge their way into the First Class car – indifferent to the crowding effect.  That behavior will further depress traffic from those who haven’t yet had it. Eventually, the number of antibody carriers will get large enough to return traffic to “normal.”  Although lets hope a vaccine comes along before that.

On current infection patterns, antibody carriers are more likely to be less affluent and non-white.  Unfortunately those folks are the least important drivers of the consumer spending equation. The more affluent, work-from-home crowd will be the last to return to “crowded” shopping and eating out. Those folks being the most important drivers of consumer spending.

I’ve just wrapped up a 7 day RV trip across the US (surprisingly enjoyable even with a 2 1/2 year old and a 5 month old).  Currently at the in-laws in Virginia.  I’ve got a whole bunch of thoughts percolating so stay tuned.

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