2020-05-01 fortune
TRANSCRIPT
M A Y 2 0 2 0
■ F O R T U N E . C OM
The Coronavirus EconomyHOW THE PANDEMIC IS RESHAPING EVERY ASPECT OF BUSINESS.
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F O R T U N E M A Y 2 0 2 0 3
38Strategies for Survival From restaurants
to retail, airlines
to energy, how
hard-hit industries
are adapting in a
time of crisis.
56Will Medicine Makers Come to the Rescue?The pandemic may
finally do for the phar-
maceutical industry
what relentless TV ads
cannot: show off its
power to innovate.
BY SY MUKHERJEE
60Seattle Under SiegeWhen the city became
the first epicenter
of the coronavirus
outbreak in the
U.S., the companies
headquartered there
found themselves in
the fight of their lives.
BY ERIKA FRY
70How Zoom ZoomedA quiet hit among
business users when
the pandemic struck,
a young company
struggles to serve
consumers.
BY MICHAL LEV-RAM
74The Grocery Robots on the Pandemic Front LinesOcado built a buzzy
business helping super-
markets survive online.
The COVID-19 crisis has
become its trial by fire.
BY JEREMY KAHN
82W O R L D ’ S G R E A T E S T L E A D E R S
Heroes of the PandemicFortune’s seventh
annual list honors
those who have
rallied the world
behind them in this
decisive moment.
C O N T E N T S
COVER ILLUSTRATION BY MANSHEN LO
VOLUME 181 • NUMBER 5
SPECIAL
REPORT
THE
CORONAVIRUS
ECONOMY
Features May 2020
ILL
US
TR
AT
ION
BY
SH
AW
NA
X
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The Conversation
86 LI SA S U
An annotated discussion with the CEO of chipmaker AMD. I N T E RV I E W BY A A R O N P R E S S M A N
Fortune (ISSN 0015-8259) is published monthly with two double issues (June and December), for a total of 14 issues, by Fortune Media (USA) Corporation, Principal Office: 40 Fulton Street, New York, NY 10038. Periodicals postage paid at New York, NY, and additional mailing offices. Postmaster: Send all UAA to CFS. (See DMM 507.1.5.2). Non-Postal and Military Facilities: Send address corrections to Fortune Magazine, P.O. Box 37508, Boone, IA 50037-0508. Canada Post Publications Mail Agreement #40069223. BN# 888381621RT0001. © 2020 Fortune Media IP Limited. Printed in the U.S.A. Customer Service and Subscriptions: For 24/7 service, please use our website: www.fortune.com/myaccount. You can also call 1-800-621-8000 or write to Fortune Magazine, P.O. Box 37508, Boone, IA 50037-0508. Reproduction in whole or in part without written permission is strictly prohibited. Your bank may provide updates to the card information we have on file. You may opt out of this service at any time.
4 F O R T U N E M A Y 2 0 2 0
Departments
WHAT OUR
EDITORS
ARE UP TO
THIS MONTH
THE BIG IDEA
BY M I C HAE L T. O STE RH O LM
& MARK O L S HAKE R
To Battle a Pan demic, Think Like the MilitaryPAGE 34
Foreword
7 What We Know About COVID-19BY C L I F T O N L E A F
The Brief
11 Has the Coronavirus Crisis Changed Business? You Bet It Has.BY G E O F F C O LV I N
18 Privacy in a Pandemic: Less Might Be Best for Public Health BY DAV I D M E Y E R
21 China’s Apps for Tracking the Outbreak Are Efficient— and Worrying
BY N AO M I X U E L E G A N T &
C L AY C H A N D L E R
22 Ford Shifts Gears: The Automaker and Its Competitors Pivot to Produce Medical Supplies BY M A R I A A S PA N
28 Can Thermal-Imaging Tech Help Stem Viral Spread? BY A A R O N P R E S S M A N
31 What’s the Smart Money Doing? Five Market Veterans Weigh In
BY A N N E S R A D E R S &
J E N W I E C Z N E R
Passions
90 Buying Time: Watch Lovers Sell the Most Analog of Collectibles Online BY DA N I E L B E N T L E Y
The Cartographer
96 Mapping the Dramatic Drop in Market Indexes Worldwide BY B R I A N O ’ K E E F E &
N I C O L A S R A P P
C O N T E N T S
DR
EW
AN
TH
ON
Y S
MIT
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F O R T U N E M A Y 2 0 2 0 7
What We Know About COVID-19
As we enter the fifth month of this
worldwide crisis—a viral pandemic
that has grown feverishly to nearly
2 million confirmed cases in 185
countries or regions, and more
than 125,000 deaths, according
to researchers at Johns Hopkins
University—there are still plenty of
mysteries to solve. How many people
are unknowingly infected with (and
possibly spreading) the virus? How
long will the pandemic last? When is
it safe to go back to work? Well, no
one quite knows.
As to the question of how the
coronavirus will reshape the global
economy—How much damage will it
do? Which industries will suffer the
most, bounce back, be reinvented?—
we have devoted this entire issue and
most of our daily online coverage to
investigating. Virtually our entire
EPIDEMIOLOGY is a science of “seems to be” steps. Researchers plot data points on a
map and speculate connections between them, conjuring up likely nodes of infection and possible vectors of transmission. Such guessing, if you will, forms the basis for hypotheses, and then the truly hard work begins: Scientists gather evidence—systematically, painstakingly—until they can prove or disprove those theories.
That’s what John Snow, history’s
most famous epidemiologist, did in
1854, when he plotted deadly cases of
cholera on a map of London, eventu-
ally tracing the outbreak to a single
contaminated well and water pump.
And that’s what’s happening now,
with the novel coronavirus and respi-
ratory disease it causes, COVID-19.
0
50
100
150
200
250
300 MILLION POPULATION
MAR. 19 20 21 22 23 24 25 26 27 28 29 30 31 2 3 4 5 6APR. 1
STATEWIDE STAY-AT-HOME ORDERS,
BY EFFECTIVE DATE AND U.S. TOTAL POPULATION UNDER ORDERS
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SOURCES: KAISER FAMILY FOUNDATION; CENSUS BUREAU
PANDEMIC POTLUCK STATES HAVE LARGELY
PUT IN PLACE THEIR OWN
COVID-19 MITIGATION
STRATEGIES. (THE VIRUS
MAY NOT HAVE NOTICED.)
F O R E W O R D
FWD.W.05.20.XMIT.indd 7 4/14/2020 9:54:58 PMFINAL
8 F O R T U N E M A Y 2 0 2 0
editorial team has spent the past
few months plotting data points
on unfinished maps and doing our
best to draw meaningful patterns
among them. It’s guesswork, to be
sure—though you might think of it
as financial epidemiology as well.
But in the sea of seems-to-bes,
maybes, and outright unknowns,
there are also things that we do
know—and cataloging those lessons
will perhaps keep us from repeating
our mistakes again.
“Let’s start with the premise that
we’ve been complacent about our
preparation for such a pandemic,”
says Steven Corwin, who is both a
physician and the president and CEO
of New York–Presbyterian hospi-
tal. “And I don’t think there’s any
question—whether it’s an individual
hospital, whether it’s as a country,
we’ve been able to skate by.” For
all the would-be plagues that have
threatened American shores in the
past couple of decades—SARS,
MERS-CoV, H1N1 influenza, even
Ebola—none delivered the knock-
out blow to the U.S. that COVID-19
has, even if a few were devastating
elsewhere. Our false sense of security
has led us to put off tackling impor-
tant questions, Corwin says: “What
do you need in the Strategic National
Stockpile? How fragile is the supply
chain? How much are we dependent
upon just-in-time delivery—which,
though it makes us more efficient in
terms of health care, doesn’t neces-
sarily provide resiliency?”
As it happens, the pandemic
answered those questions for us.
“We’re now at the peak of this in
New York,” says Corwin, in early
April. “We’re using 700,000 masks
a week, and we’re 20% of the New
York system—which works out to
3.5 million masks this week for the
downstate New York area. At that
rate, the Strategic National Stockpile
doesn’t go a long way.” Health and
Human Services Secretary Alex Azar
told a Senate committee in February
that the Strategic National Stockpile
had a mere 30 million surgical masks
and 12 million respirators (the N95
masks that filter out most smaller
viral particles) in reserve, plus a few
million more that were likely past
their expiration date.
We know that our medical and
pharmaceutical supply chains are
vulnerable. It’s not only masks and
other personal protective equipment
(PPE) that largely come from China.
That nation, for example, is also the
world’s largest producer and exporter
of active pharmaceutical ingredients,
the chemical feedstock of modern
medicine. China also produces many
of the chemical reagents that are
used in disease diagnostics, such as
polymerase chain reaction (or PCR)
tests that identify viral strains. So, if
in the midst of a pandemic, the sup-
ply starts there, the chain may break
before it gets here.
On that front, we know that, when
Bruce Gellin, president of global immunization at the Sabin Vaccine Institute, at
home with his pandemic preparedness plans.
SH
AR
ON
GE
LL
IN
FWD.W.05.20.XMIT.indd 8 4/14/2020 9:54:59 PMFINAL
CLIF TON LE AF
Editor-in-Chief, Fortune
@CliftonLeaf
it comes to a potentially pandemic
strain—a virus that is both virulent
and easily transmissible from human
to human—any lag in diagnostic
testing can be catastrophic. That has
been the case with the novel corona-
virus, for which widespread testing
was badly delayed due to the develop-
ment of a flawed diagnostic test at the
CDC. But the bigger problem wasn’t
the glitch in the government’s assay;
rather, it was the policy of centralizing
testing at one federal lab. Centralizing,
in short, just meant bottlenecking.
“Even if everything went perfectly,
even if the CDC tests had rolled out
perfectly, there was no way that the
screening capacity in the U.S. was go-
ing to be robust enough to deal with
a pandemic strain here in the U.S.,”
says Scott Gottlieb, a physician and
former commissioner of the FDA,
which regulates such diagnostics.
“You always had to get the academic
labs [at universities] and the clini-
cal labs in the game. And that takes
time. So you needed to be working
with them in January to get them
ready for February and March.
“If we had the capacity in place
in mid-February to test 100,000
samples a week,” says Gottlieb, “it
could have made a very big dif-
ference.” Corwin agrees: “All the
scenario planning around this type of
virus was predicated on early testing
and diagnosis.”
Which brings up something else we
know: A plan is not a process. When
I reach Bruce Gellin, the president
of global immunization at the Sabin
Vaccine Institute, he—like most
everyone else in America—is under
home quarantine, which has afforded
him time to clean out his garage.
There, under piles of Beanie Babies
and other 1990s detritus, Gellin has
found volumes of several of the fed-
eral government’s plans to fight a viral
scourge. “We had a plandemic,” quips
Gellin, a former deputy assistant sec-
retary for Health and leader of HHS’s
National Vaccine Program Office. In
2005, under the Bush administration,
he led the creation of America’s first
pandemic influenza preparedness and
response plan.
This was the “bird flu” era, and
federal policy makers were imagin-
ing the economic and social costs
of quarantining huge swaths of the
population, if it came to that. “One
of the principles was outlining the
backstops that needed to be in place
to allow people to stay in place,”
Gellin recalls. “How would a nurse
be able to work if her school-age kids
were home, for example? How would
someone living hand-to-mouth not
get kicked out of her house if she
can’t work—or a homeowner not de-
fault on a mortgage? There is a huge
cascade of stuff that has to happen if
you’re going to force people to stay at
home.” Such “community mitigation,”
as they called it, was just part of the
planning within the plan. In the era
of COVID-19, we are all learning how
essential such questions are.
Finally, the most powerful lesson
of all may come from witnessing
government inaction in the face of a
once-in-a-generation challenge—and
knowing the cost of that paralysis.
After President George W. Bush
tapped Michael Leavitt to succeed
former Wisconsin Gov. Tommy
Thompson as secretary of Health and
Human Services in December 2004,
Leavitt asked all of the agency’s
operating and staff division heads
to come over and brief him on their
respective portfolios.
“He was trying to decide who to
keep, maybe, and who not to keep,”
says Stewart Simonson, then a former
assistant secretary for Public Health
Emergency Preparedness and now as-
sistant director-general for the World
Health Organization’s office at the
United Nations. “And so I went over
to brief on the preparedness and re-
sponse portfolio, and then at the end
of the meeting, I gave him two books:
The Great Influenza—John Barry’s
book on the 1918 flu epidemic—and
the 9/11 Commission Report.“And what I said is—something
to the effect of that we know we will
have another 1918. It’s inevitable.
It’s just a matter of time. And if it
happens while you’re secretary, and
you’re not aware of the threat, this
other book’s next volume will be
about you.”
“If we had the capacity in place in mid-February to test 100,000 samples a week, it could have made a very big difference.”
F O R E WO R D
FWD.W.05.20.XMIT.indd 9 4/14/2020 9:55:00 PMFINAL
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F O R T U N E M A Y 2 0 2 0 1 1
T H E B R I E FB U S I N E S S . D I S T I L L E D .
EC ONOMIC S
Has the Coronavirus Crisis Changed Business? You Bet It Has.
America’s consumer-driven economy has been dealt a powerful setback. Here’s how we can recover—and what the long-term effects of the pandemic will be.
BY GEOFF COLVIN
Mainstream
economists
forecast that
U.S. GDP will
shrink 30%
to 50% in
the second
quarter.
LA
NE
TU
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1 2 F O R T U N E M A Y 2 0 2 0
To those on the front lines of the coronavirus crisis, it’s ultimately about fear. “People are terrified,” says
Kathryn Lott, executive director of Houston’s Southern Smoke Foundation, a crisis relief organization for people in the food and beverage industry. “All are afraid they will lose their homes, and the terror in their voices is something I have never experienced. I have done casework for years, during natural disasters, people who have been gunned down, new mothers on the streets with infants during winter. I have never heard this.”
No one has ever heard this, the
pleas for help from so many Ameri-
cans rendered jobless with stunning
suddenness—more than 16 million
and counting as of early April. For
them, the COVID-19 pandemic
has triggered intertwined crises
of personal health and personal
finance, threatening disaster for them
individually and, in the aggregate,
for the country. The great challenge
facing each person—and the nation
overall—is overcoming the two crises
together. In the modern economy
there is no playbook for how to do it.
More than in any past economic
collapse, U.S. consumers are at the
heart of this one. Not only do they face
the threat of getting sick, but they’re
also getting fired or furloughed by the
millions because their workplaces are
being shut down to prevent others
from being infected. As a result, they
can’t spend, forcing more businesses
to close, and so on—“an aggregate
demand doom loop” says Glenn Hub-
bard, chairman of the White House
Council of Economic Advisers from
2001 to 2003. “The problem is radiat-
ing from consumption demand by
households,” says Matthew Slaughter,
a CEA member from 2005 to 2007.
“It’s unprecedented—an involuntary
shock to consumption demand. The
magnitude of it is huge.”
For consumers, the cosmic injustice
of it all is head-spinning. The U.S.
economy has long been consumer-
driven, and over the past five years
consumers have powered
economic growth even
more than usual, expand-
ing America’s economy
faster than those of most
other big, developed
economies. Consumers’
share of GDP reached a
towering 68% in last year’s
fourth quarter, higher than
it got even in the 2006 to
2008 shopping festival
that preceded the financial
crisis and recession. Yet
unlike then, consumers in
recent years have increased
their buying responsibly,
saving a prudent 8% of
their disposable personal
income on average vs. near
0% back then. Household
debt reached 99% of GDP
in the last boom; at the end
of 2019, it was just 76%.
And now, having kept the
economy cruising along,
consumers are suddenly
under intense financial
pressure. Of those who still
have jobs, millions cannot
work from home and must
choose between risking
their health (and potentially
their lives) by working in
grocery stores, warehouses,
post offices, hospitals, and
other high-contact settings,
or not working.
On top of it all is a
crowning irony: Because
the U.S. is still fundamen-
tally a consumer-driven
economy—and can’t trans-
form overnight—consum-
ers as a group will have
to get themselves and the
whole economy out of this.
No one knows how deep
a hole they’ll have to climb
out of; everything is hap-
pening too fast for official
statistics to keep up. But
we know this is the steepest
economic plunge in mod-
ern history. More people
lost their jobs in two weeks
in March than in the entire
2008–2009 recession.
In the Great Depression,
real GDP declined for 43
months, eventually shrink-
ing by 30%. This time,
Morgan Stanley forecasts a
30% decline in the second
quarter; Goldman Sachs
says 34%; and St. Louis
Fed president James Bul-
lard says 50%. For now, the
most important indicators
to watch aren’t economic
ones. They’re the weekly
trends in new COVID-19
cases, number of deaths,
and governors making
isolation orders more strin-
gent or lenient.
BREAKING THE
“DOOM LOOP”
Consumers can’t bring
back the economy without
help. Reviving consump-
tion is a major goal of the
Coronavirus Aid, Relief,
and Economic Security
(CARES) Act and the many
other actions by federal
agencies, states, and the
Fed to put more cash in
consumers’ hands. But dol-
ing out money isn’t enough.
“There’s the immediate loss
of the job, but the bigger
CHA.W.0520.XMIT.indd 12 4/14/2020 6:15:39 PMFINAL
issue is uncertainty,” says
Hubbard, who advised
Senate Republicans on
the CARES Act. Getting a
$1,200 check, augmented
unemployment benefits,
and tax relief may offer
some respite, but consum-
ers won’t spend much and
employers won’t hire if
they’re braced for still worse
to come.
That’s why the Paycheck
Protection Program, an
innovative element of the
CARES Act that got off to
a rocky start, is especially
worth watching. It offers
small businesses (up to 500
employees) Small Busi-
ness Administration loans
equaling about 20 weeks
of major expenses, includ-
ing payroll, mortgage, and
rent. If a business gets
the loan by June 30 and
restores staffing and pay
to pre-Feb. 15 levels, while
also meeting other tests, the
loan can be forgiven. The
effect could be significant:
Firms with 500 or fewer
workers account for over
half of U.S. employment.
In theory it’s a sensible
policy response, helping
to break the doom loop
by giving businesses and
workers certainty. Employ-
ers will know they can keep
paying employees, even
if there’s no work to do,
confident that it won’t cost
them a thing; employees
will know their employer
has a strong incentive to
keep paying them, so they’ll
be more inclined to spend.
At least it’s a certainty until
June 30, by which time,
the policymakers hope,
the pandemic will be in
decline, and the economy
will have turned up.
ESTIMATED CORONAVIRUS EFFECT ON U.S. REAL GDP
0 0–12–14% –10 –8 –6 –4 –2 2 4%
DECLINE IN SERVICES CONSUMPTION
DECLINE IN MANUFACTURING
DECLINE IN CONSTRUCTION
SECOND-ROUND INCOME EFFECTS
POSITIVE EFFECT
FROM FISCAL
RESPONSENEGATIVE EFFECT FROM DECLINE IN SPENDING
SOURCE: GOLDMAN SACHS
FEB.
2020
DEC.
2021
JAN.
2021
JUNE
JUNE
We know this: The coronavirus will result in a hit to the U.S. economy unlike any ever seen. All we’re left to argue over is how long, and how bad. Everyone who has ventured a prediction on GDP is starting from the same Econ 101 equa-tion: GDP = C + I + G + (X – M).
The most important part of that equation is “C”: Consump-tion accounts for
HOW FAR WILL GDP FALL?IT’S THE TRILLION-DOLLAR QUESTION
AS ECONOMISTS CALCULATE THE
FALLOUT FROM THE GREAT CESSATION.
BY BERNHARD WARNER
68% of U.S. GDP. Drilling down, “services” makes up 69% of C, and the figures are dire: Goldman Sachs calculates a 90% decline in April sports and entertain-ment spending and 75% falls in spending on public transpor-tation and food services, plus a 65% drop in hotel bookings.
About the only sector of consumption that could rise
is health care spending, which may climb 1.6%.
“I,” or busi-ness investment, meanwhile, accounts for about 17% of GDP. Goldman forecasts a 35% decline in overall manufacturing activity—with the biggest hits to automobiles and parts suppliers.
Which brings us to one area of the equation set to grow: “G,” for government spending. But that’s tricky. You’d think a $2.2 tril-lion stimulus bill would lift GDP. But technically, most of that is defined as trans-fer payments, which, as a rule,
don’t pad G. The $16 billion to purchase vital medical gear in the CARES Act, for example, does count—though it’s a sum that’s unlikely to make much of a differ-ence.
Finally the net exports (“X”–”M”) tally will actually worsen in 2020, Goldman says. With consensus expectations for second-quarter GDP expected to be down more than 30%, we could be looking at Depression-era jobless numbers. Meaning the his-tory majors may have as much in-sight as the econ majors about what’s ahead.
H O W T H E C O R O N A V I R U S I S R E S H A P I N G B U S I N E S S — E C O N O M I C S
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1 4 F O R T U N E M A Y 2 0 2 0
products will play a huge
role” in how retailers adjust
through the pandemic.
In the longer term,
the pandemic experience
will change consumers
for decades. “We will be
different,” says economist
Ulrike Malmendier of the
University of California
at Berkeley. “We’ll make
different product choices,
consumption choices, hu-
man capital choices.” This
is beyond economics; it’s
neuroscience. A crisis expe-
rience is deeply emotional,
and “stronger emotions get
anchored more strongly in
our memories,” she says.
“Our hard wiring changes.”
We will buy differently.
“Macroeconomic crises
appear to leave long-term
‘scars’ on consumer behav-
ior,” write Malmendier and
coauthor Leslie Sheng Shen
in a pioneering 2018 study.
They found, for example,
that regardless of income,
households that experi-
ence high unemployment
personally or in the mac-
roeconomy consume less,
including less food, than
other households. They use
significantly more coupons
when they shop and buy
more sale items and prod-
ucts of lower quality, again
regardless of their income.
Such households also save
more. Those effects fade
over time but are still mea-
surable years later.
It’s a similar story with
But at least initially the
program has spawned
massive uncertainty among
prospective borrowers and
the banks through which
loans are being made. The
hastily written law only
outlined the program, leav-
ing the Treasury to write,
at warp speed, 31 pages of
regulations. The SBA was
entirely unprepared to lend
10 times as much money in
a few weeks as it normally
lends in a year, and the
amount appropriated for
lending, $299.4 billion,
was clearly far too little.
A larger risk: Maybe the
pandemic won’t be under
control by June 30; either
the economy will sink back
into the depths when the
program ends, or Congress
will extend it at a cost of still
more hundreds of billions.
LONG-TERM “SCARS”
FOR CONSUMERS
For the moment that’s
unknowable. But we can
say with some confidence
how this already traumatic
experience will change the
behavior of shaken consum-
ers. In the near term, those
who have income will save
more of it if they possibly
can. The dominant feeling
of consumers in an eco-
nomic meltdown is loss of
control, and having money
put away, even just a little,
gives them a feeling of more
control. Of the money they
spend, they’ll spend more
of it on necessities, again be-
cause they feel more control
when their necessities are
on hand. The NPD Group, a
retail research firm, has ob-
served this shift already and
says that “wrestling with
necessities vs. discretionary
investing. In a separate
study, Malmendier and
coauthor Stefan Nagel
found that households’
financial risk-taking is
strongly related to how well
or poorly markets have per-
formed during their lives,
and again, the effects are
long-lasting. “Even returns
experienced decades earlier
still have some impact,”
they report.
One more key finding: In
addition to recent experi-
ences being most influen-
tial among all age groups,
they are most powerful by
far among the young, who
increase consumption more
during booms and cut back
more during busts. They
may be living on way, way
less for some time.
For two groups of young
people—those graduating
from high school or college
this spring—that’s just the
beginning of the dispirit-
ing news. College students
who graduate into the labor
force during a recession
suffer reduced earnings for
10 years on average, and
for those with the lowest
predicted earnings (based
on college and major), the
earnings penalty may last
much longer. It gets worse.
Some research finds that in
midlife, recession graduates
on average work more and
earn less, are less likely to
be married and more likely
to be childless, and suffer
higher death rates. One
researcher on this topic,
Northwestern University’s
Hannes Schwandt, sums up
the findings thus: “The bad
luck of leaving school dur-
ing hard times can lead to
higher rates of early death
and permanent differences
in life circumstances.”
If past trends from seri-
ous recessions hold true, the
pandemic might alter the
economy’s structure, dimin-
ishing the earning power of
the labor force—potentially
for years. Lack of funds will
force some prospective col-
lege students to postpone or
abandon their plans. If the
recession is long, many of
the newly unemployed may
remain jobless for many
months or even years, dur-
ing which their skills might
deteriorate and become
outdated, as happened in
the last recession. Even if
they get jobs eventually,
they may well be less valu-
able workers.
Apart from its effects
on workers’ earnings, the
pandemic may do other
lasting damage to the labor
force as well. If the unlikely
worst-case scenarios play
out and COVID-19 kills
over 100,000 Americans
plus millions more world-
wide, the simple shrinkage
of the labor force would
reduce output for years.
Even without that extreme
circumstance, the same
factors that have caused
schools to close will signifi-
We will be different. We’ll make different product choices … Our hard wiring changes.ULRIKE MALMENDIER, UNIVERSITY OF CALIFORNIA AT BERKELEY ECONOMIST
ON HOW THE CRISIS WILL AFFECT CONSUMERS
CHA.W.0520.XMIT.indd 14 4/14/2020 6:15:40 PMFINAL
cantly curtail early child-
hood education, a proven
factor in better educational
achievement later in life.
Researchers have also
uncovered an unexpected
effect of the 1918 flu pan-
demic that could potentially
recur: It reduced educa-
tional attainment by people
who hadn’t been born yet.
Americans who were born
in the months after the
pandemic, and thus were
in utero during it, were less
likely to graduate from high
school than the cohorts im-
mediately before and after
them. In any long-term eco-
nomic recovery plan Con-
gress and the White House
hammer out, policymakers
would be wise to invest in
incentives that help young
people finish school.
PLANNING FOR THE
NEXT CATASTROPHE
As businesses respond to
this grand-scale reorder-
ing of their world, some
implications are already
clear. Remote work will be-
come mainstream, if only
because so many people
will have an online meet-
ing app and know how
to use it. Companies are
slashing capital spending
as they scramble for cash,
weakening the foundation
of future economic growth
while also fueling a B2B
doom loop in the present.
They’ll diversify supply
chains beyond China when
demand returns, further
slowing that country’s
decelerating economy.
As in all recessions, com-
panies will learn to do more
with fewer people, so the
already spiking unemploy-
ment rate may well con-
3 KEYS TO LEADING IN A CRISISThis crucible experience will be career-defining for many leaders. In any crisis— especially a historic global catastrophe in which the main factor is uncertainty—people want leaders to give them information, reassurance, and a plan. Yet this is exactly when all of those are maddeningly difficult to deliver. History says leaders will benefit by following a few principles:
DEFINE REALITY AND GIVE HOPE .
People hunger for the unvarnished truth about their organization and its pros-pects, and they can sense evasion a mile away. The news in a crisis is rarely good. The leader’s art is outlining reality unflinchingly and framing it as a challenge that can be met, not as a disaster that must be endured. Effective leaders never make a promise that can’t be kept with 110% certainty; they do offer realistic reasons for hope.
Even these principles will be of limited value to any leader who hasn’t built trust and credibility. You can’t change the past, but a crisis is an excellent time to start changing the future.
BE DECISIVE .
In a crisis, even people who would normally be at one another’s throats accept that major decisions must be made quickly. These decisions will be debated—but after they’re made, not before. That’s a valuable opportunity for leaders. The difficulty is that just when decisions are most easily accepted, they’re hardest to make. Every leadership decision is made with incomplete information; in a crisis the problem is worse and the stakes are higher. Don’t let that fact stop you from making firm decisions.
REMEMBER THAT PEOPLE WANT TO BE LED.
We understand in our bones the simple efficiency of it, that no group accom-plishes much if no one is in charge. In a life-threatening historic crisis, we want di-rection more than ever. We also need a leader to be, in effect, a repository for our fears, someone who has the power to do what we cannot. The leader assumes part of our burden and helps us sleep at night. If you’re in charge—be in charge.
3
2
1
tinue to rise at least briefly
after this recession ends.
It’s a safe bet that many
companies will compile
pandemic plans for the
future—surely a wise move,
but if that’s all they do,
they’ll be missing a crucial
lesson of this experience.
A global pandemic is the
most predicted disaster
since Hurricane Katrina,
yet, now as then, businesses
and governments were
caught flat-footed. When
the urgency of this calam-
ity abates, it will be time to
start thinking through other
plausible catastrophes—a
major earthquake strikes
California; some group or
nation detonates a nuclear
bomb; a large electrical
grid gets hacked and shut
down. You’ll never foresee
exactly what happens, but
the exercise of working out
the second- and third-order
effects will put you miles
ahead of competitors if one
of these events occurs. It’s a
lot of work. But remember
the conclusion of Mohamed
El-Erian, CEO of bond trad-
ing firm Pimco during the
financial crisis: “It’s better to
be prepared for events that
don’t happen than unpre-
pared for events that do.”
As we look ahead to days
that will probably remain
challenging, what can be
offered to the supremely
important, terrified con-
sumer, the hero and victim
of this saga? Only hope—
based on history. Forecasts
of multiplying deaths and
unprecedented eco-
nomic collapse come with
percentages and decimal
points. Yet human ingenu-
ity, passion, and energy are
beyond any economist’s
ability to predict, and those
are what get us through
times of trial. It’s unsatis-
fying to say that a better
future awaits us because of
forces and factors that we
can’t exactly describe. But
we mustn’t forget that it’s
true.
H O W T H E C O R O N A V I R U S I S R E S H A P I N G B U S I N E S S — E C O N O M I C S
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Content by the Buzz Business
THE CHANGING
FLAVORS
OF ARABIA
While fl atbreads, dates, yogurt drinks, and
classic Bedouin dishes such as kabsa—chicken,
basmati rice, and sp ices—remain the much-
loved st aples of the Saudi diet, a new breed of
rest aurateur is now emerging, fusing age-old
traditions with modernity and giving contemporary
twist s to local favorites like margoog (lamb
st ew) and mugalgal (a celebratory meat dish
usually cooked for the fest ival of Eid).
Meanwhile, the busy malls of Riyadh and Jeddah
are packed with offi ce workers discovering
new fl avors from far afi eld. As the Kingdom
opens up to outside invest ment and infl uence,
entrepreneurs in the hosp itality indust ry are seizing
the opportunity to provide Saudis with exotic
culinary experiences from around the world.
In a refl ect ion of just how fast life is changing
for women in the country, many of this new
generation of rest aurant owners are young female
entrepreneurs who are relishing the chance
Past ry chef and rest aurateur
Mayada Badr is one of
the brightest st ars of Saudi
Arabia’s new culinary scene.
Leaving behind a career
in advertising to st udy at
culinary school in Paris and
st art her own past ry business
in Jeddah, Mayada’s st ory
is an insp iration for other
chefs and entrepreneurs
across the Kingdom.
CHANGE AGENTS
I HAVE ALWAYS LOVED FOOD AND
COOKING FOR OTHERS. IT IS ONE OF
THE SIMPLEST AND OLDEST
EXPRESSIONS OF LOVE—MAYADA BADR
No country in recent years has undergone such
a rapid food transformation as the Kingdom
of Saudi Arabia.
FORX-6157471LH.pdf 02.18.2020 14:36 BLACK YELLOW MAGENTA CYAN
to transform their passion for
cuisine into successful businesses.
“Women in Saudi Arabia are more
experimental and more willing to
take risks than men, who tend to
pursue more traditional careers,”
says Mayada Badr, the owner of
Pink Camel, Saudi Arabia’s most
celebrated high-end past ry boutique.
Aft er st udying at the Cordon Bleu
culinary school in Paris and gaining
experience at a Michelin-st arred
rest aurant near Cannes, in 2012 Mayada
opened the groundbreaking Pink Camel
in the city of Jeddah, on the Red Sea.
The past ry shop’s handcraft ed
macarons and cakes have made the
Pink Camel name synonymous with
culinary creativity across Saudi Arabia,
and Mayada has become an insp iration
for entrepreneurs both male and female.
Making good use of her st rong
presence on social media, Mayada
and her partners recently opened a
rest aurant, Black Cardamom, that
brings seasonal local produce from
Saudi farmers st raight to the plates
of diners in Jeddah, replacing imports
with food grown on nearby farms.
open rest aurants and discover all the
ins and outs of the culinary world.
The react ion from the men in my family
was interest ing at that time. Men
believe they need to be st able, secure,
and dependable. My brother told me
he was envious of the fact that I could
pursue my dream and do what I love,
whereas he could not take that risk
because of the pressure to provide.
Since culinary school, I have met a lot
of men who are doct ors, lawyers, and
dentist s who look at my career path
with admiration and take insp iration.
How easy is it to be a female
entrepreneur in Saudi Arabia?
It was an advantage for me to be a
female entrepreneur as everyone wanted
to help us succeed. We are experiencing
an amazing transition. It is a cultural
revolution. Men and women are st arting
to work together and share open sp aces.
When my daughter was born, I thought
she would never drive. Now I am driving
and she will never even remember that
I was not allowed to drive. Women are
becoming much more independent.
I can go to a soccer match in the
st adium and take my daughter with me.
Seeing the change here and feeling the
hope and the potential is insp iring.
How is the culinary sect or
changing in Saudi Arabia?
The government is supporting chefs
and is sharing our food culture
internationally. Saudi rest aurants
are sourcing more locally and more
sust ainably. Young chefs are using
homegrown food from Saudi farmers. A
new Saudi-fusion sect or is developing
and is beginning to att ract international
att ention. For people looking for
more authentic food experiences,
Saudi Arabia is the place to come.
Mayada’s passion for authentic cuisine
is insp iring other young Saudis to follow
their dreams of opening a rest aurant.
“Now that Saudi Arabia is changing so
fast , I want to help a new generation
of Saudi men and women learn
culinary skills and grow their own
rest aurant businesses,” she says.
Q&A with Mayada Badr
When did you decide to pursue your
dream and become a past ry chef?
I have always loved to eat. When I
discovered salted caramel macarons
in France, I decided to bring them to
Saudi Arabia. I st arted cooking them at
home, packaging them, and sending
them to friends. Soon I was gett ing calls
from people who wanted to become
cust omers. That is when I left my job in
advertising and went to Paris to st udy
at Le Cordon Bleu Culinary Academy.
How did your family react
to your decision?
At the time, chefs were not the rock
st ars they are today. My parents did
not look upon my choice favourably
initially as they were keen for me to
st udy for a mast er’s degree. But it
was what I wanted to do—I wanted to
All of Pink Camel’s macarons are made fresh
daily, completely by hand
Content by the Buzz Business
Q & A
FORX-6157471RH.pdf 02.18.2020 14:36 BLACK YELLOW MAGENTA CYAN
DATA RIGH TS
Privacy in a PandemicHow the global spread of the coronavirus is upending Western notions about how our digital footprint is protected. BY DAVID MEYER
IT WAS MERE MONTHS AGO that
data privacy was one of those
wonky policy topics that gradually
was becoming more clearly defined
in corridors of power from Brussels
to Washington to Sacramento. In
Europe, tough new rules were setting
the pace for the rest of the world.
In the United States, Congress was
slowly coalescing around national
guidelines, encouraged by
big tech companies seeking
clarity (and a say in the
legislative process).
Now, as the novel
coronavirus crisis grips the
globe, that consensus is
being replaced with a new
reality: Less data privacy,
not more, may be what’s
best for public health.
Successful efforts in
several Asian countries
already have shown that
absent a vaccine or effec-
tive treatment, the best
way to fight COVID-19 is
to aggressively “track and
trace” infected individuals.
Using tools from location
tracking to smartphone
apps, governments have
been able to monitor shift-
ing patterns of movement
to indicate how best to
impose or lift restrictions.
They’ve also been able to
alert individuals whose
infection might need to be
communicated to those
who have recently crossed
their path.
Such surveillance tech-
niques would have been
anathema to privacy advo-
cates before the crisis. Now
the question isn’t if govern-
ments and their corporate
partners should be able
to monitor the health of
individuals, but rather how
much, in what manner,
and under what regulatory
restrictions. Even digital
rights advocates who railed
against snooping tricks by
the likes of Facebook and
their clients reckon such
data collection is neces-
sary. “We need a massive
surveillance program,”
PHOTO ILLUSTRATION BY S E L M A N D E S I G N
PRI.W.0520.XMIT.indd 18 4/14/2020 4:38:52 PMFINAL
F O R T U N E M A Y 2 0 2 0 1 9
screamed the headline
of a late-March essay by
the prominent Silicon
Valley privacy evangelist
Maciej Cegłowski. “I am
a privacy activist, typing
this through gritted teeth,
but I am also a human
being like you, watching
global calamity unfold
around us.”
Some of the best hopes
for pandemic fighting
come from the same
smartphone-enabled
applications used by tech
behemoths to sell online
from the European Union’s
General Data Protection
Regulation (GDPR), which
gives consumers the right
to block the collection and
sharing of their personal
data. A New York State
law called the Stop Hacks
and Improve Electronic
Data Security (SHIELD)
Act began imposing new
responsibilities on compa-
nies in March.
The tech industry, hop-
ing to avoid a potentially
misaligned patchwork of
state data-protection laws,
Battle lines already are
being redrawn in Wash-
ington, with industry
sensing opportunity and
some privacy advocates
worrying about overreach.
“The lack of a national
consumer privacy frame-
work and fragmented
state rules may create
uncertainty for developing
data-driven tools to help
health officials respond to
the ongoing public health
crisis,” complains Keir
Lamont, policy counsel for
the Computer & Com-
munications Industry As-
sociation, whose members
to hang on to personal
information, and whether
people will still be able
to demand the erasure of
their data after the crisis
ends.
In China, privacy has a
whole different meaning.
The country began devel-
oping a legal framework
for data protection about a
decade ago, but it was fo-
cused more on companies
than individuals. As data-
privacy lawyer Emmanuel
Pernot-Leplay concluded
in a recent article, there is
a striking “difference be-
tween the strengthening of
Less data privacy, not more, may be what’s best for public health.
advertising. In April,
Apple and Google an-
nounced a joint effort that
will enable the Bluetooth
chips in their respec-
tive smartphones to be
used for contact tracing
in a similar way to how
retailers can already track
a user’s location within a
store. It follows the lead of
Singapore, where a state-
sanctioned app called
TraceTogether uses Blue-
tooth signals to establish
past proximity between
COVID-19 sufferers and
those around them. Only
this time it’s baked into
the operating system.
Before the crisis, regula-
tors were increasingly
clamping down on the
ad-tech industry’s ability
to closely track users. In
the U.S., a legislative effort
was beginning to pick up
speed. The California Con-
sumer Privacy Act (CCPA)
took effect in January.
The law borrows liberally
has in recent years joined
privacy advocates in push-
ing for the development of
a federal law. Both sides in
the Senate had bills under
consideration before the
pandemic struck. Between
a presidential election and
the focus on disaster relief,
it’s unlikely legislators will
return to the topic this year.
“It’s unfortunate,” says
Cameron Kerry, formerly
general counsel of the U.S.
Commerce Department
and now a scholar of pri-
vacy and information tech-
nology with the Brookings
Institution and MIT Media
Lab. “Before things shut
down, it looked like there
could be some room in the
legislative calendar this
summer to reach agree-
ment on the content of the
bill. Now I think it is quite
likely at this point that
we’re looking at something
for next year.”
include Facebook, Google,
and Amazon. Jeff Chester,
executive director of the
privacy-focused Center for
Digital Democracy, coun-
ters that “the digital mar-
keting industry wants to
claim its failure to protect
privacy is now a benefit for
the public health.” He calls
for “guardrail policies” to
limit how these companies
can use the information
they collect as part of any
crisis response.
Once again, Europe is
leading the way. European
Union privacy regulators
maintain it is possible
to use privacy-invasive
tracking methods in the
pandemic, while still
respecting the rights set
out in the GDPR. In early
April, they began working
on guidance for how to
achieve this. Key ques-
tions include how long the
authorities will be able
protection against private
entities and the parallel
increase of government’s
access to personal data, as
there is still no significant
privacy protection against
government intrusion.”
The COVID-19 out-
break has seen a massive
increase in state surveil-
lance in China, in partner-
ship with the private sector
(for more, see “When Red
Is Unlucky” in this issue).
Few expect Beijing to roll
back such programs when
the crisis passes. On the
contrary, the success of its
public health measures
may be seen as a power-
ful validation of Beijing’s
approach.
It’s safe to say more
surveillance, not less, will
be the new normal in a
forever changed world.
Additional reporting by Clay Chandler
PRI.W.0520.XMIT.indd 19 4/14/2020 4:38:52 PMFINAL
F O R T U N E M A Y 2 0 2 0 2 1
ASIA
When Red Is Unlucky China’s apps for tracking the outbreak are both efficient, and worrying. BY NAOMI XU ELEGANT & CLAY CHANDLER
THE PHYSICAL BARRIERS of the
largest lockdown in human his-
tory started coming down in Wuhan,
China, on April 8. By the time shops
opened, and some of the city’s 11 mil-
lion residents ventured out, authori-
ties had introduced a more modern
method for isolating those at risk of
infection. At checkpoints throughout
the city, police and security guards
demanded residents present a QR
code on their mobile phones that
rates the user’s coronavirus risk level.
Green codes granted unrestricted
movement. A yellow code required
seven days of quarantine. Red meant
14 days of quarantine.
Local governments created the
algorithms behind the ratings at the
behest of China’s State Council and
rolled them out in Wuhan and hun-
dreds of other cities on apps hosted
by China’s largest tech companies,
Alibaba, Tencent, and
Baidu. To receive a rating,
users download an app
embedded in one of the
three ubiquitous mobile
payment platforms and
register with basic infor-
mation—name, national
identity card number,
phone number, address.
Subsequent questions are
more invasive, quizzing us-
ers on health status, travel
history, and asking them to
identify any close contacts
diagnosed with the virus.
Technology’s deep
foothold in Chinese society
fast-tracked the rollout.
More than 60% of China’s
population, or 850 million
people, own smartphones
and depend on them for a
wide range of daily activi-
ties. Local governments all
but mandated app usage
by making it a prerequi-
site for moving about. By
mid-April, Alibaba was
hosting apps for more than
200 cities and Tencent had
over 300. Baidu didn’t say
how many local apps it is
hosting.
Another reason the apps
garnered wide adoption
is that they seem to work.
But that efficiency comes
with tradeoffs. The apps’
opaque algorithms run on
sensitive information, and
users’ freedom of move-
ment is dictated by its
pocket-size traffic light.
Even as Chinese cities
reopen, residents unable
to show a green badge are
denied entry to businesses,
public areas, and transit
systems. The apps concern
human rights advocates,
who fear they’ll transform
smartphones into an ever
more powerful tool for
China’s authoritarian gov-
ernment to spy on its own
citizens.
“Technology can play
a role in containing the
pandemic,” says Doriane
Lau, a China researcher
at Amnesty International,
but “an increase in state
digital surveillance pow-
ers can threaten people’s
privacy and freedom of
expression, especially in
places where these rights
and freedoms are not well-
protected by law.”
In China, the apps’ color
codes have become a way
of life, one that—at the
very least—has given users
a ticket out of lockdown.
Cathy Fu, a tech worker
in Beijing, got stuck in Wu-
han’s Hubei province for
two months. She received
her first green QR code on
March 10. “I was so happy,”
Fu said. She gladly flashed
it weeks later as she finally
boarded a train back to her
home in Beijing.
T H E B R I E F
A traveler
displays his
QR code at
Wenzhou
railway station
in Zhejiang.
NO
EL
CE
LIS
—A
FP
/G
ET
TY
IM
AG
ES
CPR.W.0520.XMIT.R1.indd 21 4/14/20 2:31 PMFINAL
2 2 F O R T U N E M A Y 2 0 2 0
FOR MARCY FISHER, one of the
global pandemic’s biggest and
most urgent recent headaches in-
volved a small piece of elastic.
On March 20, Fisher, a Ford Mo-
tor lifer who normally oversees the
automaker’s global body exterior and
interior engineering, became one of
about 200 Ford executives and em-
ployees facing an urgent new man-
date: How could the country’s largest
automakers, their massive production
lines idled by the threat of spreading
infections, pivot into producing des-
perately needed medical supplies?
Crosstown rival General Motors
had already jumped into action,
hammering out a partnership with
ventilator specialist Ventec Life
Systems. Ford CEO Jim Hackett and
his deputies consulted with experts at
the Mayo Clinic, a medical supplier,
and the White House, which was
patients’ infected coughs
and other airborne health
hazards. Within a day she
had a viable design and
was talking to suppliers
about getting the material
to make hundreds of thou-
sands more. The plastic
part was simple enough.
But when it came to the
elastic band that secures
the shield onto someone’s
head, Ford “ran into a big
industry shortage,” Fisher
recalls.
The solution, when it
came, was gloriously banal.
At 4 a.m. on March 26, one
of Ford’s suppliers opened
up its plant and started
extruding a version of the
flexible rubber tubing, or
weather strips, that you’ll
more normally find sealing
car doors and windows.
“By 8 a.m. we had a proto-
type,” Fisher says. Within
hours, her team was drop-
ping off samples at local
hospitals for ER doctors to
vet. Within days, Ford had
manufactured 100,000
of the final products; by
mid-April, it was making
1 million per week. And
AU TOMOT I V E
Ford Shifts GearsThe automaker and its competitors are pivoting to produce medical supplies. A look at what it takes to go from V-8s to ventilators. BY MARIA ASPAN
It’s completely innovative,
high-speed efforts to
turn itself into a medical
manufacturer—includ-
ing a promise to produce
50,000 ventilators by
July 4—will be even more
complicated and subject to
much greater scrutiny.
Ford’s “Project Apollo,”
named for the scrappy
rescue of the Apollo 13
astronauts, involves cross-
industry partnerships
with GE, 3M, and many
smaller suppliers, as well
as the willing participation
of more than 750 United
Auto Workers members
who will operate Ford’s
retooled factories. Besides
face shields and ventila-
ERIN BRENNAN, A DETROIT EMERGENCY PHYSICIAN, OF FORD’S IMPROVISED FACE SHIELD
and it totally works.
agitating—loudly—for the automak-
ers to get involved. Soon they were
strategizing with their counterparts at
General Electric and 3M.
While those more complicated
devices would take weeks or months
to produce, Fisher’s team started with
one of the most basic of supplies: the
plastic face shields that medical work-
ers use to protect themselves from
the elastic substitute? “It’s
completely innovative, and
it totally works,” says Erin
Brennan, an emergency
physician at a Detroit hos-
pital, who tested the face
shields. “This team has
been awesome.”
But that was the easy
part. The rest of Ford’s
A worker at a Ford subsidiary plant in Plymouth, Mich., assembles a face shield.
CO
UR
TE
SY
OF
FO
RD
MO
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O.
VEN.W.0520.XMIT.indd 22 4/14/20 2:37 PMFINAL
tors, it will yield medical
supplies including masks,
gowns, and respirators.
Few of these devices are
simple to design, source
components for, or manu-
facture—especially under
the pandemic’s life-and-
death deadlines.
“Lives are at stake,” says
Jim Baumbick, the Ford
vice president of enterprise
product line manage-
ment, who’s overseeing
the automaker’s efforts to
make medical supplies for
COVID-19. “A lot of these
machines are incred-
ibly complex, and adding
capacity takes time. And
time is the enemy.”
That’s especially true for
the sophisticated and ur-
gently needed ventilators
that help critically ill pa-
tients breathe. Tradition-
ally made by a handful of
medical-device specialists,
ventilators require many
more components and are
much more regulated than
face shields.
In an attempt to stream-
line the process, Ford and
GE decided to focus on an
FDA-approved, relatively
simple version produced
by a small Florida com-
pany, Airon. “The key
factor is speed and getting
as many ventilators as pos-
sible to clinicians treating
COVID-19 patients,” Tom
Westrick, GE Healthcare’s
chief quality officer, says in
an emailed statement.
Even these ventilators
require about a month
of sourcing, design, and
regulatory conversations
before Ford’s factory work-
ers at the Rawsonville plant
in Ypsilanti, Mich., can
start producing them. Each
Airon machine has up to
350 parts, which Adrian
Price’s manufacturing team
spent a weekend taking
apart and 3D-scanning,
before starting to look for
ways to replicate them on
a massive scale. (One sub-
stitution: adapting a timer
valve usually used in Ford
vehicles’ powertrains.)
“When we build a car
or truck, the first thing
for us as a manufacturing
team is to figure out how
to build one, and then how
to build a few, and then
how to build them at rate,”
says Price, Ford’s director
of global manufacturing
core engineering and the
executive in charge of its
new ventilators, in early
April. “And that’s really the
process that we’ll be go-
ing through over the next
couple of weeks.”
Ford expects its internal
ventilator production to
start the week of April 20,
with a goal of making
1,500 ventilators by the
end of April; 12,000
by the end of May; and
50,000 within 100 days.
(GM will supply 6,000
by the end of May and
30,000 by the end of Au-
gust.) Still, the effort may
not be enough, as experts
are predicting the country
will need another 14,000
ventilators by mid-April.
“We’re too late to the
party,” says Marcus Scha-
backer, a physician and the
head of ECRI, a nonprofit
focused on medical devices
and patient safety. No mat-
ter how many ventilators
are actually produced in
the next few months, there
GOING TO
WAR WITH
THE VIRUS
In the 1940s, Ford
and General Motors
switched their facto-
ries over to manu-
facture tanks and
airplanes for World
War II. Now both are
invoking that compari-
son to make supplies
to fight COVID-19,
as are some of their
fellow automakers
and leaders of many
other industries. What
they’re making:
FORD is already pro-ducing 1 million plastic face shields a week and has promised 50,000 Airon ventila-tors by July. It’s also making a version of 3M’s respirators and is helping 3M and GE ramp up their own pro-duction of respirators and ventilators.
GENERAL MOTORS has promised the federal government 30,000 ventilators by the end of August, in partnership with med-ical-device specialist Ventec Life Systems. GM is also working on surgical masks and says it could eventually make 50,000 a day.
XEROX is partnering with Vortran Medical Technology to make up to 200,000 dispos-able, non-ICU ventila-tors a month by June.
DYSON has promised the U.K. government 10,000 of a newly designed ventilator, and founder James Dyson has said he will donate another 5,000 internationally.
T H E B R I E F
VEN.W.0520.XMIT.indd 23 4/14/20 2:37 PMFINAL
2 4 F O R T U N E M A Y 2 0 2 0
are other hurdles that no
manufacturer can solve, he
says—including an equally
dire shortage of trained
health care personnel that
can use them.
“It’s very good and
very positive that these
companies are stepping
forward,” adds Julie Let-
wat, a health care attorney
with McGuireWoods in
Chicago. “But the devil’s in
the details. Will they have
enough workers? Who’s
paying for these? How will
they be distributed?”
The UAW workers who
have volunteered to risk
the virus and manufac-
ture the ventilators will be
working at social-distance
levels, and Ford says it is
considering new, as-yet-
unspecified technology to
protect them. But that’s not
a guarantee, of course—
and the last two questions
are even trickier. Baumbick
says, “We haven’t spent
any time talking about
cost,” and adds that Ford
is working with a coalition
of hospitals and govern-
ment agencies and officials,
including FEMA, the CDC,
and the White House, to
decide where its medical
supplies will go.
The federal govern-
ment is also getting more
actively involved. On
April 8, the U.S. Depart-
ment of Health and Hu-
man Services announced
that it had given GM a
$489 million contract to
deliver 30,000 ventilators
by the end of August. By
then, Ford may be supply-
ing a vast array of medi-
cal supplies and personal
protective equipment. On
April 13 the company an-
nounced that it has started
making masks, and is turn-
ing airbag material into
reusable gowns.
Now that the face
shields are flying out of its
factories, Fisher has turned
her focus to a much more
complex device: a battery-
powered, air-purifying
respirator. Internally, Ford
calls it a “scrappy” version
of a PAPR, the hood-and-
air-hose devices that doc-
tors sometimes wear with
or in lieu of the N95 masks
that are in such short sup-
ply. “We thought it was go-
ing to be an area of unmet
need,” Fisher says. “And it
looked like something that
not everybody could do, in
an area where we have a lot
of engineering depth.”
The PAPR design, which
Ford has adapted from and
is developing with advice
from 3M, also required
regulatory conversations
and testing before Ford
could start production on
April 14. The company
says that it will assemble
100,000 or more of the
PAPRs at its Vreeland facil-
ity near Flat Rock, Mich.
“Things are very fluid
right now,” Fisher said ear-
lier in the month, echoing a
common refrain during this
coronavirus spring. “It’s just
moving so fast.”
BREAKDOWN OF COVID-19 CONTRIBUTION TOUNEMPLOYMENT, BY SECTOR, IN PERCENTAGE POINTS
SOURCE: GOLDMAN SACHS
We’re living through the larg-est layoff spree in American history.
In a three-week period through early April, 16.8 million Americans filed for unemploy-ment benefits, likely pushing the real unemploy-ment rate to near 15%, the highest level since 1940.
And it’s not just small- and midsize employ-ers. Fortune 500 firms are trying to limit the impact
OUT OF WORKAS THE PANDEMIC INFECTS CORPO-RATE BOTTOM LINES, COMPANIES ARE SCALING BACK THEIR WORKFORCES—RAPIDLY. BY LANCE LAMBERT
of the coronavi-rus slowdown on their finances by axing thousands of jobs. Some of the biggest companies to announce sizable job cuts include hospitality com-panies Marriott and MGM, as well as retailers Under Armour and Sephora. Other corporate titans—compa-nies such as GE Aviation, Disney, and Macy’s—are turning to fur-loughs, with the
hope of rehiring talent eventu-ally. “We’ve never been through anything that compares to this,” said Mark Zandi, chief econo-mist at Moody’s Analytics.
A few com-panies such as Instacart, Ama-zon, and Walmart have announced big hiring pushes. But they are the outliers, as the vast majority of industries are contracting. In the graphic at right, Goldman Sachs projects how many points each of these sectors will add to the growing unemployment rate in the U.S.
T H E B R I E F — A U T O M O T I V E
VEN.W.0520.XMIT.indd 24 4/14/20 2:37 PMFINAL
So Progressive offers commercial auto and business
insurance that makes protecting yours no big deal.
Local Agent | ProgressiveCommercial.com
Small business is no small task.
NOW MORE THAN EVER, THE WORLD IS WAKINGup to the importance of telemedicine. In the past decade, the use of telemedicine has exploded, with nearly 76% of U.S. hospitals using a computerized telehealth system, compared with just 35% in 2010, according to the American Hospital Association. As consumer access to technology grows, and as in-person medical resources become exhausted because of COVID-19, telemedicine is poised to become even more mainstream.
“With the spread of COVID-19, the weaknesses within our health system are now front and center,” says Jody Tropeano, content director of HLTH, the noted conference for health innovation. “One bright spot has been the increased adoption of telemedicine.”
EFFECTIVE REACHThe benefi ts of telemedicine are vast, says Tropeano. In rural communities, for example, patients who need to drive long distances to visit a doctor can rely on video or digital messaging services for routine or preventive care, reducing transportation costs and freeing up medical resources for other patients.
“If patients can utilize telemedicine to handle more mild symptom checking and other routine medical visits during this crucial time, it’s going to ease the burden to the health systems and allow clinicians to focus on higher-risk COVID-19 patients and other emergencies,” Tropeano says. Telehealth services also improve access by drastically lowering the cost of doctor visits: An in-person, non-emergency appointment averages around $176, while the same non-emergency telehealth appointment is only $40 to $50 on average.
TANGIBLE BENEFITSTelemedicine isn’t merely cheaper and more accessible. Receiving medical services quickly, easily, and inexpensively helps doctors treat mild ailments before they turn into bigger ones. Research from the California Telehealth Resource Center shows that patients in intensive care who have telehealth support experience reduced complications, spend less time in the hospital, and have a lower mortality rate than patients who don’t.
Nevertheless, only 2% to 3% of employers include telemedicine in their benefi ts packages, according to the Society for Human Resource Management. But that might be changing. One pilot study estimated that for every dollar spent by employees on health care, their employers saved six. Another study found that most employees’ health concerns were satisfi ed in just one offi ce visit—which diverted patients from more expensive health care settings, saving money for the company in the long term.
“Employers, and employees with telehealth as a current benefi t, might have been shy to adopt virtual care until this point. However, I think people will start to feel more confi dent in the benefi ts of telemedicine and utilize it more routinely going forward,” Tropeano
says. “COVID-19 has been the biggest test to the telemedicine industry so far, but I
think virtual care will emerge from this crisis as the new digital front
door to health.” ■
How telemedicine and virtual apps are lowering costs for companies while improving outcomes for employees.
VIRTUAL CARE, REAL-WORLD RESULTS
S P O N S O R E D C O N T E N T
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2 8 F O R T U N E M A Y 2 0 2 0
T ECH
Focusing on FeversThermal-imaging cameras are increasingly being used to fight pandemics. But are they the right tool for the job? BY AARON PRESSMAN
Resorts, Brazilian miner
Vale, and airports in New
York, Los Angeles, and
San Francisco are just a
few of the customers that
have recently started us-
ing the equipment.
“The silver lining of
this outbreak is that in
the future, more advanced
infectious screening will
be done at all mass gath-
erings,” says Matt Fried-
man, CrowdRx’s medical
director and associate
medical director at Mai-
monides Medical Center
in Brooklyn.
Demand for thermal-
imaging equipment from
FLIR Systems, a leading
manufacturer, has grown
exponentially during the
coronavirus epidemic, says
Jim Cannon, the com-
pany’s CEO. The privately
owned firm, based in
Oregon, charges $5,000
to $7,000 for entry-level
cameras that are suitable
for medical screening.
FLIR’s thermal cameras
aren’t just for medical
uses. Energy companies
install them to spot leaky
pipelines; factories use
them to detect worn
parts in machinery; and
the military uses them
to spot enemy fighters in
the dark, including from
a drone that weighs just
30 grams.
Still, Cannon is careful
when discussing what his
gear can do in terms of
the COVID-19 pandemic.
The cameras detect “el-
when anyone had an
above-average tempera-
ture, a potential symptom
of a COVID-19 infection,
so the person could be
pulled aside for additional
screening.
The company that
supplied the technology,
CrowdRx, declined to say
whether it had identified
anyone at the event with a
possible fever. But what’s
clear is that the corona-
virus epidemic has put
a spotlight on thermal-
imaging technology as a
potentially important tool
in combating pandemics
and protecting the global
economy.
Long a fixture in
airports and rail stations
in Asia, a result of the
previous SARS and H1N1
epidemics there, thermal
imaging is increasingly
being installed world-
wide. Casino giant Wynn
SAMSUNG TOOK an unusual
precaution when it held a
splashy event in San Francisco dur-
ing the early days of the coronavirus
outbreak, before the city issued a
“shelter in place” order. The tech
giant hired a startup to install a
sci-fi-inspired system to scan con-
ference attendees for fevers.
Hundreds of people going to
the event had to walk past a high-
resolution thermal camera that
is supposed to detect body tem-
peratures with an accuracy of within
one-half a degree Fahrenheit. A
laptop running software interpreted
the data and alerted a technician
Thermal-imaging cameras identify people who have unusually high temperatures, a possible sign of infection. C
OU
RT
ES
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LIR
FVR.W.0520.XMIT.indd 28 4/13/20 8:02 PMFINAL
evated body temperature,”
not necessarily fevers or
infection. “They can’t
diagnose anything,” he
explains.
And that’s a growing
concern for medical profes-
sionals tasked with slowing
the spread of COVID-19.
Even if a thermal camera
accurately determines a
person’s temperature, that
doesn’t mean it can ac-
curately detect whether he
or she is carrying the virus.
Some people have naturally
higher body temperatures,
or they may have raised
their temperature through
physical exertion. More-
over, wearing glasses can
interfere with the technolo-
gy taking accurate readings
because it needs a clear
view of a subject’s eyes.
And, far worse for the
virus fighters, a person
infected with COVID-19
can be contagious to oth-
ers for several days before
showing any symptoms.
Other infected people may
be using medication to
lower their temperature,
allowing them to slip past
thermal cameras without
being flagged.
A recent study by the
European Centre for
Disease Prevention and
Control concluded that
thermal scans of travel-
ers from China, followed
by additional screening
including questions about
symptoms like coughing
and difficulty breathing,
failed to identify three-
quarters of those infected
with the coronavirus.
Even more damning, in
March, the influential U.S.
nonprofit medical research
group ECRI published an
analysis of previous stud-
ies on the effectiveness of
using thermal screening
to fight outbreaks includ-
ing COVID-19. It found
that the technology, used
alone or in conjunction
with questionnaires, is
“ineffective for detecting
infected persons” and that
it “could provide a false
sense of safety.”
The review came
after a large U.S. health
care system asked ECRI
whether it should install
thermal cameras to screen
people entering hospitals,
explains Andrew Furman,
ECRI’s executive director.
“Even under a best-case
scenario, you’re going to
miss more than half of the
infected population,” Fur-
man says. “The evidence
is telling us that this is not
going to help.”
CrowdRx’s Friedman,
who has also served as
the lead in-house physi-
cian for Yankee Stadium,
Madison Square Garden,
and the U.S. Open tennis
tournament, agrees that
the thermal-imaging tech
is imperfect. But he cites
some other studies that
found the technology
successfully identified
fevers more than 90% of
the time. And people with
fevers are more conta-
gious than asymptomatic
carriers, he says.
“By no means does its
sensitivity approach 100%
at capturing all infected
persons,” Friedman says.
But still, he adds, when
it comes to large gather-
ings, either at workplaces
or major events, using the
technology “should be the
minimum bar.”
PANDEMIC-FIGHTING TOOLS
OF THE FUTUREA NUMBER OF FAR-OUT IDEAS ARE BEING DEVELOPED TO COMBAT THE NEXT EPIDEMIC.
GERM-RESISTANT CLOTHING
An Israeli company is infusing fabric with copper to trap germs and bacteria so that it can be used in protective gear. Meanwhile, researchers in the U.K. have developed face masks manufactured with a protein coating on the fabric that they say protects against 96% of airborne virus cells.
MAPPING MAMMALS
Researchers mapped all 55 of the viruses found in a particular species of bat as a “proof of concept” for a multibillion-dollar initiative to identify and analyze all viruses in mammals. During the project’s first 10 years, orga-nizers say they could map an estimated 320,000 viruses, which may give health officials a head start in combating future pandemics caused by viruses jumping from animals to humans.
VIRUS-KILLING ROBOTS
Chinese and Danish companies have developed robots that can disinfect hos-pitals and offices by emitting concen-trated ultraviolet light as they maneuver around. Some countries have also tried using drones to spray disinfectant on potentially infected areas.
MEET-UPS IN VIRTUAL REALIT Y
As seen all too often, people like to congregate even when they’ve been or-dered not to. Better virtual reality tech-nology that provides more realistic and immersive experiences could provide a safer way to socialize in the future.
A CACOPHONY OF COUGHING
The sound of people coughing and sneezing may one day provide an early warning about impending pandemics. University of Massachusetts research-ers have created a device hooked up to microphones that monitors waiting rooms in doctors’ offices and hospitals. If software detects a rise in throat clearing and wheezing, it can, in theory, raise a red flag. In a trial in one clinic last year, the device predicted illness rates that matched the results from lab tests on patients.
T H E B R I E F
ILL
US
TR
AT
ION
S B
Y M
AR
TÍN
LA
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MA
N
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The Tesla bull is loading up on “names that have been crushed.”
F O R T U N E M A Y 2 0 2 0 3 1
IN V EST
What’s the Smart Money Doing? We asked five market veterans how investors should approach the selloff in stocks—and where they’re finding opportunities now.
Catherine WoodC E O , A R K I N V E S T
No one can accuse Catherine Wood
of being a by-the-numbers inves-
tor. Wood, whose tech-focused firm
has more than $10 billion under
management, is famous for being
the biggest Tesla bull on the Street.
Now she’s taking her focus on
“disruptive innovation,” applying a
long-term view to the coronavirus-
ravaged stock market, and betting
on some beaten-down shares.
Wood notes that high-fliers like
Netflix, a high-conviction hold-
ing for ARK, have held up well in
the market plunge. But they don’t
offer the kinds of returns she’s see-
ing from “names that have been
crushed.” That’s why
Wood is selling some
Netflix and moving
into companies that
are going to “gain
more traction because
[they’re] solving a
lot of problems” illuminated by the
coronavirus. One stock Wood picked
up on sale is 2U, an online educa-
tion technology company catering to
homebound students. Another is on-
line real estate marketplace Zillow,
which she believes will benefit from
“an acceleration toward online real
estate shopping.” —Anne Sraders
T H E B R I E F
RE
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Liz Ann Sonders C H I E F I N V E S T M E N T S T R AT E G I S T, C H A R L E S S C H WA B
“The hit to the economy … is still ahead of us.”
Mohamed El-ErianC H I E F E C O N O M I C A D V I S E R , A L L I A N Z
Investors need to answer “yes” to three questions before the all-clear.
Allianz’s chief economic adviser Mohamed
El-Erian gets asked lots of questions these
days: Where will the market bottom? When
should investors put their money to work? But
as investors keep searching for that bottom—
and signs that the coronavirus crisis may be
abating— El-Erian suggests, instead, they ask
themselves three questions:
“One: Do you as an individual feel that if
you catch the virus, you will be treated well
[and with enough equipment] in a hospital
or not? Two: Can you identify with some
confidence who has the disease and who
doesn’t, and what is the risk of that disease
spreading? Third: How comfortable are you
about your immunity?”
Until investors can answer those questions,
El-Erian tells Fortune, “we’re not going to be
able to really have certainty that we’ve turned
the corner”—and investors won’t be able to be
optimistic in a decisive way about their
portfolios. —A.S.
as well as temporary
staffing and electricity
output (tracked by the
New York Fed’s newly
launched Weekly
Economic Index)—
“stuff that really
picks up the weak-
ness we’re seeing and
we’ll continue to see.”
Among stocks, she’s
avoiding small-cap
companies (with their
shaky balance sheets)
in favor of large-cap
stalwarts. She also
favors the health care
sector—and while that
call predates the pan-
demic, it’s “reinforced
to some degree by the
virus.” —Jen Wieczner
The stock market
isn’t always the best
bellwether of what’s to
come in the economy.
Though stocks rallied
powerfully in early
April, Schwab’s Liz
Ann Sonders isn’t
bullish yet. “I think
we’ve just scratched
the surface in terms
of the hit to the labor
market,” she says. “I’m
very confident that the
hit to the economy,
at its maximum, is
still ahead of us, not
behind us.”
That’s why Sonders
is watching unemploy-
ment data, both initial
and continuing claims,
3 2 F O R T U N E M A Y 2 0 2 0
Sonders is avoiding small-cap stocks and focusing on stalwarts.
El-Erian says we don’t yet have enough information to know if we’ve turned the corner.
SO
ND
ER
S:
CH
RIS
TO
PH
ER
GO
OD
NE
Y—
GE
TT
Y I
MA
GE
S;
EL-
ER
IAN
: S
CO
TT
MC
INT
YR
E—
GE
TT
Y I
MA
GE
S
INV.W.0520.XMIT.indd 32 4/14/2020 7:14:42 PMFINAL
Teresa BargerC E O A N D C O F O U N D E R , CART ICA
Asian markets are “definitely past the worst.”
As the manager of a $1.2 billion hedge fund
investing exclusively in small- and medium-size
companies in emerging markets, Teresa Barger
views the coronavirus from a specific point
of view. She has divided her investing world
into three “waves”—where the coronavirus was
(Asia), where it is (Europe), and where it has
yet to really spread (Africa and Latin America).
Accordingly, she’s taking a wait-and-see ap-
proach to the Southern Hemisphere where
“there’s not enough data.”
For now, Barger is “really focused on north
Asia, where we know what their capacity is to
deal with it if there is another outbreak,” she
says, noting the region’s relatively ample medical
supplies and strong public-health infrastructure.
“I think they’re definitely past the worst.” That
includes Korea and Taiwan, where she’s fond of
tech companies whose businesses track semicon-
ductor demand—and which she prefers over Chi-
nese companies, whose stock prices have already
bounced back significantly. —J.W.
Lori Keith P O R T F O L I O M A N A G E R , PARNASSUS
Find companies poised to win in the “back half of this recovery.”
investors should really
be thinking as you
look out on the back
half of this recovery.”
One name that
checks her boxes?
Clorox. Keith believes
the disinfectant-wipe
maker will prosper as
people stay focused
on sanitation and
infection control.
Another is Digital
Realty, a real estate
investment trust
specializing in data
centers. Keith sees it
benefiting as more
people work from
home and companies
shift systems to the
cloud. —A.S.
When the market is
in free fall, visualizing
long-term gains
can be difficult. But
Lori Keith, who
manages Parnassus’s
$4.7 billion Mid Cap
Fund, is applying a
disciplined approach
even as stocks
swing wildly. She’s
“looking for those
companies that are
going to be winners of
tomorrow”—with wide
competitive moats and
strong balance sheets
that are poised to gain
significant share from
all the dislocation
that’s occurring right
now. “That’s where
T H E B R I E F — I N V E S T
Keith is looking for companies with wide competitive moats.
Hedge fund manager Barger is taking a wait-and-see approach to stocks in South America.
KE
ITH
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INV.W.0520.XMIT.indd 33 4/14/2020 7:14:43 PMFINAL
I
3 4 F O R T U N E M A Y 2 0 2 0
IMAGINE THAT the United States en-
tered into a major land and sea war,
and that only then, after the conflict
began, did the government begin
commissioning contracts to design
and build the aircraft carriers, fighter
jets, and other weapons systems we
would need for the fight. Well, the
imagination needn’t run too far,
because in essence, that is what has
happened as we were sucked into our
war against the coronavirus. While
there is much that can be faulted in
our flat-footed response to this pan-
demic, especially at the federal level,
one clear-cut failure should be even
more obvious to anyone who has ever
run a business: We had glaring gaps
in our supply chain and no immedi-
ate plan to fill them.
Start with the basics: We did not
have anywhere near the necessary
number of N95 respirator masks,
gowns, and other equipment to
protect our frontline troops—the
medical first-responders and hospital
staff. Nor did we have enough ven-
tilators to support our most severely
stricken living casualties. Witness the
scramble of state governors outbid-
ding one another and the federal
government to procure ventilators
and personal protective equipment
(PPE). While the U.S. does have a
Strategic National Stockpile (SNS),
an emergency repository of antibiot-
To Battle a Pandemic, Think Like the Military
BY MICHAEL T. OSTERHOLM AND MARK OLSHAKER
ILLUSTRATION BY N I C O L A S O R T E G A
BIG.W.0520.XMIT.indd 34 4/10/2020 8:03:23 PMFINAL
ics, vaccines, chemical antidotes, and
other critical medical supplies, it has
never been sufficiently maintained.
Indeed, no administration, including
the present one, has supported fund-
ing an SNS robust enough to meet
even the first few months’ worth of
need during a severe pandemic.
So why do we have stockpile upon
stockpile of arms and matériel for
combat against human foes, but only
a paltry supply of weapons against
pathogenic enemies that could poten-
tially claim millions more casualties?
It comes down to this: We have failed
to prepare for a war against microbes
with the same urgency and resolve
as we do a conventional war. And
the difference shows in the business
models we bring to each fight.
Even in non-pandemic times,
more than 85% of the critical acute
drugs needed each day to keep
people alive are produced offshore.
Nearly all are generic, with produc-
tion concentrated in China and
India. Sedatives critical to intubate
for ventilation, such as ketamine,
propofol, and pancuronium, are
already in short supply. Despite their
vital importance to our national
health, these fragile, just-in-time
supply chains show how reliance on
foreign on-demand manufacturing
leaves our country highly vulner-
able. During a pandemic such as
COVID-19, this vulnerability can
translate into tens or perhaps hun-
dreds of thousands of lost lives.
The only route to effective pre-
paredness is to institute a military
procurement and planning model
similar to what we do for conventional
warfare. This isn’t the first serious
pandemic to hit American shores, and
it won’t be the last. We need to plan
and budget long-term for what we
know we’ll need and steadily procure
the right armaments. This model pre-
supposes a certain amount of waste
and spending on weapons that may
never be used. But that is a price we
have long been willing to pay on the
military defense side. The infectious
disease side should be no different.
Those who believe that the free
market alone can serve our needs are
likely failing to factor in the biologi-
cal complexity of the challenge we
face. For example, we desperately
need new antimicrobial drugs to
which the many disease-causing
bacteria, viruses, and parasites have
not yet developed resistance. But it’s
nonsensical to ask a pharmaceutical
company to spend billions of dollars
developing a powerful antibiotic—
then ask that it not be used or sold
except in the most extreme cases, so
the microbes won’t become resistant.
Similarly, the Pentagon doesn’t tell
companies to develop and manufac-
ture a new fighter plane and then
only later decide if it wants to buy it.
We need the same strategic capacity
for PPE and ventilators as we do for
rifles and tanks. The Defense Produc-
tion Act is a critical tool in wartime.
But it cannot magically make General
Motors or Ford able to produce ven-
tilators with more than 1,500 parts
sourced from scores of countries in
response to a fast-moving crisis.
The government needs to be a
partner in developing microbial
weapons and the muscle to quickly
produce and distribute them. How
might things be different if we had
taken SARS more seriously in 2002,
or MERS in 2012, and developed a
coronavirus vaccine platform, even
with little commercial market? We
may not have had a vaccine targeted
at COVID-19, but we would have been
many months further along. And
since it is beyond dispute that another
flu pandemic like the one in 1918–20
is a matter of when, not if, an urgent
large-scale enterprise to develop a
universal influenza vaccine could be a
tremendous gift to mankind.
Pandemics have become a threat
on the scale of thermonuclear war.
We must start treating them that way,
making the investment and ensuring
a stable supply chain for the tools and
weapons we’ll need. We can see the
consequences of past inattention right
now. We must not again allow the un-
thinkable to become the inevitable.
This won’t be the last serious pandemic to hit American shores. We need to plan ahead to acquire the weapons we’ll need.
A B O U T T H E W R I T E R S
Michael T. Osterholm is Regents Professor and director of the Center for Infectious Disease Research and Policy at the University of Minnesota. Mark Olshaker is a writer and documentary film-maker. They are the authors of Deadliest Enemy: Our War Against Killer Germs.
T H E B I G I D E A
BIG.W.0520.XMIT.indd 35 4/10/2020 8:03:23 PMFINAL
ANY GOLFER WORTH HIS OR HER SALT
will tell you that impact is what truly counts.
It doesn’t matter whether your swing is Adam
Scott fl awless or Jim Furyk funky—the moment
when club meets ball is where the rubber meets
the road. Impact is also an essential component
of the PGA TOUR. While the fans’ focus centers
on the competition, one of the TOUR’s main
intents is community outreach —in other words,
its impact on its host communities worldwide.
The scale of the TOUR’s charitable eff orts since
1938? Three billion dollars and counting.
Consider the coronavirus pandemic, which
has upended every aspect of life. In mid-March,
the PGA TOUR was in the midst of its fl agship
championship, THE PLAYERS, held annually at
its TPC Sawgrass headquarters in Ponte Vedra
Beach, Fla., when public health safety neces-
sitated calling off the tournament after Thurs-
day’s fi rst round. (The TOUR soon announced the
cancellation of events through late May.) Fans’
disappointment was understandable, but perhaps
the more signifi cant potential knock-on eff ect
centered on THE PLAYERS’ charitable support.
Would that likewise be canceled?
PGA TOUR commissioner Jay Monahan made
clear that same Friday that it would not.
“Hold us accountable,” Monahan said.
DECISIVE ACTION
The next day, Monahan led the charge to back
up his words. He and more than 30 volunteers,
including PGA TOUR and THE PLAYERS staff , TPC
Sawgrass chefs, former volunteer chairmen, and
friends and family, went to the Sulzbacher Center
for the homeless and at-risk in neighboring
downtown Jacksonville to serve lunch,
donated by TPC Sawgrass and THE
PLAYERS’ two caterers, to some 250
people in need. Another week’s worth of
lunches went into the facility’s freezers
and walk-in refrigerator. It was, in golf
terms, an inspired piece of scrambling, as
food that would have been consumed by
fans at THE PLAYERS went to good use.
And it wasn’t just PGA TOUR manage-
ment lending a hand, as the organiza-
tion’s community-minded ethos extends
to the players too. Five-time TOUR winner
and area resident Billy Horschel, along
with his wife and daughters, helped
workers load food onto a semitrailer to
be shared with the Feeding Northeast
Florida community food bank. Horschel
also donated $20,000 of the $52,500 he
earned from the canceled championship to the
food bank, distributing the rest among other
charitable causes.
Volunteers play a critical role as well. Without
the dedication of more than 2,000 volunteers
annually at THE PLAYERS, for example, the event
couldn’t possibly have produced the record $9.25
million it generated for local nonprofi t charities in
2019, nor the more than $100 million it has pro-
duced since the tournament’s 1974 launch.
By the time the 2020 PLAYERS would have ended,
22 tons of food, worth $700,000, had gone to
Feeding Northeast Florida and its network of
agency partners, like the Sulzbacher Center, with
less fanfare than a tournament-winning putt but
far more import.
“Our players play a big role in driving our
charitable mission and helping to positively
impact diverse audiences,” says Anne Davis,
director, PGA TOUR Tournament Business Aff airs,
Community Impact, “and our more than 100,000
volunteers are vital to our ability to improve lives,
enrich communities, and honor the game of golf
and its values.”
IMPACT OF ALL KINDS
The game of golf requires a variety of shots
to achieve mastery, each demanding a diff er-
ent type of impact. The same can be said of
the TOUR’s community outreach, which seeks a
footprint both deep and wide. This holds true for
every tournament, each of which aids an array of
local endeavors.
“The PGA TOUR supports a broad range of
causes and organizations in every tournament
community—from small grassroots nonprofi ts to
C O N T E N T F R O M P G A T O U R
MAJORIMPACTFor the PGA TOUR, community outreachis at the heart of the game.
Our players
play a big role
in driving our
charitable
mission and
helping to
positively
impact diverse
audiences.Ó ANNE DAVIS
DIRECTOR, PGA TOUR
TOURNAMENT BUSINESS
AFFAIRS, COMMUNITY
IMPACT
FORX-6159690LH.pdf 04.09.2020 08:49 BLACK YELLOW MAGENTA CYAN
local chapters of major national charities, primary
charitable host organizations, and fundraising
organizations,” Davis notes. “Every tournament is
diff erent, and every tournament community has
diff erent needs.”
THE PLAYERS can tell that story too. Beyond
food security eff orts, the tournament’s charitable
investments have benefi ted nonprofi t organiza-
tions that promote youth education, character
development, health and wellness, and military
support. And the breadth of support is impres-
sive: Dreams Come True, which fulfi lls the dreams
of children battling life-threatening illnesses. The
MaliVai Washington Youth Foundation, started
by and named after the former tennis pro, which
received a $500,000 donation last year toward
completing a $5 million capital campaign, in
part for a new teen center. Junior Achievement,
a fi nancial literacy, workforce preparation, and
youth-entrepreneurship program. Boys and Girls
Club of St. Augustine. Two charter schools, KIPP
and Tiger Academy, in underserved areas.
On the health care front, THE PLAYERS re-
cently gave $1 million to Flagler Health+
Foundation to help create a mental health pro-
gram in St. Johns County schools that addresses
the growing suicide rate among teens. Nemours,
a nonprofi t pediatric health system, received
a $500,000 donation to support the renova-
tion of the clinic lobby that welcomes children
from around the world impacted by hearing loss,
cancer, and blood disorders. And the Northeast
Florida Healthy Start Coalition received $100,000
to help lower infant mortality rates.
Professional golf certainly isn’t a matter of
life and death, but thanks to the PGA TOUR’s
charitable eff orts, it makes a positive impact, like
a 300-yard drive straight down the fairway. ■
1. BILLY HORSCHEL AND
HIS DAUGHTERS LOAD
A FEEDING NORTHEAST
FLORIDA TRUCK. 2. PHIL
MICKELSON VISITS WITH A
YOUNG CANCER SURVIVOR AT
THE PLAYERS. 3. YOUTH AT
THE PLAYERS CHAMPIONSHIP
BOYS & GIRLS CLUB OF ST.
AUGUSTINE. 4. PGA TOUR
COMMISSIONER JAY
MONAHAN SERVES MEALS
AT A CENTER FOR THE
HOMELESS AND AT-RISK.
5. THE PLAYERS AWARDED
A $500,000 GRANT TO THE
MALIVAI WASHINGTON YOUTH
FOUNDATION TO SUPPORT
THE FOUNDATION’S NEW
TEEN CENTER. 6. “DREAMER”
DYLAN BROWNING POSES
WITH RICKIE FOWLER DURING
HIS DREAMS COME TRUE
VIP EXPERIENCE AT THE
PLAYERS.
1 2
3
56
4
FORX-6159690RH.pdf 04.09.2020 08:49 BLACK YELLOW MAGENTA CYAN
3 8 F O R T U N E M A Y 2 0 2 0
ON THE SURFACE, the U.S. economy might appear frozen in place. In order to slow the spread and lessen the damage of a global pan-demic—that as Fortune went to press had tragically taken the lives of some 25,000 Americans and another 100,000 people around the world—the nation has collectively pressed pause. Social distancing has, by necessity, shuttered restaurants, suspended sports leagues, and grounded the travel industry with shocking suddenness. But the crisis has also sparked fast-moving innovation. In that sense, the business world is hardly standing still—and that forward motion will be crucial to the economy’s recovery. ¶ To get a clearer picture of how the pandemic is reshaping business in real time, we dove into a range of industries—from energy to pharma to retail. Read on for examples of how companies are rapidly adapting to the new normal and pre-paring for life after the coronavirus.
HOW A MERIC A WI L L RECOVER
T H E C O R O N A V I R U S E C O N O M Y
A IR LINE S PLO T A NE W T R A JEC T ORYB Y V I V I E N N E W A L T
48A ‘GR EEN’ SILV ER LINING T O A N OIL-PAT C H C LOUDB Y J E F F R E Y B A L L
40A M A R K E T SELLOFF, SEC T OR BY SEC T OR B Y B R I A N O ’ K E E F E &
N I C O L A S R A P P
468 6 T HE R E S TAUR A N T INDU S T RY? B Y E M M A H I N C H L I F F E
44INSIDE
INT.W.05.20.XMIT.indd 38 4/14/2020 9:17:05 PMFINAL
ILLUSTRATION BY N I C O L A S O R T E G A
T HIS TIME T HE
B A NKS W ER E R E A DY
FOR A C R ISIS
B Y S H A W N T U L L Y
52FIN T EC H’S
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50R E TA IL LOOKS T O A PP S
IN A N A N X IOU S ER A
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W ILL MEDICINE M A K ERS
C OME T O T HE R E S C UE ?
B Y S Y M U K H E R J E E
54 56
INT.W.05.20.XMIT.indd 39 4/14/2020 9:17:06 PMFINAL
4 0 F O R T U N E M A Y 2 0 2 0
IN MARCH, FRENCH PRESIDENT Emmanuel Macron went on national television from the Élysée Palace and told his coun-trymen that in the fight against the coronavirus, “We are at war.” Three days later, Patrick Pouyanné, chief executive of French oil giant Total, delivered to his roughly 100,000 employees a video message about the energy rout that was no less blunt. The price of oil had collapsed, “halving our share price,” noted the visibly pale CEO, speaking from the Total Tower in Paris into a microphone he was clutching in his right hand, in the style of a talk-show life coach. To stanch the bleeding, Total for 2020 would slash its capital spending more than 20%, nearly triple its planned cuts in operating expenses, and suspend share buybacks.
But one thing Total would not do, Pouyanné told his workers, was cut spending on its “new energies” division, a unit that includes investments in solar, wind, and bat-teries. That unit, Pouyanné declared, “will be safeguarded, as we must prepare for the future.” The upshot: This year, the approximately $2 billion Total will spend on its renewable-energy and energy-storage forays will account for about 13% of the company’s capital spending—a share
that once would have been all but in-conceivable for a fossil-fuel producer.
Long before this spring’s epic oil-price crash, the energy sector was struggling with a longer-term existential threat. Gone were the good old days, when oil consumption grew inexorably and the nations and corpo-rations that controlled the most juice minted the juiciest profits. A scary new world had arrived, one in which oil demand was projected to peak in the next couple of decades even as ex-ternal pressure surged—not just from environmental activists and regula-tors, but also from central banks and hedge funds—for Big Oil to diversify into lower-carbon energy sources.
That pressure already had begun to reshape the industry’s business strategy. Today’s energy-market car-nage shows every sign of intensifying that low-carbon shift.
The plummeting oil price has changed the return-on-investment calculus for both oil executives and mainstream investors. It has slashed the profit margins of many petroleum projects to the lower levels long typical of renewable-energy projects. But the greener projects, because they typically sell their energy under much longer-term contracts than are com-
STANDING TALL A wind farm near Palm Springs. The ripple effects of the coronavirus crisis have raised the profile of renewable-energy projects, both in local power supplies and in oil giants’ investment plans.
ENERGY
Plummeting prices and consumer demand are squeezing Big Oil like never before. But those forces are also making renewable energy a more attractive investment for the industry’s biggest players.
BY JEFFREY BALL
A ‘GREEN’ SILVER LINING
TO AN OIL-PATCH CLOUD
I
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mon in the oil industry, remain lower-risk. And the oil majors’ long-term clean-energy activities are relatively unaffected by the companies’ short-term spending cuts, because those cuts aim to minimize the amount of petroleum the firms bring to market at today’s suddenly depressed prices.
Right now, the oil industry is reel-ing from a one-two punch: a supply surge sparked by brinkmanship between Saudi Arabia and Russia, and demand destruction amid a likely recession set off by the coronavirus. The price of Brent crude, the interna-tional benchmark oil, cratered 52% between March 3 and April 1, and prices per barrel were languishing around $30s in mid-April. Global oil consumption, whose growth has been slowing for several years, actually will fall in 2020, the first full-year drop since the global financial crisis, the
International Energy Agency projects. Major oil companies have scurried to retrench as their stock prices tanked; Exxon Mobil announced in April some of the deepest cuts, pledging to ax 2020 capital spending 30%, to $23 billion. Some smaller firms have begun filing for bankruptcy, among them Whiting Petroleum, a once-high-flying producer in the North Dakota–focused Bakken shale play.
As has happened so often before in the oil patch, boom has turned to bust. The industry was hoping that a mid-April agreement to curb produc-tion, particularly by Saudi Arabia, would buoy prices. But the industry’s underlying challenges remain: plenti-ful supply and slowing growth in de-mand. Particularly hard hit will be the Permian Basin, a storied and prolific oil zone spanning western Texas and eastern New Mexico. Retrenchments
by major Permian producers Exxon Mobil, Chevron, and Occidental Petroleum foreshadow spending cuts in the basin this year totaling many billions of dollars.
Ken Winkles feels the coming crunch from his office in Pecos, Texas, in the Permian’s heart. Until recently in Pecos, throngs of oilfield workers had the bunkhouses known as “man camps” bursting, the burger joints breaking records, and the traffic snarled. All that is now dissipating. In March, in an ominous early indicator, the num-ber of drilling-rig permits granted in the county was down 38% from February 2020 and 59% from March 2019. Winkles, executive director of the Pecos Economic Development Corp., considers himself an optimist. But he’s also a realist. “We’re just in the begin-ning of the slowdown, crash, whatever you want to call it,” he tells me.
T H E C O R O N A V I R U S E C O N O M Y
ENE.W.05.20.XMIT.indd 41 4/14/2020 4:33:28 PMFINAL
4 2 F O R T U N E M A Y 2 0 2 0
The bust came fast. When Chevron held its annual investors’ meeting in New York on March 3, amid mount-ing concern about the coronavirus, it forsook handshakes, prompting executives and analysts to greet each other with elbow bumps. Still, the bumpers were bullish. Executives whipped through slides outlining investment plans that assumed Brent would remain at $60 a barrel.
Three days later, the Saudi-Russia fight sent oil prices through the floor. On March 24, Chevron, scrambling to regain its bearings, announced it would cut its 2020 capital-spending budget 20%, to $16 billion. The cuts will focus on short-term production—nearly half will come by curbing pro-duction in the Permian Basin. They’ll also include layoffs. This downturn is
“the most difficult one the industry has faced,” Pierre Breber, Chevron’s chief financial officer, tells me. “Assuming that oil stays at $30 for two years is certainly a stress case that we need to have our arms around.”
But Breber says Chevron’s long-term plan to cut its carbon intensity is “largely intact.” Those plans include retrofitting oil-drilling operations to make them more energy-efficient. Chevron is also ramping up, notably at a massive natural-gas field off the coast of Australia, a technology called
“carbon capture and sequestration,” which grabs carbon-dioxide emissions and shoots them underground—an approach many scientists see as es-sential to curbing climate change.
T
H E V I RUS - D R I V E N economic slowdown, too, is highlighting the competitiveness of renewable energy—
particularly in electricity markets, where oil companies increasingly are deciding they must play. In many parts of the world, power demand has fallen. Those declines have had the effect of increasing the percent-age of power in those markets that’s supplied by solar and wind, both because their fuel is free and because of production subsidies they get. The global crash has “fast-forwarded some power systems 10 years into the future,” Fatih Birol, the IEA’s executive director, wrote in a March analysis, “suddenly giving them levels of wind and solar power that they wouldn’t have had otherwise without another decade of investment.”
A case in point is California, long a green-energy leader. As of mid-April, with the state’s population under shelter-in-place orders, weekday electricity demand was down 5% to 8% below normal levels, according to the state’s power-grid manager, the California Independent System Operator. Renewable-energy genera-tors typically sell their power to the grid at lower prices than fossil-fuel generators do, because their energy, unlike fossil fuel, is lost if they don’t use it. So “it’s a reasonable conclu-sion that renewables are serving a higher percentage of the load than they would otherwise,” Steve Berb-
erich, chief executive of the opera-tor, tells me. That has amplified the problem that, at times of particularly strong sunshine or wind, renewable-energy sources generate more power than California can use. And that highlights the rising importance of improving the nimbleness of power grids—with technologies such as energy storage—to accommodate greater supplies from renewables.
Renewable-energy projects aren’t immune to the global eco-nomic shock. Overall growth in solar-panel and wind-turbine sales is slowing from its recently torrid levels, as factories, shipping, and electricity demand take a pause. At France’s Total, executives say that construction delays are likely for some solar and wind farms because coronavirus-related restrictions are waylaying workers. In a sense, though, that’s a sign of the prog-ress that clean-energy technologies have made: Once a rounding error, they’re now significant enough as industries that they’re as exposed to macroeconomic forces as are the fossil-fuel behemoths.
The headwinds for clean energy, moreover, are relative. As oil heads for its worst year in recent memory, solar and wind installations remain strong, according to Wood Macken-zie. Global solar projects will dip a bit in 2020 before resuming quick growth next year, the research firm projects, and wind installations will post a new yearly record.
T H E C O R O N A V I R U S E C O N O M Y
$447,612,200,000DECLINE IN MARKET VALUE OF THE STOCKS IN THE S&P 500 ENERGY SECTOR, MARCH 2 TO MARCH 18, 2020
SOURCE: BLOOMBERG
ENE.W.05.20.XMIT.indd 42 4/14/2020 4:33:28 PMFINAL
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THIS IS WHAT HIGH BLOOD PRESSURE LOOKS LIKE.
4 4 F O R T U N E M A Y 2 0 2 0
THE CORONAVIRUS RECESSION has left no industry untouched, but the restaurant business is arguably the hardest hit so far. The food and beverage sector accounted for 60% of the jobs lost in March, the first wave of the tsunami that has since prompted 16.8 million Americans to apply for unemployment. The impact on those workers foreshadows a su-persize blow to the economy at large. The restaurant industry—which in-cludes five chains large enough to ap-pear in the Fortune 500— contributes an estimated 4% of the U.S. GDP, or roughly $1 trillion.
To get a sense of the ways in which the industry has been impacted—and how it might ultimately pick up the pieces, Fortune spoke to three restaurateurs, each leading a very different type of establishment.
B R I A N N I C C O L Chairman and CEO, CHIPOTLENATIONAL CHAIN — 2,600 LOCATIONS
$5.6 BILLION IN ANNUAL REVENUE — 85,000 EMPLOYEES
THE IMPACT OF THE VIRUS ON CHIPOTLE and its employees “breaks my heart,” says Brian Niccol. The crisis comes at a particu-
larly frustrating time for the new CEO, who was guiding the chain past its earlier food safety issues by redesigning restaurants and rolling out new menu items like carne asada—changes that helped provide a 15% bump in revenue last year.
“We’ve kind of hit the pause button on those things,” he says. In-stead, Chipotle, like its chain-restaurant peers, is focused on adapt-ing to the new reality: plunging consumer demand and a workforce increasingly concerned about its health and safety—not to men-tion longer-term job security. The brand has reduced hours at 10% of its stores and closed 3% of locations—mostly those in shuttered malls or shopping centers—furloughing those employees. The rest of the hourly workforce, still coming in, received a 10% pay bump through mid-May; Chipotle employees typically get three days of sick leave, and now those working during the crisis are eligible for up to two weeks of sick pay, depending on their work schedules.
Some long-term changes to the company may be positive, Niccol says. More diners are now turning to the chain, traditionally a lunch staple, for dinner, he notes. Digital orders—already up 90% last year to 18% of total sales—will, he expects, become a permanent consumer habit (although that revenue stream largely depends
RESTAURANTS
The virus has done something no other attack or downturn could: all but shutter the food-service sector. How can a business dedicated to bringing people together survive a disease that keeps us apart?
BY EMMA HINCHLIFFE
86 THE RESTAUR ANTINDUSTRY?
Estimated cash flow required for independent U.S. restaurants to pay all current expenses
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E
RES.W.05.20.XMIT.indd 44 4/13/2020 8:24:28 PMFINAL
on the continued success of partners like Uber Eats). Niccol also predicts that restaurant industry employees, burned by rapid layoffs at other companies, may start paying closer attention to the financial health of their employers (Chipotle has prioritized a healthy balance sheet as it has recovered from its 2015 E. coli outbreak):
“Employees are going to have a closer eye on, ‘What is the health of my company? How good of a cash position are they in in the event of a crisis?’ ”
T O M C O L I C C H I O
Owner, CRAFTED HOSPITALITYMIDSIZE RESTAURANT GROUP —
5 CRAFTED HOSPITALITY LOCATIONS
4 ’WICHCRAFT LOCATIONS — 475 EMPLOYEES
TOM COLICCHIO has high standards—for his staff, for Top Chef contestants, and for the nation’s lawmakers. As one of the founders of the newly created Independent Restaurant Coalition (IRC), the Crafted Hos-pitality and ’Wichcraft owner has become a spokesman for the sector’s 11 million or so servers, chefs, kitchen staff, and hosts, and is calling for government support. “Without help, the restaurant industry is going to be decimated,” he says. Colicchio is lobbying for changes to Congress’s CARES Act that account for the particulari-ties of running a restaurant. For instance, the legislation forgives loans for compa-nies that keep employees on the payroll for at least eight weeks after disbursement; many restaurants need the money now but suspect that it will take far longer to return to business as usual. Colicchio opted to close the doors of his establishments on March 15, sending his nearly 500 employ-ees to file for unemployment rather than try to transfer to a takeout model as some of his fine-dining peers have done. The risk outweighed the pros of staying open, he says: “I couldn’t live with myself if, for a couple thousand dollars a night, someone may end up on a respirator.”
The IRC is pushing for new tax rebates and other longer-term support, but for Colicchio, the immediate priority is keeping the industry—and its role as a community touchstone—alive. “Our neighborhoods without restaurants aren’t neighborhoods,” he says. “Our buildings with ground floors empty—that just feels like the city is dead.”
M O O N LY N N T S A I , Co-owner, KOPITIAM INDEPENDENT RESTAURANT — 1 LOCATION — 28 EMPLOYEES
IT WAS ONLY JANUARY when Manhattan’s Chinatown, home to Moonlynn Tsai’s Malaysian coffeehouse and restaurant, first felt the sting of the coronavirus. Diners, concerned about the new disease in China, began avoiding the area—despite an utter lack of evidence that the virus was present in the neighborhood.
Three months later, Kopitiam—named for the Hokkien word for coffeehouse— remains open, but it’s making less than 5% of its usual sales. The beloved eatery, first opened in 2015, is deeply entrenched in the community. Its staffers are a mix of local high-schoolers and elderly residents, and Tsai and her business partner, chef Kyo Pang, are trying their hardest to continue serving their neighbors. The pair furloughed their staff on March 17, days after New York City ordered restaurants to close, but paid all employees through April 1. They’ve tried to keep some revenue coming in with takeout orders, as well as gift cards and special offers like an at-home kit to build the restaurant’s famous kaya jam toast. But the challenges continue. Tsai said suppliers have gone from delivery every day to three times a week. In just a month, Kopitiam burned through all its savings from the past two years.
Looking ahead, Tsai fears for her fellow Chinatown establish-ments. If her restaurant—fawned over by food critics and with a savvy digital presence—can’t weather the storm, what will happen to others?
As for Kopitiam, she’s not ready to think beyond the next days. “I’ve learned to numb myself. If I start sitting still, all the emotions are going to come,” Tsai says. “We were hoping by now we could expand, but everything we had for that has been wiped out. If this happens again—how do we make sure we’ll be okay?”
T H E C O R O N A V I R U S E C O N O M Y
NEIGHBORHOOD FIXTURE: Kopitiam’s Moonlynn Tsai in New York City’s Chinatown.
CO
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RES.W.05.20.XMIT.indd 45 4/13/2020 8:24:30 PMFINAL
P/E RATIO LEVELS
COMMUNICATION
INDEXES
CONSUMER
DISCRETIONARY
CONSUMER
STAPLES
INDUSTRIALS
I.T.
FINANCIALS
HEALTH CARE
SECTOR PERFORMANCE
DURING RECENT
BEAR MARKETS
DOW JONES INDUSTRIAL AVERAGE
RUSSELL 2000
S&P 500
GLOBAL EQUITY (MSCI WORLD)
MEDIA & ENTERTAINMENT
TELECOMMUNICATION SERVICES
AUTOMOBILES & COMPONENTS
CONSUMER DURABLES & APPAREL
CONSUMER SERVICES
RETAILING
FOOD & STAPLES RETAILING
FOOD, BEVERAGE & TOBACCO
HOUSEHOLD & PERS. PRODUCTS
ENERGY
BANKS
DIVERSIFIED FINANCIALS
INSURANCE
HEALTH CARE EQUIPMENT & SERV.
PHARM BIOTECH & LIFE SCIENCES
CAPITAL GOODS
COMMERCIAL PROFESSIONAL SERV.
TRANSPORTATION
SEMICONDUCTORS
SOFTWARE & SERVICES
TECHNOLOGY HARDWARE
MATERIALS
REAL ESTATE
UTILITIES
GOLD
OIL
BONDS
LOWEST RECORDED IN PREVIOUS TWO BEAR MARKETS* 2020 RANGE
APR. 9, 2020
0 10 20 30 40 50x
0 10 20 30 40 50x
* 2000 AND 2007 BEAR MARKETS. LOWEST P/E LEVELSIN THE PERIOD 2000–04 AND 2007–11
CHART: NICOLAS RAPP WITH SCOTT DECARLOSOURCES: BLOOMBERG; YARDENI RESEARCH
MARKETS
4 6 F O R T U N E M A Y 2 0 2 0
THE DIVE INTO THE RED was sudden and across-the-board. As the coro-navirus crisis escalated, U.S. stocks plunged from an all-time high on Feb. 19 into a bear market. To put the historic rever-sal in perspective, we crunched the numbers for all 24 of the S&P 500 industry categories com-pared with the past two market collapses.
A SELLOFF,
SECTOR
BY SECTOR
S
O FA R, this year has already featured the worst month
for stocks (March) since October 2008 and the best week (early April) since 1974. But as chaotic and painful as the market swoon has been, it hasn’t yet surpassed the last major meltdown. Only one industry has plunged further from its high than it did during the Great Recession of 2007 to 2009—energy, thanks to an oil price war this spring between Russia and Saudi Arabia. Stock valuations, as measured by price/earnings ratios, have stayed relatively buoyant too. Of course, it could be early days. The bear market that began in 2007 lasted 517 days. And it took 929 days to start a new bull market after the dotcom bubble burst. The good news: In both cases, stocks eventually soared again. —Brian O’Keefe
BUG.W.05.20.XMIT.indd 46 4/14/20 8:50 PMFINAL
CHANGE IN PRICES: DEPARTURE FROM MARKET TOP
BEAR MARKETLENGTH (DAYS)
(LOWEST LEVEL)
FEB. 19, 2020 MARCH 2 MARCH 16 APR. 1 APR. 9
2000
DOTCOM
BUBBLE
BURST**
2007-
2009
FINANCIAL
CRISIS***
LOWESTDURING ...
20
00
DO
TCO
M B
UB
BL
E B
UR
ST
20
07–
09
GLO
BA
L F
INA
NC
IAL
CR
ISIS
20
20
CO
VID
–1
9 P
AN
DE
MIC
0
200
400
600
800
1,000
BOTTOMSDURING RECENTBEAR MARKETS
–60%
–50
–40
–30
–20
–10
0 20
00
DO
TCO
M B
UB
BL
E B
UR
ST
20
07–
09
GLO
BA
L F
INA
NC
IAL
CR
ISIS
20
20
CO
VID
–1
9 P
AN
DE
MIC
–19.2%
–26.3%
–17.6%
–19.0%
–19.5%
–11.8%
–31.7%
–25.6%
–28.9%
–13.2%
–5.5%
–11.8%
–9.2%
–37.0%
–30.0%
–19.3%
–24.3%
–13.6%
–4.3%
–25.2%
–22.2%
–23.5%
–18.5%
–16.0%
–17.2%
–14.9%
–13.8%
–12.9%
8.0%
–57.3%
2.0%
–34.4%
–43.1%
–49.1%
–51.4%
–63.8%
–75.0%
–56.6%
–14.7%
–23.2%
–31.0%
–22.6%
–2.2%
–3.1%
–21.7%
–12.1%
–39.8%
–19.6%
–6.2%
–26.4%
–43.9%
–16.7%
–10.9%
–84.0%
–73.0%
–85.5%
–24.8%
–25.8%
–47.7%
–10.5%
–37.7%
–1.3%
–53.8%
–59.4%
–56.8%
–59.0%
–62.8%
–50.7%
–84.6%
–64.4%
–43.7%
–56.5%
–26.1%
–31.0%
–37.3%
–47.8%
–86.9%
–83.0%
–81.2%
–48.1%
–36.2%
–68.6%
–56.8%
–51.1%
–60.4%
–50.5%
–53.3%
–59.7%
–75.5%
–45.9%
–4.4%
–57.8%
–0.1%
FEB. 19 MARCH 2 MARCH 16 APR. 1 APR. 9
–36.7%
–41.4%
–33.9%
–33.8%
–30.4%
–23.0%
–50.9%
–46.0%
–47.6%
–27.5%
–15.5%
–30.7%
–21.9%
–56.3%
–47.4%
–38.5%
–43.1%
–35.2%
–21.8%
–43.8%
–37.0%
–37.3%
–35.1%
–31.2%
–31.0%
–36.4%
–38.0%
–35.9%
–8.1%
–62.3%
–2.6%
0 –10 –20 –30+10% –40 –50 –60 –70%
*** LOWEST LEVEL FROM 10/9/07TO 12/30/11 FOR EACH SECTOR
** LOWEST LEVEL FROM 3/24/00TO 12/31/03 FOR EACH SECTOR
**** AS OF 4/12/2020. 53 IS THE NUMBER OF DAYS ELAPSED SINCE THE PREVIOUS TOP AS IT IS TOO EARLY TO SAY WHETHERTHE S&P 500 HAS LEFT BEAR TERRITORY AND IS NOW IN A BULL PHASE. COUNT INCLUDES WEEKENDS AND HOLIDAYS.
–3
3.9
%5
3*
**
*
BUG.W.05.20.XMIT.indd 47 4/14/20 8:50 PMFINAL
4 8 F O R T U N E M A Y 2 0 2 0
H I S PAST JA N UA RY, as word of a deadly new virus began filtering out of China, the business lounge at Hamad International Airport in Doha, Qatar, was teeming with people, coming and going from almost every point on the planet. Facing a long layover on a reporting trip, I poured some tea and sank into an armchair. Nothing, it seemed, could disturb such serenity. Ten days later, our family took a weekend trip
from Paris to Kraków, Poland. Why not? The taxi to the airport cost more than the tickets on low-cost airline Easy-Jet—the ninth carrier I had flown in 12 months.
Today that seems like a lost world—and it will not be simple to find a way back to it. The ambient-lit Doha busi-ness lounge, with its hot showers and solicitous concierges, is a lot quieter these days, like the rest of the world’s travel hubs. Now the question is, What kind of airline industry will emerge once the pandemic and the lockdowns have finally passed?
As the outlines of the answer begin to come into focus, it looks like a screeching halt to the past decade’s travel boom. Last year, passenger trips on U.S. carriers hit an all-time peak of 925 million, with occupancy also at a record high
T
AIRLINES
Signs point to a long, slow recovery and a shrinking of the industry globally—with fewer airlines and routes for travelers to choose from.
BY VIVIENNE WALT
CARRIERS
PLOT A NEW
TRAJECTORY
POST-
PANDEMIC
ILLUSTRATION BY J O S U E E V I L L A
CL
OU
DS
: Y
IU Y
U H
O—
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AIR.W.05.20.XMIT.indd 48 4/14/20 7:25 PMFINAL
of 84.6%. Those figures are long gone. “You will see airlines as smaller versions of themselves, with fewer airplanes operating fewer routes,” says Henry Harteveldt, president of the Atmosphere Research Group in San Francisco. “Perhaps where there were 10 flights a day, now there will be six to eight flights a day,” he says.
Meanwhile, there is a growing debate, especially in the U.S., about why taxpayers should be on the hook to bail out major carriers. According to the calculations of Washington Post columnist Allan Sloan, the four major U.S. airlines spent about 90% of their profits during the roaring 2010s on stock buybacks, even while earning billions on fees for soggy sandwiches, seat assignments, and checked luggage. “They have done almost everything possible to tell the public, ‘We don’t give a damn about you,’ ” Harteveldt says. Fewer than half of
consumers surveyed by Fortune in March said airlines deserved a bailout. Yet the $2.2 trillion U.S. coronavirus relief fund includes $61 billion for the shell-shocked aviation industry. And a host of U.S. airlines, includ-ing American, Delta, Southwest, and United, have applied for help.
B
Y A P R I L , the airlines had already drastically cut their fleets, in moves that will likely far outlive COVID-19.
American is opting to retire more than 100 of its 900 planes, and Delta says it is considering early retirement of older aircraft. Manufacturers are also bracing for tough times. GE Aviation cut 10% of its staff in March and furloughed half the others until May. In April, Boeing offered all employees voluntary buyouts.
That is just the start. Leaner and poorer, airlines will tread with ex-treme caution in putting planes back in service, unless they are sure passen-gers will fill them. In interviews, most analysts believe the industry’s recovery could take at least until 2022. Mean-while, travelers will feel the difference, as routes and flights shrink. “There have been too many airlines in the world,” says John Grant, vice president of aviation analytics company OAG in Luton, England. “The industry would broadly agree with that.”
The overcapacity is especially acute in Europe, where about 120 compa-nies compete for business, compared with the U.S., which has just four ma-jor airlines and a handful of smaller regional carriers. European govern-ments have rushed to rescue flagship airlines, with Germany offering loans to Lufthansa, and Italy’s government taking control of Alitalia. Even the most glittering heavy hitters will not escape pain. “We will be permanently affected, with questions about chang-es in travelers’ behavior,” Air France CEO Anne Rigail said on April 7.
Indeed, the airlines’ losses are epic. Brian Pearce, chief economist of the
industry group IATA, estimates the carriers will lose about $252 billion in revenues this year and that without government help, several “might not be able to last” until next year.
In fact, dozens of airlines—espe-cially low-cost tourist carriers—face shaky prospects for survival. Some, like EasyJet, have enjoyed years of profitability. But Britain’s budget regional airline FlyBe collapsed in March as passengers vanished. And others could find it difficult convinc-ing governments that their survival is essential. “Is it essential to have 9 pound ($11) flights to Majorca, or nine flights a day to Lisbon?” says Daniel Röska, senior airlines analyst at Bernstein Research in London.
The problem airlines face is that their ability to recover will most likely rest on two factors, both of which are completely out of their control: how long it might take before people feel comfortable boarding planes and how much corporations will cut their travel budgets.
Start with the first challenge. Being sealed in an aircraft with dozens of
925NUMBER OF PASSENGER TRIPS
FLOWN ON U.S. CARRIERS IN 2019,
AN ALL-TIME HIGH, WITH A RECORD
84.6% OCCUPANCY RATE
MILLION
T H E C O R O N A V I R U S E C O N O M Y
AIR.W.05.20.XMIT.indd 49 4/14/20 7:25 PMFINAL
FINTECH
HOMEBOUND CONSUMERS ARE RELYING ON FINANCIAL UPSTARTS LIKE NEVER BEFORE—EVEN TO GET STIMULUS MONEY. IT’S A CHANCE FOR FINTECH TO PERMANENTLY ENTRENCH ITSELF IN THE MAINSTREAM. BY JEN WIECZNER
FINTECH’S
BIGGEST TEST
5 0 F O R T U N E M A Y 2 0 2 0
strangers, whose health status is un-known, may still feel like a high-risk act even months after the pandemic wanes. “There are very few economic activities where people experience such crowding as air travel,” says Joseph Schwieterman, a transporta-tion expert and professor at DePaul University in Chicago. People will want to travel again, he says. But true ease, where people again fly carefree, will likely require much more solid assurance. “It will take medical break-throughs,” he says.
That will take time. And until vaccines and drug treatments are developed, the second factor— corporate travel—could determine when airlines might recover. The two are closely linked: So long as there is some risk to travelers, companies might hesitate to dispatch their em-ployees, especially while trying to cut costs in a recession.
The 2008 financial crisis and Europe’s debt crisis of the 2010s bear that out. Companies cut travel spend-ing—at first temporarily, and then more permanently. “That never really came back,” Röska says. “Companies adapted to a different spending policy, with 20% less travel a year.” The tour-ism surge cushioned the blow.
A decade on, the impact could be even deeper, for one reason: better technology. Since whole countries began locking down in March, count-less corporate meetings, and even the leaders of the G7 nations and OPEC, have convened online. Such meetings are not quite as vibrant as the real-life ones, but neither have they been too disappointing. “Everyone is becoming virtual, Zooming,” says Mark Man-duca, managing director covering airlines at Citi in London. “This has to be a long-term effect.”
No matter how good your Wi-Fi may be, spending hours on Zoom Video doesn’t quite measure up to the easy days before COVID-19—just a few months ago—when business lounges were packed and low-cost weekend getaways seemed knitted into our lives. But for the airline industry, the return route will be especially long and challenging.
I
N T H E WA K E of the Great Recession, as lawmakers passed the Dodd-Frank legislation to rein in an ignomini-ous financial industry,
one paragraph of the law also validated a rebel contingent of reform-minded entrepreneurs. The passage mandated that banks must make consumers’ data available to them “in an electronic form.” And so was born the fintech industry.
Now, as the novel coronavirus presents the world with its biggest economic challenge in more than a decade, fintech is having a moment of truth. Companies like SoFi, Robinhood, Chime, and others were built on prom-ises of providing consumers and busi-nesses with easier access to money in all its forms—investments, credit, person-to-person payments—via the Internet, and often without dealing with a brick-and-mortar bank. With the global economy largely on pause, millions of people abruptly out of work, and thousands of bank branches shut-tered, the time for fintech to deliver on those promises has arrived. As the U.S. government passed a $2 trillion stimulus package in March, including forgivable small-business loans and $1,200 checks for Americans, Treasury Secretary Steven Mnuchin stipulated that “any fintech lender will be autho-rized to make these loans”—a historic first. In April, these platforms earned further validation when the Internal Revenue Service allowed eligible recipients to elect to receive stimulus payments electronically—through Square’s Cash App, for instance, or Venmo—rather than by paper check.
PayPal, Square, and other fintech players are heeding the call to help. In between calls with the Treasury De-partment, Dan Schulman, PayPal’s CEO,
has been holding daily videoconfer-ences with employees from his home office in California. “One of the things I’m telling them is, this is our time,” he tells Fortune via Skype. (For more from the interview, visit Fortune .com.) Even before the IRS began disbursing stimulus money, Chime, the largest so-called challenger bank in the U.S., went out on a $20 million limb—giving more than 100,000 customers immediate access to as much as $1,200 through an interest-free payday advance. “We felt that this could create some sort of industry movement,” says Chris Britt, Chime’s CEO.
Indeed, consumers holed up at home are relying on financial apps in record numbers. New sign-ups at PayPal, along with its peer-to-peer pay-ment app Venmo, have been double the pre-pandemic norm on recent days. They’re also using the apps in ways they weren’t designed for, such as to donate money to struggling individuals or to fund needed equip-ment for health care workers—totaling tens of millions of dollars. When Taylor Swift, the pop star, recently sent a surprise $3,000 “gift” to dozens of her fans who’d lost jobs or income as a result of the coronavirus, she did it via PayPal. It’s no coincidence that Venmo payments using the medical-mask emoji surged 375% in March, accord-ing to the company.
The crisis has become a proof-of-concept for fintech, one likely to change the way people bank and move their money even after they can visit a teller in person again. Says Zach Perret, CEO of Plaid, a startup whose software powers virtually all the major U.S. fintech apps (and which was recently acquired by Visa): “This shutdown time, I’ll suspect we’ll look back and say this was one in which digitalization really accelerated.”
AIR.W.05.20.XMIT.indd 50 4/14/20 7:25 PMFINAL
Only 3 out of 100 Americans donate blood—and that’s not enough to help patients in need.
Without more donors, patients will not have the type A, B, O or AB blood they need.
You can help fi ll the #MissingTypes this summer. Make a blood donation appointment today.
RedCrossBlood.org/MissingTypes
Without A, B and O, we can’t save anybody.
5 2 F O R T U N E M A Y 2 0 2 0
U.S. BANK
NATIONAL
ASSOCIATION
TRUIST
BANK
CITIBANK
CAPITAL ONE
STEARNS
WEX
FIRST CITIZENS
BANCORPSOUTH
BMO HARRIS
$8.8
$6.7$3.9
$8.1
$1.4
$1.3
$8.1
EVERY CIRCLE
REPRESENTS
A BANK
$17.7$13.4
SMALL-BUSINESS LOAN EXPOSURE FOR U.S. BANKS
SMALL-BUSINESS LENDING BY BANK
SM
AL
L-B
US
INE
SS
LO
AN
S A
S A
% O
F A
LL
LO
AN
S
TOTAL AMOUNT OF SMALL-BUSINESS LOANS OUTSTANDING
O R T H E PAST D ECA D E , the big U.S. banks have endured arduous annual Federal Reserve
“stress tests” gauging their strength to weather another Great Recession–like crisis. Critics groused that forcing financial titans to build gigantic war chests—modeled to withstand a replay of double-digit joblessness and an eight-point drop in GDP—was unneces-sarily cautious. But, lo and behold, banks
are suddenly confronted with a scenario even worse than the regulators’ worst case. “The banks were kicking and screaming while the government made them build capital and liquidity,” says Mike Mayo, an analyst with Wells Fargo.
“But that’s why they’re in such good shape today.”Indeed, the stress-test policy appears absolutely crucial
now, given the damage that the coronavirus pandemic is unleashing on Wall Street. From the start of 2020 through early April, the KBW banking index dropped 33.6%—20 points more than the S&P 500. JPMorgan Chase CEO Jamie Dimon warned in his annual letter that the bank’s earnings would “be down meaningfully” this year, con-ceivably endangering its dividend. And both boutique firm Wolfe Research and investment bank KBW forecast that profits for the Big Four banks—JPMorgan, Bank of America, Citigroup, and Wells Fargo—could crater more than 60% if a recession extends into 2021.
The crisis has pushed the major commercial and invest-ment banks into a new cycle of much lower earnings. But in a reversal from 2008, their profits should remain posi-tive even in the direst scenario. Plus, they’re entering a sharp downturn flush with capital and liquidity. Whereas Wall Street was the problem in the Great Recession, today the lenders and underwriters have the resiliency to be part of the solution—as conduits for channeling as much as $4 trillion in emergency funding to businesses large and small, and continuing to extend credit to their regular customers, from automakers to hairdressing salons.
The banks built up their finances in what has been a
F
GRAPHIC BY N I C O L A S R A P P
WALL STREE T
Thanks to a decade of scrutiny on top of a golden era of growth, the industry’s Big Four are well positioned to withstand a severe downturn—and capitalize on Washington’s stimulus plan.
BY SHAWN TULLY
THIS TIME,THE BANKSWERE READY FOR A CRISIS
T H E C O R O N A V I R U S E C O N O M Y
WAL.W.05.20.XMIT.indd 52 4/13/2020 7:12:07 PMFINAL
near-golden period for the industry over the past 10 years. They ben-efited from a combination of a strong economy and conservative manage-ment—partly dictated by the Fed, and partly imposed by such leaders as Dimon and BofA CEO Brian Moyni-han. Banks diversified into areas that generated steady earnings, notably by building and buying wealth manage-ment franchises. Most of all, pushed by the stress tests, the banks shored up their capital. From late 2008 to 2019, equity capital as a share of the balance sheet rose 51% at JPMorgan, more than doubled at BofA and Wells, and tripled at Citi. Entering 2020, the big banks boasted their strongest capital levels since 1940.
That staying power is crucial to seeding a recovery. The major banks are a giant source of funding to small- and medium-size businesses, or SMEs—typically enterprises that employ up to 10,000 and issue paychecks for over 70% of U.S. work-ers. At year-end 2019, the Big Four held $836 billion in “commercial and industrial” or C&I loans to SMEs. That was 45% of the total for all U.S. banks. The Big Four also provide the likes of hotel owners and develop-ers $422 billion in financing, equal to 28% of all commercial real estate lending provided by America’s banks.
The economy’s shutdown is starv-ing SMEs for cash. The stimulus plan marshals the banks to originate and service government-guaranteed loans to as many as 17 million of these enterprises. The aid designed to flow through the lenders comes
via two main vehicles. The first is the $349 billion Paycheck Protection Program (PPP). It makes loans of up to $10 million mostly to compa-nies with 500 or fewer employees. And if a company’s payroll stays the same for eight weeks after it gets a loan, the debt is forgiven. The PPP is a good thing for America’s banks, including the Big Four. The lenders take no credit risk, and, according to interviews with bankers, the fees paid to originate the loans make them profitable, especially for amounts up to $2 million.
Since most of the loans are likely to become grants, the PPP will help bridge their clients through to the recovery without adding to their debt load. Plus, fragile businesses can use the new loans, charging 1% interest, to pay the interest on existing, at-risk borrowings at, say, 4% or 5%—lift-
ing their cash flow. Put simply, the PPP lowers the banks’ credit risk by providing either grants or cheaper, guaranteed financing to small busi-nesses, and lowering the number of bad loans going forward.
T
H E S EC O N D P RO G R A M is less of a slam dunk for banks. The Main Street Lending Program will extend loans to
medium-size businesses employing up to 10,000 people. For the Big Four, that category is several times the size of their small-business books. The Fed is providing the cash and the Treasury is guaranteeing 95% of the financings; the banks will keep just 5% on their books. Under the Fed’s plan, up to $600 billion in Main Street loans will be offered. But these loans are a different species from the relief offered by the PPP. The borrowers have to repay the government. If they default, the U.S. can protect taxpayers by seizing assets or forcing them into bankruptcy.
For the banks, the Main Street program could pay off by support-ing their clients through a few more difficult months. But if a recession stretches into late this year or beyond, many struggling, overleveraged com-panies might need to seek additional emergency funding. That would cre-ate a quandary for the banks, who will certainly face intense pressure from regulators to make the loans. In that scenario, the banks will need to draw on every bit of the financial strength they built up over the past decade.
BANK OF AMERICAWELLS FARGOJPMORGAN CHASE
AMERICAN EXPRESS
SOURCE: WOLFE RESEARCH
$38.9$34.5$29.4
$28.6
SMALL-BUSINESS LENDING BY BANK
PARTLY DICTATED BY THE FED, THE BIG BANKS ENTERED 2020 BOASTING THEIR STRONGEST
CAPITAL LEVELS
SINCE 1940.
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IT MAY BE A MISNOMER to call anyone in retail a “winner” right now, when stay-at-home and social-distancing measures have shut down hundreds of thousands of U.S. stores and threatened consumers’ spending for the foresee-able future. But look at the few chains that have managed relatively well in this chaotic time, and you’ll gather clues about what it will take to come out ahead in the industry, both now and long after the virus has been contained.
Walmart’s U.S. sales reportedly jumped 20% in March as people stocked up on essentials—further boosted by a 190% increase in monthly downloads of its online grocery app, according to data tracker App Annie. Nike kept its China business from stalling, thanks to a fitness app that helped homebound consumers do quarantine workouts. And Lululemon Athletica has even reopened a few North American stores, not to serve walk-in customers, but to use inventory to fill online orders more quickly.
What these cases make clear is how central the full inte-gration of stores and shopping technology has become to big retailers’ health. “The retailers that were already doing
it successfully are the ones that are going to recover much more quickly,” says Kimberly Becker, senior research director with Gartner. And in a future when shoppers are likely to be skittish about staying long in any store—if they visit at all—only the tech-savvy chains will survive.
The big-box retailers proved their mettle during the rush on stores in March, as Americans stripped shelves of essentials like toilet paper and baker’s yeast. While lengthy waits for delivery were thwarting many e-commerce shoppers, Target and Walmart succeeded by offering drive-up retrieval for online orders through their apps. (This will become increas-ingly important now that both chains are limiting the number of shoppers allowed in stores at any one time.) And the fact that the chains now hold much more of their e-commerce inventory in stores than they once did helped them avoid shortages.
“Because we’re using stores as local fulfillment hubs, we’ve been able to handle sustained, holiday-like online volumes,” Target chief operating of-ficer John Mulligan tells Fortune.
Crisis-related changes in shop-ping habits have also accelerated a less-is-more approach to product
RETAIL
Even after the coronavirus crisis ends, shoppers may be reluctant to spend time in physical stores. The retailers who are smartest about technology will get the most out of their bricks and mortar.
BY PHIL WAHBA
NEXT-GEN APPS
TO EASE NEW ANXIETIES
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selection. To keep shelves well-stocked, retailers have worked closely with suppliers to limit the variety of sizes, colors, and flavors of all sorts of goods, focusing only on those most consistently in demand. Unilever, for example, said last month it would concentrate mostly on large sizes of its products, like 30-ounce jars of its Hellmann’s mayonnaise, to speed up production and distribution.
Retailers like Walmart and super-market giant Kroger have long been shifting in this direction, opting to devote more shelf space to bestsell-ers rather than stocking 50 varieties of the same detergent. “There’s been a slow bleed of taking out the stuff that’s just another color or another flavor and isn’t pulling its weight,” says Laura Kennedy, lead consumer and retail analyst at CB Insights. Increasingly, if you crave a company’s seventh-bestselling sandwich cookie, you’ll have to find it on the Internet.
Technology is helping retailers wring more revenue out of their inventory. Lululemon has invested heavily in RFID (radio-frequency identification) tech, enabling it to
know in real time where every hoodie or sports bra is, whether at a distribu-tion facility or in a store. That’s mak-ing it much more efficient in filling online orders from physical stores, at a time when e-commerce is its only source of income. “The race is, How much cash can you get out of inven-tory that’s stuck in stores today?” says Nikki Baird, vice president of innova-tion at retail tech firm Aptos.
Stores that can precisely track in-ventory are also helping their custom-ers: The best apps can tell shoppers which items are in stock in what store and where in that store, an appealing idea for customers who don’t want to linger. (Walmart and Target have made big strides in this arena too.)
R
ETAILERS’ tech successes aren’t focused solely on logistics and efficiency: They can also keep cus-tomers interested in a
brand. After most of its 7,000 retail locations in China were closed, Nike made the premium version of its workout-on-demand Nike Training Club app—which is seamlessly inte-grated with Nike’s e-commerce—available for free there. As use of its apps surged, Nike’s digital sales rose 30% in China during the country’s six-week lockdown, and business in stores bounced back quickly once they reopened. Nike is using the same playbook in North America now. “We know that consumers need to main-tain their mental and physical health,” says Heidi O’Neill, Nike’s president of consumer and marketplace.
Still, even after the crisis has passed, no one expects shoppers to quickly return to their old com-fort levels in physical stores. Some upgrades Nike has implemented, like self-checkout and contactless payment systems, seemed like nice-to-haves before the coronavirus; after stores reopen, they’ll be must-haves.
“The investments you made are going to be ever more meaningful when customers come back,” says O’Neill.
T H E C O R O N A V I R U S E C O N O M Y
61%SHARE OF U.S. RETAIL LOCATIONS—
258,366 STORES AS OF MID-APRIL—THAT HAVE CLOSED BECAUSE OF COVID-19 PRECAUTIONS
SOURCE: GLOBALDATA RETAIL
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N AUGUST 2019, barely half a year before the world changed, the pharmaceutical industry was the most disliked business sector in America: 58% of those polled by Gallup had a negative perception of the industry, more than twice the share who viewed it favorably—giving drugmakers a net positive score of minus 31, the worst by far of any business sector in the country. For comparison, airlines and the legal profession had net positive scores of plus 19 and plus 5, respectively. Even the federal government (minus 27) had better ratings overall.
Enter the coronavirus. As much as the pandemic has devastated many industries, it has offered Big
Pharma a chance to shine as never before, winning back the trust of a public infuriated with years of soaring drug prices. Will they seize the moment? The answer depends in large part on how fast drug and device makers make progress in three areas essential to beating back COVID-19. The first is in the realm of diagnostic tests that can identify not only who has the disease but also who’s no longer infectious and therefore safe to return to work. Second are therapies to shorten the disease course and lessen its severity—which will be important for reducing the burden on hospital ICUs and exhausted critical care teams. And third are vaccines: Without a safe and widely disseminated vaccine to confer immunity on a huge swath of the population, it’s hard to imagine life returning to something resembling “normal.”
Success in these three areas won’t put the pricing controversies to bed. As they strive for novel therapies and medical tools, pharma com-panies will have to balance the need to fund innovative projects and still satisfy a public (and perhaps regulators) demanding low- or no-cost drugs and devices to combat this plague. Still to be determined is what role health insurers and governments may play in all of this.
Gilead Sciences, which likely has the most advanced anti-COVID-19 drug of the bunch, has consistently stated it doesn’t expect to make much money off of its antiviral product, remdesivir. SVB Leerink’s lead
pharma analyst Geoff Porges tells Fortune the company will be under tremendous pressure to put a reason-able price tag on the drug. Indeed, the blanket uncertainty across the industry—on everything from pric-ing to the resiliency of supply chains to the difficulty of conducting clinical trials in an era of social distancing and overwhelmed hospitals—has prompted several firms, including Pfizer and AstraZeneca, to issue statements saying they can no longer offer financial guidance for the year.
Throw in the already fragmented nature of U.S. health care, a desper-ate public, a fast-changing timeline of government priorities, and anx-ious shareholders, and the result is something akin to an Olympic sprint in which dozens of runners are each competing on their own tracks. Predicting who’s got the lead in such a race isn’t easy. But Fortune reached out to dozens of companies, analysts, public health organizations, academ-ics, and other experts to assess the state of progress.
One bit of good news: So far, even longtime cynics are giving the indus-try a qualified thumbs-up. Whether that’s enough to grant drugmakers a better grade than lawyers is another question.
I
The pandemic may finally do for the pharmaceutical industry what relentless TV advertising cannot: show off its power to innovate.
BY SY MUKHERJEE
WILL MEDICINE MAKERS
COME TO THE RESCUE?
DRUG INDUSTRY
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DIAGNOSTICS
FUNDAMENTAL to controlling the spread of COVID-19 are tests that can identify those who have been exposed to the coro-navirus, which is easily transmitted by infected individuals—even, the evidence suggests, when they have no symptoms of illness. The standard test requires a quick swab of the throat or nose (or both), which grabs a tiny sample of mucus and analyzes it through a process called polymerase chain reaction. PCR amplifies the genetic material of the virus, if any is present, making it easier to identify.
PCR tests can quickly reveal who is currently infected with the virus, even if they’re asymptomatic. But they don’t show who may have previously been infected, silently or otherwise, and no longer carries the virus—thanks to the response of their body’s own immune system. In such cases, those formerly infected will have telltale antibodies in their blood. The antibod-ies circulate in the blood for a long while, keeping a careful vigil out for the virus should it reappear and standing ready to mount a counterattack if it does. That, in short, is an immune response.
Having an immune response (that is to say, antibodies) to a virus doesn’t neces-sarily mean a person has full immunity to it on subsequent exposure. But when it comes to returning people to work, it’s important to know who’s got at least some immunity and who doesn’t. Serology tests, which look for specific antibodies in a small sample of blood, can reveal that.
In recent weeks—and notably, after the Centers for Disease Control and Preven-tion botched its initial PCR test—a spate of private and public health labs have rushed into the breach, creating a range of diag-
nostics for COVID-19. As of April 10, there were 33 FDA-authorized coronavirus tests—though the question of which ones work best may not be known for months, when there’s enough data out there to compare them, says virologist Pedro Piedra of Houston’s Baylor College of Medicine.
Swiss drug giant Roche developed the first commercial coronavirus diagnostic to receive emergency authorization on March 12—with Thermo Fisher Scientific, LabCorp, Quest Diagnostics, Abbott, Cepheid, Cellex, Becton Dickinson (BD), Henry Schein, and others—following quickly on its heels.
One standout is Abbott’s latest PCR test, ID NOW, which can deliver positive or negative results within minutes rather than hours or days, which had been the standard turnaround time. That’s because it can be conducted on far more portable machinery and uses something called “iso-thermal” technology, explains John Frels, VP of R&D at Abbott. Typically, molecular virus tests need to cycle through multiple temperatures in order to amplify a virus’s genetic sequence in patient samples; the Abbott test can do that amplification process at a more consistent temperature, speeding up the process. The test is slated to be used in drive-thru testing facilities set up by CVS Health in several states, which may place it in front-runner status.
On the serology front, both medical distributor Henry Schein and Cellex, a smaller biotech firm, have received authorization for blood tests that screen for antibodies to the novel coronavirus. While U.S. regulators have said there are scores of companies that have signed up to create antibody tests, one major prob-lem is the spectre of profiteers hawking fake tests, something FDA Commissioner Stephen Hahn has said the agency will crack down on.
TREATMENTS
AT PRESS TIME, more than 75 coronavi-rus drugs are currently in development, according to research from Agency IQ. An additional 40 medicines, already approved for other indications, are now being tested as well against COVID-19.
“I think the best bet is still Gilead’s remdesivir,” says Porges, the SVB Leerink analyst, who is eagerly awaiting data from clinical trials that began in late February in China and which are expected to be published soon. Multiple other public health experts agreed.
Remdesivir, an investigational antiviral
T H E C O R O N A V I R U S E C O N O M Y
70NUMBER OF CORONAVIRUS
VACCINES NOW IN DEVELOPMENT,
ACCORDING TO THE WORLD
HEALTH ORGANIZATION
TESTING, TESTING Drive-thru swabs for the coronavirus have become the preferred method, as shown here in Málaga, Spain.
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treatment, has been in development for years to treat various infectious diseases, including SARS and MERS-CoV, two ill-nesses caused by strains of coronavirus related to the COVID-19 pathogen. In a study of 53 seriously ill COVID-19 patients treated with the experimental drug through a “compassionate use” program, its results published in the New England Journal of Medicine in April, 38 patients (68%) showed measurable improvement. (In 15% of cases, the patients’ illnesses progressed.) Though the study, experts caution, was neither randomized nor controlled, two standard practices that help ensure results aren’t inadvertently skewed, the initial findings were promis-ing—with response rates significantly higher, and mortality lower, than would be expected based on current data from hospitals today.
Antiviral medicines, which typically interfere with a virus’s ability to replicate, are rarely cures in the way that antibiotics (which kill bacteria) often are. But having a drug that can help patients breathe well enough to stay off a ventilator could be of enormous value in this pandemic. A single day on a hospital ventilator can cost $25,000, says Porges.
Gilead CEO Daniel O’Day released an open letter saying it would expand the number of available doses to 1.5 million, enough for 140,000 courses of treatment. A possible timeline could include emer-gency authorization within a few months.
Multiple other companies—including Takeda, Regeneron, and scores of other firms—are working on treatments. Those encompass antivirals, antibodies, or therapies derived from the blood plasma of patients who have recovered from
COVID-19. “There’s an incredible sense of urgency,”
says George Scangos, CEO of Vir Bio-technology, a company working on both COVID-19 treatments and vaccines, in-cluding through a major collaboration with British drug giant GlaxoSmithKline. “The number of companies that want to con-tribute regardless of whether you make a lot of money is incredible.” Hal Barron, the R&D chief at GSK, concurs. “I meet weekly with most of the Big Pharma company heads,” he tells Fortune. “I’ve never seen a magnitude of urgency like this.”
VACCINES
TESTING AND TREATMENTS can only get you so far. With a virus as transmissible as the novel coronavirus, a vaccine is critical to establishing long-term public health safety. Making sure they work—and are safe—can take years, says Peter Hotez, dean for the National School of Tropical Medicine at Baylor College of Medicine. That said, time does seem to be speed-ing up. By mid-April, there were no fewer than 70 coronavirus vaccines in develop-ment, according to the World Health Organization; with those from China’s CanSino Biologics, Inovio, and Moderna already in human trials.
Moderna’s candidate tweaks the virus’s messenger RNA to elicit an immune response in humans. In earlier clinical stages, GlaxoSmithKline has partnered with multiple firms, including Vir and French drug giant Sanofi, that want to le-verage its “adjuvant” technology—which can make it easier to produce more doses of a vaccine on a wide scale. Then there’s Pfizer’s collaboration with BioNTech in China; a partnership between Heat Biologics and the University of Miami; the Baylor School of Medicine with its investigational SARS vaccine; Novavax; and Johnson & Johnson.
But Johnson & Johnson seems to have produced the most buzz. In late March, J&J said its experimental vaccine might be in clinical trials by the fall of 2020 and on the market by early 2021. “Based upon our early data, we feel confident that we have got a very good candidate,” J&J CEO Alex Gorsky tells Fortune, adding this was a result of an investment in vaccine devel-opment technology made a decade ago, which “turned out to have much broader application than we anticipated.”
“This is a complicated virus that seems pretty good at avoiding the immune system,” says Vir chief Scangos. “It could be possible that COVID-19 vaccines are modeled after flu vaccines, which are somewhat effective, but would require wide-scale annual production” as new strains of the coronavirus emerge. “If we’re realistic, there’s risk.”
T H E C O R O N A V I R U S E C O N O M Y
“THIS IS A COMPLICATED VIRUS THAT
SEEMS PRETTY GOOD AT
AVOIDING THE IMMUNE SYSTEM.”GEORGE SCANGOS, CEO OF VIR BIOTECHNOLOGY, A COMPANY
THAT IS WORKING ON COVID-19 TREATMENTS AND VACCINES
RACE FOR THE CURE Gilead’s antiviral remdesivir, which had previously been used for SARS and MERS-CoV patients, is seen as a promising treatment for COVID-19.
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Social distancing is the most effective tool we have for
slowing the spread of the coronavirus. And that means
staying home, if you can.
Work from home. Play at home. Stay at home.
If you must go out, keep your social distance—six feet,
or two arm-lengths apart. Young. Elderly. In between.
It’s going to take every one of us. If home really is where
the heart is, listen to yours and do the life-saving thing.
Visit coronavirus.gov for the latest tips and information from the CDC.
#AloneTogether
T O G E T H E R , W E C A N H E L P S L O W T H E S P R E A D .
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SILENT STREETS Influential
scientists spread the word early
here about the virus.
WHEN THE CITY BECAME THE FIRST EPICENTER OF THE
CORONAVIRUS OUTBREAK IN THE U.S., THE COMPANIES
HEADQUARTERED THERE—AMAZON, MICROSOFT,
STARBUCKS, NORDSTROM, COSTCO, AND OTHERS—
FOUND THEMSELVES FIGHTING ON THE FRONT LINES.
SEATTLEUNDER SIEGET H E C O R O N A V I R U S E C O N O M Y : S E A T T L E
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O M LY N C H hadn’t expected the world to change—or at least his perception of it—at his Tuesday morning leadership meeting. He had expected to talk about
the fiscal year 2021 budget and maybe to get to know his team a little better. It was Feb. 25, and Lynch was just four weeks into the job as director of the Fred Hutchinson Cancer Research Center, so new that as he walked the halls of the Hutch that morning he struggled to find the right conference room.
Lynch had also made time on the meeting’s agenda for Trevor Bedford, an epidemiologist at the prestigious Seattle-based research in-stitute who had been tracking the novel coro-navirus known as SARS-CoV-2 since early January. Lynch describes Bedford as “very humble” and “understated,” but that morn-ing, as the quiet computational biologist laid out his grim projections for the virus’s impact on Seattle, he held the room. People became incredibly quiet and just listened,” says Lynch. “Everyone in the room at the same time got that what he was talking about was something that was going to really change our lives.” Lynch vividly recalls that day. “You remember where you were when you realized what this was.”
What this was was still a completely unfathomable proposition for most in the global metropolis of 3.5 million. “Social distancing” had not yet entered the lexicon. At the time, Seattleites were still making ar-rangements for March tech conferences and spring fund raising galas; people were look-ing ahead to attending Seattle Storm games and Patti Smith concerts and the Emerald City Comic Con, a beloved annual gathering of 100,000 superfans slated for mid-March.
If people knew it at all, COVID-19 was a threat that seemed at least an ocean away. The State of Washington had reported just one known case, that of a 35-year-old man from Snohomish County outside Seattle, who had traveled to Wuhan and gotten sick upon his return in mid-January. He’d been treated and recovered. For those keeping score, it was Washington–1, coronavirus–0. But on that morning in late February, Bed-ford framed the situation quite differently; the virus was an urgent if not yet visible ex-istential threat. Lynch got the message, and the next morning, in a breakfast meeting with Fred Hutch’s board leadership it was
Lynch who upended the agenda.“I think we should spend this entire conversation talk-
ing about COVID-19, and what’s very likely to be coming down the pike here in Seattle,” Lynch said to his chair Matt McIlwain, a managing director at Madrona Venture Group, the Seattle-based venture capital firm. McIlwain left and immediately called his VC colleagues: “We need to think through what our strategy is,” he said.
Another person looking at Bedford’s data was Christine “Chris” Gregoire, a former Washington state governor—she served from 2005 to 2013—former Fred Hutch chair, and now head of an organization called Challenge Seattle, which engages 19 of the city’s largest businesses and institutions. Those include a striking number of name-brand Fortune 500 companies and organizations, including Amazon, Microsoft, Starbucks, Costco, Boeing, Nordstrom, Alaska Air, and the Bill & Melinda Gates Foundation, among others. The group
CITY OF INDUSTRY
THE SEATTLE AREA is home to an outsize number of Fortune 500 companies, tech firms, and medical organizations. Seattle is west of Lake Washington, while suburbs such as Bellevue and Kirkland are across the lake on the “Eastside.”
PROVIDENCE HEALTH
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was founded to solve some of the region’s more intractable problems surrounding education, affordable housing, and transportation. As it happened, Challenge Seattle had one of its meetings on the night of Feb. 25.
Challenge Seattle chair Susan Mullaney, the president of Kaiser Permanente Washington—which has dozens of health facilities, a leading research center, and more than 700,000 members across the state—had been follow-ing, with increasing alarm, her own group’s COVID-19 modeling efforts. She asked Gregoire for some time on the agenda that night; this was something she thought the business community needed to prepare for.
Many attendees now remember the event as their psychological turning point. Earlier in the evening, they’d casually discussed the virus over wine; at dinner, they’d sat—as one did, pre-pandemic—tightly bunched around tables. Though a few were already bumping elbows, many shook hands.
“I gave a brief update on how bad we thought it would be,” says Mullaney. Gregoire went over Bedford’s projections. As the group, which included Weyerhaeuser’s Devin Stockfish, Zillow’s Rich Barton, and REI’s Eric Artz, talked through comparisons to the 1918 flu pandemic, it was lost on no one that the most concerned among the group were its subject-matter experts—Mullaney and Steve Davis, the recently retired CEO of PATH, the global health organization. Some were struck by the assessment that the CDC was six to eight weeks behind on the issue. “The severity of it was sinking into all of us during that dinner,” says Michelle Seitz, CEO of Russell Investments, the Seattle-based global asset manager.
Margaret Meister, head of Symetra Financial, an insur-ance giant based in Bellevue, the Seattle suburb, had been so startled she texted her leadership team that night. “We need to up our game. This is a crisis. This is not some small thing,” she told them.
“Quite candidly, there was absolute shock around the table,” says Gregoire. “That was the day that everybody saw how dire this could be if we didn’t get to work.”
What nobody imagined was how quickly things would turn. Just three days later, public health authorities an-nounced the state’s second confirmed case of COVID-19. It was a stunning one: The infected individual was a local teenager, a high school student also from Snohomish Coun-ty but who hadn’t traveled anywhere. (His case had been detected only because the Seattle Flu Study, an influenza surveillance effort funded by Seattle-based Gates Ventures and staffed by University of Washington, Seattle Children’s Hospital, and Hutch scientists—Bedford among them—ig-nored state and federal guidelines and tested samples.)
And then the following night, a Friday, Gregoire got a call. The state had its first COVID-19 death, and there was an outbreak at a local nursing home. The virus was in the community, and it was spreading. The threat they’d all been worrying about had already arrived.
But something else had been spreading too. The net-works that knit Seattle together—running from its research hospitals and global businesses to world-eminent institu-tions, community organizations, and government—were thrumming with the exchange of information and inten-
tions. Gregoire immediately called Mullaney and asked her to prepare another briefing.
T
H E R E A R E M A N Y WAYS to tell the story of America’s first COVID-19 outbreak—an epidemic that, in the Greater Seattle area, has to date
tragically killed 385 and infected 7,324 (in King County, home to Seattle proper, the numbers are 294 deaths and 4,428 infec-tions). The virus has stolen the livelihoods of hundreds of thousands more. But the story of how Seattle came together can be a model for any city and organization.
In some ways, it’s hard to dream up a city better equipped to manage an outbreak of a new and deadly pathogen. Seattle has few worthy rivals when it comes to public health. In the University of Washington, the city has one of the nation’s leading virology labs and one of its largest infectious disease departments. It’s a town full of influential epidemiologists and disease modelers, many of whom have had their efforts blessed with Gates dollars, from the Hutch’s Bedford—with 200,000 Twitter followers—to the University of Washington’s Chris Murray, whose models are cited by the White House. It’s no accident that Seattle has the world’s first operational trial site for a COVID-19 vaccine candidate, or that it’s the first city in the country doing CO-VID-19 surveillance with at-home testing kits.
“We have an infrastructure that is 40 years in the making,” says Larry Corey, the man who started UW’s virology program in 1978 (and
SEATTLE FREEZE Locals adopted social
distancing guidelines seriously—and early on.
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to fight for market share, they were on the same side for once, trying to save their city.
B
R A D S M I T H H A D N’T E X P ECT E D to come home to find an outbreak in his backyard. As Microsoft’s president, he’d been thinking about the virus, certainly—he’d been at a security conference in Munich mid-February,
where he’d met a team from the White House who had peppered him with questions: What had the company seen in China? What would be the ripple effect of China’s economic downturn? Smith had then gone to Rome for an event at the Vatican; as the outbreak worsened in northern Italy, the virus was top of mind. He had left Italy the night of Friday, Feb. 28.
On Feb. 29, local public health authorities announced its first COVID death, an outbreak at the Life Care Cen-ter in Kirkland—a short drive from Microsoft’s campus. Adding to the urgency, Hutch epidemiologist Trevor Bed-ford shared an analysis, based on genomic-sequencing data of the virus, that suggested SARS-CoV-2 had been stealthily circulating in the community for weeks, likely infecting hundreds. Smith, a history buff, did two things: He ordered the best-regarded book on the 1918 flu pan-demic, John Barry’s The Great Influenza, and he phoned his friend Gregoire, who had called for an emergency meeting of Challenge Seattle members the following day. They discussed the need to gather leaders from both the private and public sectors—and particularly public health experts.
The next day Gregoire held the emergency meeting, becoming the first in what is a now an ongoing series of daily COVID-19 crisis calls, open to the entire business community, sometimes with as many as 200 participants. At the beginning though, it was a much smaller group of leaders and King County officials trying to establish the facts and coordinate a response in an effort to “build public confidence,” says Gregoire.
They decided, when possible, organizations—even fierce competitors, like Amazon and Microsoft—should respond in the same way, whether it be on work-from-
has since been instrumental in developing AIDS drugs, helmed the Hutch, and led the global HIV Vaccine Trials Network). “We’ve been able to permeate our community…we’re able to influence and be a factor.”
Seattle is also a city of staggering wealth, home to a burgeoning tech community as well as the world’s most valuable multina-tional companies and the world’s two richest men, one of whom, Bill Gates, just so hap-pens to be the planet’s most prominent advo-cate and funder of pandemic preparedness. Beyond those deep pockets, these enterprises are well connected to expertise—logistical, technical, biomedical—that spans the globe.
It all adds up to a highly educated popula-tion—with 62.6% of its residents holding four-year degrees, it was dubbed “America’s most-educated big city” in 2019—with a bias toward data and science. (Some also credit locals’ Scandinavian reserve—which mani-fests as the “Seattle freeze”—for their success at social distancing.)
Two Twitter hashtags epitomize the city’s collective response. #AllInSeattle—a fundraising banner under which dozens of the city’s millionaires donated $27 million to various nonprofits in four days—and #We-GotThisSeattle, a hashtag that trended on Twitter and was stitched on a flag that now crowns the city’s iconic Space Needle.
That’s not to say the city is out of the woods—Washington State Gov. Jay Inslee has stressed this point repeatedly—but in recent weeks as COVID-19 has continued its devastating spread across the U.S., Seattle has found a bit of a clearing, or in epide-miologist-speak, some “curve bending.” Its hospitals, though constrained by resources, have not been overwhelmed like those in New York and New Orleans. In King County, where Seattle and many of its suburbs lie, COVID-19 cases today are doubling once every 15 days; that compares with every 11.5 days in New York City and every 8.5 days in Chicago. Supplies once destined for Amer-ica’s COVID-19 ground zero are now being rerouted to new, hotter hot zones.
In that way, the city offers a playbook, one that points to the importance of collabora-tion. Seattle is a big global city, but as many Seattleites will tell you—powerful ones, at least—“it feels a lot like a small town.” Infor-mation, and aid, and solutions were being rapidly passed around Seattle’s tight-knit business community and throughout the ranks of government. Suddenly some of the most cutthroat companies on the planet, like Amazon and Microsoft, weren’t trying
“THESE BIG COMPANIES BEGAN
ACTING IN CONCERT. I’VE HAD
A CAREER IN PUBLIC SERVICE
AND I’VE NEVER SEEN
ANYTHING LIKE THIS.”
SEA.W.05.20.XMIT.indd 64 4/14/2020 7:37:00 PMFINAL
1 201040
60 80 100 120 140
294
160180
200
260
MARCH 1 MARCH 7 MARCH 22MARCH 15 APRIL 1 APRIL 12
APRIL 12
1
10
100
1,000
10,000 CASES
WASHINGTON
STATE WEEKLY NEW
UNEMPLOYMENT
CLAIMS
March 76,548
March 1414,154 March 21
128,962
March 28181,975
April 4170,063
SEATTLE COVID-19 DEATHS
(KING COUNTY, CUMULATIVE COUNT)
MARCH 1
FEB. 29, 2020First COVID death announced in Seattle area. Fred Hutch epidemiologist Trevor Bedford posits virus has been spreading stealthily for six weeks, infecting hundreds.
MARCH 1Challenge Seattle begins daily crisis calls.
MARCH 3Amazon and Facebook report confirmed cases on their Seattle campuses.
MARCH 9Seattle Foundation launches COVID-19 Response Fund backed by Amazon, Microsoft, Alaska Air, the Starbucks Foundation, and others; raises $9 million in 3 days.
MARCH 11Gov. Inslee bans gatherings of 250-plus; a day later he closes Seattle area schools.
MARCH 13The Hutch sets up Zoom call between ICU and ER doctors in China and the U.S.
MARCH 16World’s first COVID-19 vaccine trial begins at Kaiser Permanente Washington. Microsoft begins using its cafeteria workers to make meals for students and other community members.
MARCH 19A Seattle-area furniture company, Kaas Tailored, begins producing PPE. Nordstrom and Alaska Air assist in its effort.
WEEK OF MARCH 2T-Mobile expanded its work with Snohomish County’s School2Home program, providing 850 Wi-Fi hotspots to enable remote learning.
APRIL 10Inslee tweets that the state has started to “bend the curve.” He encourages all to continue to stay home. Boeing delivers first shipment of reusable 3D-printed face shields, manufactured at company facilities.
APRIL 12
MARCH 23Inslee issues stay-at-home order. Private citizens launch #AllinSeattle to respond to the crisis and raise $27 million before official launch. City launches Seattle Coronavirus Assessment Network using at-home COVID-19 testing kits, sponsored by Gates Foundation, delivered by Amazon. Boeing announces 14-day shutdown at area facilities.
MARCH 26Seattle Mayor Jenny Durkan raises #WeGotThisSeattle flag atop Space Needle.
MARCH 28Steve Ballmer gives $10 million to UW to ramp up coronavirus testing; Jeff Bezos and others follow.
APRIL 5Inslee gives 400 ventilators to N.Y. State.
AS COVID-19 SPREADS IN SEATTLE, CORPORATIONS JOINED THE FIGHT TO FLATTEN THE CURVE
1,166
489
117
235
22
11
4
2,079
3,169
4,119
1,166
489
693693
117
235
329329
22
11
1515
4
2,079
1,5791,579
3,169
4,119
4,428 CASES IN KING COUNTY
FEB. 28
SOURCES: WASHINGTON STATE EMPLOYMENT SECURITY DEPARTMENT; CASE AND DEATH DATA FROM THE NEW YORK TIMES, BASED ON WASHINGTON’S KING COUNTY
MARCH 7 MARCH 22MARCH 15 APRIL 1
home policies or protocols around essential employees. Those companies also got a heads-up whenever local or state officials were planning to announce outbreak-related policies. “So these big companies began acting in concert,” says Gregoire. “I’ve had a career in public service, and I’ve never seen anything like this.”
Within days of the group’s first call, many of the city’s largest employers had asked all but their essential workers to stay home. Microsoft went on to announce it would continue to pay its hourly workers—janitors, cafeteria staff—while the campus was closed. Others, like Amazon and Expedia, followed suit.
But the virus didn’t wait for the business community to get its bearings. It had already crossed into Seattle’s corporate sector.
T H E C O R O N A V I R U S E C O N O M Y : S E A T T L E
L
I K E M A N Y of Seattle’s tech leaders, François Locoh-Donou, CEO of $2 billion F5 Networks, was planning for business as usual as February drew to a
close. There was an investor and analyst event in New York, then the company’s annual customer meeting in Orlando mid-March.
But late on Friday, Feb. 28, his HR chief had taken him aside. There had been just three confirmed COVID cases in the whole
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6 6 F O R T U N E M A Y 2 0 2 0
state of Washington then, but one of them had been in close contact with an F5 em-ployee. That employee—whose own COVID test results wouldn’t be available for a few days—had been coming to work, riding the elevator, and occupying space in the com-pany’s new, 48-floor office tower.
That raised all sorts of questions—familiar now, but quite novel then. Should they close the office tower? Should they forgo their events? Had they themselves been exposed? Working out of a conference room that weekend, F5’s leadership team scrambled to consult experts and formulate a plan. “We had to make decisions really quickly,” says Locoh-Donou. They closed the tower for cleaning, a fact that more or less forced the other decisions: “We couldn’t send 10 execu-tives from F5 Tower to be in a room with investors in New York City,” he says.
The decision hurt nonetheless. The em-ployee tested negative, but the last-minute cancellation of the investor event spooked the market, and F5’s stock price took a beat-ing. For a couple of days, “it looked like a bad decision,” says Locoh-Donou. Of course, he adds, it was the right call.
Within days the city’s other tech com-panies were dealing with similarly urgent decisions. Amazon emailed employees on Tuesday, March 3, about a confirmed case on its Seattle campus; the individual—one of the company’s 50,000-plus based in Se-attle—worked out of the headquarters’ Brazil building and had last been in the office on Feb. 25. The night before falling ill, that employee had eaten dinner at Facebook’s nearby Seattle campus.
Facebook, meanwhile, had its own con-firmed case—a contractor who had last been in the company’s local offices on Feb. 21. Microsoft reported a case on its Redmond campus, peopled by roughly 50,000 employ-ees, on March 5.
“People wanted to know what floor they were on or what room they were in,” says Kathleen Hogan, Microsoft’s chief people of-ficer, who got word of the confirmed case on their campus over text. Microsoft benefited from the expertise of Colleen Daly, the com-pany’s global wellness benefits manager, who holds a Ph.D. in public health. Daly was on daily calls with the CDC and World Health Organization and managed the company’s internal contact tracing efforts.
For the city’s tech companies, many of which are in the business of enabling the bur-geoning work-from-home economy, issuing swift and sweeping guidance for their em-
ployees was relatively straightforward. The calculation was not so simple for some of Seattle’s other large employers.
H
AV I N G C LOS E D D OW N 80% of its stores in China during the outbreak, Starbucks already had experience with COVID-19 when the virus showed up in its hometown. When a staff member in a downtown Seattle store
came down with the disease on March 6, the company sanitized the store and resumed operations a few days later. The company phased in other changes—like offering 14 days of catastrophe pay to COVID-impacted workers and removing seating. But as the outbreak intensified across the U.S., employees like Aniya Johnson of Philadelphia grew frustrated that they were being asked to risk their health to serve coffee. “It’s not an essential service,” Johnson told Fortune in mid-March, days after she had, on a whim, started an online petition calling on Starbucks to close stores during the pandemic. The effort attracted 37,400 signatures from baristas and customers by the time Starbucks announced it was moving primarily to a drive-through model. (Starbucks says its decisions were informed by the China experience and grounded by concern about the well-being of its employees and communities, and its desire to support governments in efforts to mitigate the virus’s spread.) Costco—whose stores were deluged nationwide with shoppers seeking toilet paper and canned goods—asked employees at its headquarters, just east of the city, to report to work. That request was dropped after an employee in the company’s travel department died of COVID-19 and others tested positive in mid-March.
Boeing, which employs roughly 35,000 at its largest factory in Everett, just north of the city, and 70,000 in the Puget Sound region, initially kept its plants run-
T H E C O R O N A V I R U S E C O N O M Y : S E A T T L E
250KN U M B E R O F N 9 5 M A S K S P R O C U R E D B Y M I C R O S O F T T O H E L P F I G H T T H E
S E A T T L E - A R E A C O V I D - 1 9 O U T B R E A K
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ning. Deemed an essential business, its lines continued to assemble airplanes as COVID-19 cases cropped up in its workforce; it suspended production in the state in late March following the death of a quality inspector named Elton Washington.
While some Seattle employers struggled to strike the right balance, the area’s health care providers were scram-bling to prepare for a surge of patients amid a desperate shortage of tests and other critical supplies. The Providence Regional Medical Center in Everett, which had received the nation’s first COVID-19 case in January, had tried to bulk up on supplies for a potential pandemic that month.
“Even being a couple steps ahead in our planning, it was really a challenge,” says Amy Compton-Phillips, chief clini-cal officer for the system. Starting in January, Providence’s orders from suppliers in China couldn’t be filled because manufacturing lines there were down. Providence staffers were overwhelmed by offers from suppliers they’d never worked with before, and came to understand many of them were profiteers, hawking non-medical-grade goods.
“Things got so bad that we just went out to Joann Fabrics and Home Depot and bought supplies,” adds Compton-Phillips. A local Seattle TV station did a news story, featur-ing footage of Providence’s nurses assembling face shields and surgical masks in a hospital conference room.
Jeff Kaas, CEO of Kaas Tailored, a local company with 200 employees that makes furniture for Nordstrom and airplane parts for Boeing, heard about the spot on March 18 and immediately texted a doctor friend at Provi-dence: “You know I have a factory, right?”
The next morning at 6 a.m., Providence sent a design and supply team to Kaas’s Mukilteo, Wash., factory. They
worked out a surgical mask prototype, and the following day, after some collaboration with a firm in the Netherlands, they were making them. Kaas shared the specs on-line, which are now being used to produce personal protective equipment (PPE) around the world.
His own factory, staffed by employees, vol-unteers, his wife, and all four of his children, has been running 16 hours a day, six days a week since. Nordstrom has lent tailors to the effort and placed one of its managers at Kaas’s factory full-time. Providence’s effort has grown into the “100 Million Mask Chal-lenge,” managed by the American Hospital Association.
Outdoor Research, a Seattle-based outdoor- and military-apparel maker owned by Dan Nord strom—he left his family’s department store business in 2002—has also transitioned his operations to make PPE, an effort that was celebrated by Gov. Inslee as the sort of wartime manufacturing effort that’s needed. Local institutions have also stepped up to fill testing and health care gaps. The University of Washington has quickly ramped up its operations to run 2,000 tests per day. The Gates-backed flu study has pivoted to doing COVID-19 surveillance using at-home swab kits that Amazon delivers.
A Seattle-based financier with connec-tions to China reached out to Madrona’s
ALL IN Workers at Kaas Tailored went from making airplane parts for Boeing to producing personal protective equipment.
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SEA.W.05.20.XMIT.indd 67 4/14/2020 7:37:03 PMFINAL
6 8 F O R T U N E M A Y 2 0 2 0
McIlwain in mid-March, offering to set up a video call between ICU and ER doctors in COVID-19-impacted Chinese cities and their counterparts in Seattle. Two days later, with the help of the Hutch, the information-sharing session took place over Zoom at 6:30 a.m. Seattle time, with 300 participants nationwide.
While Challenge Seattle initially focused on synchronizing the ac-tions of the business community, the group’s efforts quickly turned to troubleshooting and supporting the government too.
When Kaiser Permanente’s Mul-laney asked the group in early March,
“Can anybody help get basic supplies?,” Costco CEO Craig Jelinek responded, saying he could source 40,000 N95 masks from China in 24 hours. Alaska Air CEO Brad Tilden made a broad offer to transport supplies. “We’ve got a fleet of airplanes that we’ll put at your disposal,” he told Mullaney.
Later, when a representative from Washington State mentioned on a call that it needed to make an advance payment to secure $10 mil-
turned into quarantine centers, Gregoire says Starbucks came through with furniture. After Mullaney advised that the state needed a single point person to coordinate its hospitals during the outbreak, her team helped Gov. Inslee find and hire—in roughly 72 hours—Vice Admi-ral Raquel Bono, a trauma sur-geon who set up field hospitals in Desert Storm.
By early April, there were very real signs of hope that these types of moves had helped Seattle had escape the worst-case scenarios. Gov. Inslee sent 400 ventilators Seattle no longer needed to the East Coast. Supplies to turn CenturyLink Field, where the Seahawks play, into a temporary hospital were instead directed to other states.
In assessing the catastrophic toll from the spread of this deadly pathogen, in most places COVID-19 seemed to reveal nothing but weakness: weak-ness in infrastructure, weakness in supply chains, weakness in preparedness, divisions between government and business. In Seattle the pandemic seems to have revealed something else entirely: a tensile strength that few knew the city possessed. Says Smith: “If you bring us all together and coordinate the right way, you can do so much more together.”
The city’s dense web of partnerships has proved vital in stemming the initial wave of contagion; it’s unclear if it will be as effective in addressing the collateral damage COVID-19 has wrought—a devastated economy, record-level unem-ployment, and fissures of in-equality the crisis has laid bare.
These are new realities with no easy answers, but Seattle has an advantage when everyone is #AllIn.
lion worth of protective equipment from China, Microsoft that day made available $15 million to the govern-ment to assist.
In another instance, a quarter-million N95 masks Microsoft had managed to procure for the state were stuck at a FedEx import facility in Memphis. Smith got wind of this dilemma at 5 p.m. on a Saturday in late March. He made a call to the White House, a contact on the National Security Council. They were released by the next morning.
“Anything the government has asked of these companies they have stood up and said, ‘We can make that happen,’ ” says Gregoire.
When Challenge Seattle asked for help organizing the state’s medical supply distribution center, they got senior managers from Amazon and Microsoft. When King County need-ed furnishings for motels they had
T H E C O R O N A V I R U S E C O N O M Y : S E A T T L E
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PRODUCTIVE EVEN WHEN IT’S
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In Leadership Next, Fortune’s new weekly podcastseries, CEO Alan Murray sits down with stars ofbusiness for intimate conversations about the rules of leadership. The leaders of the world’s most successful companies discuss the global impact of the coronavirus as well as how accelerating technological change and rising demands from stakeholders are enabling them to put a new sense of purpose at the center of their enterprises.
The podcast views and opinions do not reflect those of Deloitte or its personnel. Deloitte does not advocate or endorse any individuals or entities featured on the episodes.
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7 0 F O R T U N E M A Y 2 0 2 0
M
OST E N T R E P R E N E U RS D R E A M of having an unexpected flood of new users. For Eric Yuan, the 50-year-old founder and CEO of Zoom, adding 90,000 schools—and having to edu-cate them on how to use his product—has
become a bit of a nightmare. “We thought their IT teams could help, but we were wrong,” he says in an early April interview over Zoom. “We are like the IT team for them.”
It’s hard to feel too sorry for him. After all, he is a multibillionaire several times over. He leads one of the few companies whose prospects have soared as a result of the pandemic. Still, Yuan looks drained, his face wan against the backdrop of a glimmering—and fake—image of the Golden Gate Bridge, a standard option in his product’s
“choose virtual background” feature.His frustration is understandable. A month has passed
since Yuan ordered his 2,500-person company to work from home, preced-ing California’s statewide lockdown by 12 days. In the weeks that followed, as the COVID-19 outbreak spread around the world, the San Jose–based company’s popularity took off expo-nentially as well. To “Zoom” quickly became a verb, the new-normal way to convene for everyone from yoga instructors to Fortune 500 executives suddenly forced from their workplac-es. Zoom’s users soared from 10 mil-lion a day in December to 200 million in March. Its stock price is up 80% on the year, giving the company a market
Aparna Bawa
Ryan Azus
Eric S. Yuan
Lynne Oldham
A QUIET HIT AMONG BUSINESS
USERS WHEN THE PANDEMIC
STRUCK, A YOUNG COMPANY
STRUGGLES TO SERVE CONSUMERS.
BY MICHAL LEV-RAM
HOW ZOOMZOOMED
VIDEO STARSMembers of Zoom’s management team, half of whom worked with CEO Eric Yuan at Cisco, which owns the videoconferencing unit Webex, before he started the company. Like so many others, they now fill their days meeting with one another over Zoom.
T H E C O R O N A V I R U S E C O N O M Y : Z O O M
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OF
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OM
VID
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CO
MM
UN
ICA
TIO
NS
(8
)
ZOO.W.05.20.XMIT.indd 70 4/14/20 2:24 PMFINAL
value of $35 billion. But the rapid growth has exposed
challenges far greater than the CEO’s crammed calendar. As it turns out, the main reason Zoom was able to zoom past the competition, its ease of use, has proved to be a thorn in its side. Not requiring passwords as a default setting gave rise to yet another new phrase in the pandemic lexicon, Zoombombing, or the intru-sion of uninvited and often offensive guests to private meetings. Zoom also has proved a target for hackers, forc-ing the company to patch software that could have allowed remote users
to control the cameras of unwitting users, among other nefarious tricks.
The explosion of attention caught Zoom off guard. After all, for a decade it had been focusing on business users, not the masses. Yuan has embarked on an apology tour, penning a contrite blog post and granting numerous media interviews.
“I’m ashamed,” he says of the security flubs. “I blame myself.” He’s adding more defensive features, such as mandatory password protection of meetings, while acknowledging that such moves will make Zoom less click-button simple to use. “For sure,
it will have some impact,” says Yuan. “But we have to win back trust.”
Winning trust isn’t Zoom’s only hurdle. Counterintuitively, the surge in usage isn’t necessarily a boon to its business, because so many of its new users aren’t, and may never be, paying customers. That challenge, at least from an investment perspective, may be an even bigger concern than security slipups. “I don’t think it’s sustainable to give your product away for free for too long,” says Alex Zukin, an analyst with RBC Capital Markets.
In other words, Zoom may have become a beloved household name
B U S I N E S S S U R V I V E S A P A N D E M I C : E N E R G Y
Kelly Steckelberg
Janine Pelosi
Harry D. Moseley Oded Gal
ZOO.W.05.20.XMIT.indd 71 4/14/20 2:25 PMFINAL
7 2 F O R T U N E M A Y 2 0 2 0
cating a phone call. “Eric spent two years building Zoom’s core architecture,” says Santi Subotovsky, a general partner with Emergence Capital, another early investor in Zoom.
“He did the hard work, and he didn’t take any shortcuts.” Yuan’s goal was to make Zoom scalable and reliable.
He also wanted to make it much easier to use than exist-ing video conferencing software, which typically led users through a series of clicks (and downloads) before any video started streaming. Because there were plenty of simple alternatives in the marketplace, from Google’s Hangouts to Microsoft’s Skype to Apple’s FaceTime, Zoom would have to stand out to succeed. “We were in a market full of gorillas,” says Janine Pelosi, Zoom’s chief marketing officer and another former colleague of Yuan’s. (Half of Zoom’s 12- member management team worked with him at Cisco.)
Zoom’s embrace of “freemium” pricing—free to most us-ers, upsells for added features—made the company popular with business users. The free version the world has become familiar with allows calls of up to 40 minutes for as many as 100 people and unlimited one-on-one exchanges. Zoom’s paid accounts start at $15 a month per user, enabling longer-duration calls and various administrative controls.
even as it faces unexpected scrutiny for its less-than-perfect security. But its success when the world returns to normal is any-thing but assured.
Z
O O M F L E W under the radar right through its successful initial public stock offering in April 2019. It raised $357 mil-lion at $36 per share, and the
stock quickly charged over $100, making it a bright spot in Silicon Valley after the disappointing debuts of buzzier startups like Uber and Lyft. Its early users were typically universities and other smaller technology companies. And it wasn’t like videoconferenc-ing was a particularly new idea. “For a long time, everyone thought that it was a crowded market, and that there’s nothing going on there,” says Dan Scheinman, a former head of corporate development at Cisco and Zoom’s first investor.
For Cisco, Zoom is in many ways the one that got away. In 2007 the networking equip-ment giant bought Webex, a business-focused videoconferencing company, where Yuan was the vice president of engineering. He stayed on at Cisco for four years and then left to build his own version of Webex, taking 40 engineers along with him. “To be able to scale video is a hard problem to solve,” says Oded Gal, Zoom’s chief product officer and one of the Webex refugees. “The engineers who fol-lowed Eric had built the best screen-sharing technology out there, and there are not a lot of people who can do that in the world.”
The entrepreneurs didn’t simply try to re-create Webex. Yuan believed a more modern take on the industrial-grade product the Cisco unit offered should be easily acces-sible from phones and laptops while on the go. It also needed to work on spotty Internet connections and cellular networks and to do it better than existing videoconferencing sys-tems, which sucked up huge bandwidth and still didn’t do a particularly good job of repli-
–50
0
50
100
150%
NASDAQINDEX
ZOOM STOCK PRICE
CISCO
APR. 9
RINGCENTRAL
100.8%
1.9%
SOURCE: S&P GLOBAL
JAN. 1, 2020APR. 18, 2019
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ZOO.W.05.20.XMIT.indd 72 4/14/20 2:25 PMFINAL
Versions targeting big and small businesses offer even more capacity and additional bells and whistles.
True to its business-focused roots, Zoom already was earning a modest profit by the time it went public. For the year ended Jan. 31, 2019, it made nearly $8 million on sales of $330 million. Sales nearly doubled to $623 million a year later, and profits nearly tripled to $22 million, handily beat-ing Wall Street estimates. “They’ve been executing wonderfully,” says Zukin, the RBC analyst. “Even pre-COVID, the stock had been on a significant tear.”
Indeed, Zoom was producing some of the fastest revenue growth rates in the soft-ware industry well before the effects of the pandemic began to be felt in China, where Zoom had proved popular. The company removed time-limit restrictions for Chinese users as the country began locking down. When workers in the U.S. began to follow suit in March, Zoom transitioned in a span of weeks from Silicon Valley success story to global phenomenon. And that’s when things got out of control.
W
H I L E Y UA N is publicly apologiz-ing and reevaluating Zoom’s features, his larger, deep- pocketed competitors are seizing the moment. Webex, his
former employer, is also seeing huge upticks in usage—more than tripling its volume of average meeting minutes per month in the U.S. in March. And it is actively marketing what it says is an emphasis on privacy and security to customers, both old and new.
“That differentiation helps at this time,” says Sri Srinivasan, head of Cisco’s collaboration unit, which includes Webex. Microsoft Teams, a business-focused product that includes videoconferencing and complements the company’s consumer-oriented Skype service, also has been gaining. Microsoft says 500,000 organizations use Teams, which it bundles with subscriptions to its Office 365 productivity software.
Even smaller players, like Internet tele-phone provider RingCentral, are trying to make their move while Zoom is in the hot seat. In early April, RingCentral announced it was launching its own video product after seven years of relying on Zoom to provide
“white label” videoconferencing tools to its customers. “We get to control our destiny,” says Vlad Shmunis, founder and CEO of RingCentral, referring to ending his com-pany’s reliance on Zoom’s video tool.
That alone might not make a dent in Zoom’s current growth trajectory. The com-pany’s chief financial officer, Kelly Steckel-berg, says that revenue from customers like RingCentral represents less than 10% of Zoom’s overall sales. What’s more, it’s not clear whether the current scrutiny of Zoom’s security issues will end up eating away at its new growth at all. Consumers can be forgiv-ing of security flaws in an overwhelmingly useful product. Just ask Facebook.
But there’s another question looming over Zoom’s newfound role as the public’s favorite videoconferencing tool: Just how many of its new users will become paying users? Unlike Slack, another collaboration-tool software maker, Zoom doesn’t break out the percentage of its account holders who pay. It also doesn’t say how successful it is in converting nonpaying users to pay-ing subscribers. The company warned that usage growth would erode margins, but it hasn’t quantified the risk.
Investors, who have watched Zoom’s market value equal that of auto giant General Motors, are concerned. “We have reservations about Zoom’s long-term ability to monetize,” Morgan Stanley analyst Meta Marshall wrote in a report. Credit Suisse’s Brad Zelnick, who downgraded Zoom’s stock April 6 to “under-perform,” was more direct. “We expect much of the recent surge will prove ephemeral, and/or comes from free users or education, which are difficult to monetize,” he told clients.
As for Zoom’s Yuan, he sounds as though he rues the day his company became a con-sumer hit at all. He’s focused right now on putting customers at ease, not wowing them. Already he has paused the development of all new features—that Snapchat-like makeup filter you’ve been pining for will simply have to wait—opting to devote his team’s time to fixing security loopholes. “We will review everything,” says the CEO. “Anything that might have negative impact to security and privacy, we will turn it off.”
In the process, Yuan needs to make sure he doesn’t turn off users who think his prod-uct has made getting through a global crisis just a little bit easier. After all, like Yuan, most of us plan to someday return to our office. When we do, he needs to make sure we still want to Zoom.
T H E C O R O N A V I R U S E C O N O M Y : Z O O M
NOT QUITE OVERNIGHT
For many, Zoom seems to have appeared out of nowhere. In fact, it was a private startup for eight years as it became popular for its ease of use among busi-ness customers.
2011
Zoom incorporates under the name Saasbee Inc.
2012
Changes name to Zoom Video Communications
2013 First public release of Zoom Meetings, which supported 200 million annual meeting minutes by year-end
2014
Launched Zoom Chat, Zoom Video Webinar, and Zoom Rooms
2015
100th employee hired
2016
Reached 6 billion annual meeting minutes
2017 Launched Zoom’s developer platform and hosted first user conference, Zoomtopia
2018
Announced Zoom Phone and a marketplace for third-party apps
2019 Exceeded 5 billion monthly meeting minutes. Oh yeah, and went public.
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O
T H E RO B OTS A R E M E S M E R I Z I N G.
Inside a warehouse in Erith, on
the outskirts of East London,
more than a thousand of them
glide across a vast steel and
aluminum grid. Each is the size and shape of
an office copy machine, topped with stubby
antennae and a shining neon-green LED.
Following individual routes, they whiz off,
accelerating at rates rivaling those of a Ferrari.
OCADO BUILT A BUZZY BUSINESS
AROUND HELPING SUPERMARKETS
SURVIVE ONLINE. THE COVID-19 CRISIS
HAS BECOME ITS TRIAL BY FIRE.
BY JEREMY KAHN
THE GROCERY ROBOTS ON THE
T H E C O R O N A V I R U S E C O N O M Y : O C A D O
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They stop on a dime, reverse, shoot left or
right, or momentarily pause to allow fellow
robots to pass—a meticulously choreo-
graphed electric ballet.
The robots’ grid is actually the top of a
giant three-dimensional lattice—a modular
cage packed with groceries. Each time a ro-
bot stops, it drops a clawlike attachment into
the bowels of the lattice (“the hive,” as human
workers call it), descending as many as three
stories. The claw grabs the sides of a white
plastic crate containing fruit, vegetables,
cereal—any of 55,000 different items—and
retracts it up into the robot’s belly. The robot
then carries the crate to another grid square
and lowers it into the “pick tunnel,” which
sits beneath the hive on the warehouse’s
ground floor. There, workers pick items out
of the crates to fill customers’ orders, placing
the groceries into red plastic bins, which are
HIVE MIND At Ocado warehouses, thousands of robots roll atop a metal grid known as “the hive,” filling orders with minimal human involvement.
THE PANDEMIC FRONT LINES
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stumbled as it races to keep up. To try to slow the over-
whelming order volume, Ocado shut down its mobile app
and implemented a queuing system on its website. But de-
mand was simply too great, and with all its delivery slots
booked for a week out, Ocado was forced to temporarily
shut down its website in mid-March. When it came back
online, almost a week later, the company restricted orders to
existing customers; even so, delivery slots remain difficult to
find. Ocado is now preparing for other worst-case scenarios;
it has held rehearsals for what will happen if its employees
begin to fall ill and entire teams need to self-isolate. (One
possible solution: drafting furloughed workers from other
industries to staff warehouses and drive trucks. The com-
pany has already reached out to recruit idled Uber drivers.)
Even before the coronavirus hit, grocers were under
tremendous pressure, squeezed by rising costs and race-
to-the-bottom price competition. Net profit margins for
U.S. grocery chains, for example, average just 1% to 2%,
according to consulting firm Mercator Advisory Group.
On top of these dismal trends, executives in the sector fear
the twin Death Stars of retail—Amazon and Walmart—
both of which have made clear their intentions to domi-
nate the grocery business. Walmart is already by far the
largest seller of groceries in the U.S., with a 21.3% market
share, according to UBS, more than twice the share of its
nearest competitor, supermarket chain Kroger.
Some industry insiders argue that the only way “legacy”
grocers can compete with the titans is by matching their
state-of-the-art technology and logistics infrastructure.
That automation could also help them trim labor costs: A
recent McKinsey report estimated that by implementing
existing technologies, a grocer could run a store with 55%
to 65% fewer labor-hours.
Ocado’s pitch to grocers stresses those benefits and
adds a compelling twist: Ocado can build the automa-
tion infrastructure for them, sparing them the pains and
costs of developing their own.
For many years, Ocado’s talk of becoming a tech plat-
form seemed to be just that: talk. Equity analysts were
skeptical, and the stock became a perennial favorite among
then loaded onto trucks for delivery.
This warehouse, or customer fulfillment
center (CFC), as logistics pros call it, is one
of the most sophisticated and automated on
the planet, one that can handle many tens
of thousands of orders a week. It belongs to
Ocado, a pioneering British online grocer
that is positioning itself as a white knight for
the beleaguered grocery sector—and possibly
other industries too—offering to help super-
market chains compete in an automated age.
Ocado’s robot-powered warehouses thrum
with activity on ordinary days; since the coro-
navirus crisis erupted, they’ve been in roaring
overdrive. The pandemic has given the com-
pany a chance to prove it can keep an online
grocery business humming, even when its
human workforce faces unprecedented strain.
Yet at the same time, the crisis’s upending
of daily life has threatened to knock Ocado
off its growth trajectory, just when it seemed
tantalizingly close to becoming a global force.
Like most grocers, Ocado has faced sky-
rocketing demand fueled by social distanc-
ing measures and panic buying. Its U.K.
grocery sales in March leaped more than
20% year over year. At one point, visits
to its website were 100 times the nor-
mal rate—a level so high, it triggered the
company’s cybersecurity systems to believe
the website was under attack. “This is the
peakiest peak we’ve ever had in the history
of the business,” says David Shriver, Ocado’s
group director of communications.
Ocado is hardly alone in this. Consultants
McKinsey & Co., in a note to grocery clients
on March 19, reported that online grocers
worldwide were struggling to meet demand
spikes as high as 700%. There’s a good
chance the pandemic will have a lasting im-
pact on consumer behavior, converting many
more customers to online grocery shopping
long after the crisis recedes.
Still, like its peers, Ocado has sometimes
AT ONE POINT, VISITS TO OCADO’S WEBSITE
WERE 100 TIMES THE NORMAL RATE,
TRIGGERING ITS CYBERSECURITY SYSTEMS TO
BELIEVE THE SITE WAS UNDER ATTACK.
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short-sellers. But Ocado’s logistics prowess
has gradually won converts. Beginning in
2017, the company announced a series of
licensing deals with grocery chains on four
continents—including a huge partnership
with Kroger. Since then, Ocado’s market
capitalization has quadrupled to north of
$10 billion, while revenue has grown steadily,
to $2.2 billion last year. (See the “Price of
Growth” box in this story.)
Investors seem confident that Ocado can
capitalize on the current moment; its shares
have risen 28% since Feb. 28, even as global
markets plummeted. The future, however,
looks murkier. Ocado’s licensing deals
require it to spend heavily upfront to build
dozens of CFCs. Those obligations have left
some analysts wondering if the company,
which currently carries more than $750 mil-
lion in debt, has taken on too much risk. And,
even once the pandemic passes, an exis-
tential question looms: whether any grocer,
even with Ocado’s robotic helping hand, can
withstand the onslaught of the Everything
Store and the Behemoth of Bentonville.
O
CA D O’S RO OTS stretch back to
the dotcom boom, when three
twentysomething Brits
working as traders at Goldman
Sachs—Tim Steiner, Jonathan
Faiman, and Jason Gissing—got bitten by
the startup bug. The trio founded Ocado in
April 2000. (The name is an invented word,
chosen because it could work across
languages and because the founders liked
how it looked as a logo.) Steiner, Ocado’s
CEO, is the only founder still involved with
the company. Compact and trim, with
close-cropped gray hair and pale blue eyes,
he exudes a pugilistic intensity as he walks
through Ocado’s history at a rapid-fire clip.
When Ocado made its debut, established
British grocery chains such as Tesco, Sains-
bury’s, and Walmart-owned Asda already
had e-commerce operations. Those chains
were using their stores to fulfill online orders,
with store clerks gathering the goods and
loading them onto delivery trucks. This pro-
cess, known as “store pick,” is the way most
retailers have grafted e-commerce onto their
existing operations. Store pick requires little
additional capital or labor investment, but it
has disadvantages. Many stores’ stockrooms
are too cramped to accommodate a sizable
picking operation, which means employ-
ees may have to fill online orders from the
supermarket floor, putting them in competi-
tion with in-store customers. With smaller
inventories, there’s also a greater chance that
items won’t be available—a leading driver of
customer dissatisfaction.
Ocado, which had no stores, took a
different approach. It built an automated
central distribution center in Hatfield, on
London’s northern edge, and delivered all its
orders from there—a strategy that helped it
minimize inventory shortfalls. The business
quickly became popular, consistently top-
ping consumer surveys.
The problem: The technology at Hat-
field left a lot to be desired. The equipment
Ocado was using—giant conveyor belts
and sorting machines—was designed for
the manufacturing sector, where factories
churn out mass volumes of identical items.
It was ill-suited for the grocery business,
where the assortment of items is huge, and
each customer’s order is unique. Constant
spending on improvements, meanwhile, was
eating up cash. “I used to joke about the law
of material-handling equipment, which was,
Five plus five equals seven,” Steiner says.
1800+N U M B E R O F S O F T WA R E E N G I N E E R S E M P L OY E D BY O C A D O
ESSENTIAL
An Ocado driver
delivers groceries
in Ironbridge,
England. Ocado’s
order volume
surged in March as
social distancing
measures took hold.
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Among those who visited Ocado was the U.K. grocer
Morrisons, which had revenues far exceeding Ocado’s
but didn’t have an online offering. The two companies
reached a deal that sold half the capacity of Ocado’s new-
est CFC to Morrisons, with Ocado agreeing to manage the
facility and a delivery fleet on Morrisons’ behalf. When
Morrisons.com launched in January 2014, it was the first
evidence that Ocado could put its platform to work for
other grocers.
Clarke, who by then had been promoted to chief technol-
ogy officer, had an even more ambitious version of that
platform in mind. By mid-2015, Ocado had begun develop-
ing the army of robots that would eventually staff its “hives.”
The robots, designed by Ocado in conjunction with U.K.
robotics company Tharsus, are controlled by an internal
4G network with more base stations packed into less
space than pretty much anywhere else on the planet. The
network enables each robot to communicate with the soft-
ware controlling it 10 times per second. At Erith, the hive
generates four terabytes of data every day, all of which is
fed back into a digital twin to refine the system.
The robots allow Ocado’s newest fulfillment centers to
pick 200 items per hour of labor time—and mean they
can move a typical order from inbound supply truck into
the hive, and then have it picked, packed, and loaded on
a van for delivery in 15 minutes or less. Meanwhile, the
modular design of the hive itself means it can easily be
replicated and sized to fit new locations. Complementing
the hardware is new software—lots of it, from cloud-based
mobile apps to artificial intelligence. This integrated pack-
age, along with the engineering support to maintain and
upgrade it, is what Ocado now offers to the world’s grocers.
Around this time, Paul Clarke, a software
consultant with experience running tech
startups, received a call from an Ocado
recruiter. “I said, ‘Look, I’m really sorry, but
I don’t want to work in retail,’ ” recalls Clarke,
a lanky 60-year-old with the professorial
demeanor of the Oxford physics don he once
considered becoming. But when he toured
Ocado’s warehouse, Clarke was impressed
by its scale and complexity. Hatfield was a
giant automation puzzle—exactly the sort of
engineering problem he enjoyed cracking. “I
fell in love,” he says.
Clarke signed on for a one-year gig, tasked
with improving the system that controlled
the flow of goods along Hatfield’s fast-
moving conveyor belts. Ocado’s operation
was so complex, Clarke says, that the only
way to reengineer it was to build a series of
digital “twins”—in essence, real-time software
simulations of the operation. This allowed
Clarke and his team to experiment with im-
proved configurations before implementing
them in the real warehouse, avoiding costly
trial and error. Before long, Steiner says, the
twins helped wring new efficiencies from
equipment—making five plus five equal 12.
In the summer of 2010, Ocado went public
on the London Stock Exchange, in a list-
ing that valued the company at 937 million
pounds ($1.4 billion at the time). That was
more than many analysts thought the money-
losing grocer was worth, and its shares fell
10% on their first day of trading. That skepti-
cism would continue to haunt Ocado: Over
the next decade, its shares would frequently
have the dubious distinction of the being
among the market’s most shorted.
Over the following year, though, Ocado
eked out its first small operating profit.
Around the same time, grocery consultants,
investment banks, and, eventually, huge
packaged goods companies—Procter &
Gamble, Unilever, Nestlé, and Coca-Cola—
began quietly asking to tour the company’s
fulfillment centers. Steiner’s instinct was to
refuse. “We were quite secretive,” he recalls.
But he soon realized that while other com-
panies might glean a few tips by touring the
CFCs, they couldn’t replicate the integrated
system of software, hardware, warehouse
workers, and delivery drivers Ocado had
built over a decade. In its 2012 annual report,
Ocado for the first time made monetizing its
intellectual property a strategic plank.
THE PRICE OF GROWTH
OCADO’S GROCERY SERVICE has been a hit with British shoppers. Its automated logistics and software business aims to be an equally big hit with supermarket chains—but spending on the tech has hurt Ocado’s bottom line.
0
0.5
1.0
1.5
$2.0 billion
$2.2 B.
–$273 M.–300 million
–250
–200
–150
–100
–50
$0
FY 2011 FY 20112015 20152019 2019
SOURCE: BLOOMBERG
ANNUAL REVENUES PRETAX INCOME
OCA.W.0520.XMIT.indd 78 4/13/20 8:28 PMFINAL
A
M A ZO N A N D WA L M A RT are no strangers to
robotics. Amazon uses flat, Roomba-like
robots to move stacks of pallets around its
fulfillment centers; last year, it acquired
Canvas, a startup whose computer-vision
systems allow warehouse robots to work in crowded
conditions alongside people. Walmart, meanwhile, has
deployed thousands of robots to track inventory and has
created a fully automated pilot warehouse in New
Hampshire to serve its grocery e-commerce business.
Pure-play supermarkets have been far slower to auto-
mate. But in June 2017, a major move by Amazon gave
Ocado’s modernization sales pitch a Saturn V–size boost.
That was when the Everything Store spent $13.7 billion
to buy upscale grocer Whole Foods, which had 500 stores
worldwide. The deal stoked grocers’ fears that Amazon
would decimate them as it had so many retailers in other
categories—and the trickle of interest in Ocado’s technol-
ogy became a torrent.
In November 2017, Ocado announced a deal with French
retailer Groupe Casino to supply the technology for its
e-commerce in France. Two months later, it partnered
with Sobeys, which operates 1,500 stores under a variety
of brand names across Canada. “It’s the only profitable
e-commerce model at scale that I’ve seen,” Sarah Joyce,
Sobeys senior vice president for e-commerce, says of Ocado.
Several other deals followed, including with ICA, a
Swedish company that operates 1,300 groceries; with Coles,
in Australia; and with Aeon, Asia’s largest supermarket
chain, in Japan. But the biggest of them all was the strategic
partnership Ocado reached in May 2018 with Kroger. The
American giant took a 5% share in Ocado and gained exclu-
sive U.S. rights to its technology; Ocado committed to build-
ing about 20 CFCs for Kroger. The British company’s shares
soared 44% on the day the partnership became public.
Rodney McMullen, Kroger’s CEO, says he had been
watching Ocado for a decade, meeting periodically with
its top executives. Kroger implemented a store pick–based
EVENTUALLY, SAYS OCADO’S
PAUL CLARKE, “THE GOAL
IS TO MOVE TO AN
ENTIRELY DARK FACILITY”—
THAT IS, A FACILITY WITH
ALMOST NO PEOPLE.
e-commerce operation after a 2013 merger,
but McMullen says it became unwieldy as it
grew. The struggle to keep both online and
in-store customers happy was driving Kroger
toward the automation model. “We didn’t see
a path where we could accelerate to where
Ocado is in a year or two,” McMullen says.
It’s a common refrain among Ocado’s cus-
tomers: They lack the resources to replicate
Ocado’s technology. “We are a big company,
but we are not a technology company,” says
Anders Svensson, the CEO of ICA Sweden.
Ocado, in contrast, employs more than
1,800 software engineers and 600 hardware
specialists. That’s far less than Amazon or
Google, but it’s a lot for a grocer.
T
H E S L E W O F L I C E N S I N G D E A LS
pushed many investors to
abandon their skepticism: It’s
been a long time since Ocado
was a heavily shorted stock.
Still, those deals aren’t adding much to the
bottom line—because Ocado receives money
only after the automated CFCs are built.
Ocado currently operates six CFCs to sup-
port its U.K. grocery operation; it aims to run
at least 50 worldwide within the decade. Its
first CFC outside Britain, built for France’s
Groupe Casino, went live on March 26.
Another, for Sobeys, outside Toronto, should
open by June. And its first center for Kroger
is scheduled to come online in Monroe, Ohio,
in the first half of 2021.
Ocado’s partners are responsible for
acquiring land, building external structures,
providing a delivery fleet, and hiring workers.
But Ocado has to build the hives, supply the
robots and software, and provide training and
on-site engineering support. It costs Ocado
$40 million to $45 million in “peak cash
outflow” for each average-size CFC, Steiner
says. Only after construction does Ocado col-
lect a fee based on the warehouses’ available
capacity. In its most recent fiscal year, just 6%
of Ocado’s revenue came from licensing.
Sherri Malek, an equity analyst at RBC
Capital Markets, says Ocado won’t see posi-
tive free cash flow from its licensing until
at least 2022. Meanwhile, Ocado’s heavy
investment has led to ballooning losses—
worsened by a catastrophic fire that gutted
one of its CFCs in early 2019.
One looming question is whether the
coronavirus could thwart Ocado’s expansion.
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the U.S. isn’t high enough to support Ocado’s CFC model.
If anything, the pandemic has shown that “store pick” may
be a more resilient business model: Stores can staff up to
fulfill online orders if a crisis prompts a surge in demand,
whereas automated CFCs, designed to operate close to
capacity most of the time, aren’t as flexible.
Such doubts haven’t stopped Ocado from raising capital.
It issued a $187 million share offering in 2018. In February
2019, it sold 50% of its British e-commerce operation to
U.K. retailer Marks & Spencer. The sale simplified Ocado’s
proposition to investors, positioning it as more of a pure-
play tech platform, while raising $982 million. Ocado also
sold $655 million of convertible bonds in December.
The frequency of Ocado’s fundraising has made some
analysts uneasy. But Steiner, the CEO, says the efforts are
a sign of strength, not weakness. “The only reason to do a
capital raise is because you think you are going to do more
[business],” he says. And in February, the world’s most
prominent investor offered an indirect vote of confidence
in Ocado’s strategy: Warren Buffett’s Berkshire Hathaway
disclosed in government filings that it had spent almost
$550 million to buy a 2.3% stake in Kroger.
W
H I L E O CA D O B R E A KS G RO U N D on CFCs
around the world, Clarke, the chief technol-
ogy officer, is peering around the next
technological bend. He has experimented
with new robots, including models with
human-like appendages that enable them to handle
delicate groceries and carry out repairs. Eventually, Clarke
says, “the goal is to move to an entirely dark facility”—that
is, a CFC with almost no people.
Robots aren’t the only topic on Clarke’s mind. Ocado has
made multiple investments in “vertical” farming—indoor
experiments in sustainable agriculture. Another invest-
ment is Karakuri, a British startup creating automated
kitchens that can prepare restaurant-style meals for deliv-
ery. Clarke says Ocado envisions building an “integrated
food machine.” By combining vertical farming, food prep,
and delivery in one facility, he explains, “you might be able
to go from plant to kitchen table in two hours or less.”
Steiner and Clarke have also begun looking beyond food
altogether in search of profitable business lines. Ocado’s
expertise in logistics, A.I., robotics, and simulation could be
deployed to tackle automated parking lots, parcel sorting,
rail freight, container ports, and more. Ocado has already
created simulations of a car-parking system, Clarke says,
and has begun exploring scaled-up versions of its robots for
handling freight far heavier than a crate of bananas.
It all may sound like a stretch for a company whose
core grocery business is still fighting to prove its staying
power. But for those who wonder why Ocado would want
to expand into parking or port operations, Steiner has
a ready answer: What if Amazon had simply stopped
with books?
When the pandemic first struck, Ocado en-
countered trouble obtaining a key part for its
robots, because it was made in Wuhan, China,
the epicenter of the outbreak. (The company
has since found an alternate supplier.) Ocado
mostly hires local engineering teams, so
travel bans have had little impact on its plans.
And grocery and construction workers have
been classified as essential in most places,
enabling work to continue. Still, Duncan
Tatton-Brown, Ocado’s CFO, acknowledged
to reporters in March that if restrictions on
movement stayed in place for many months,
the construction timeline would suffer.
At the same time, Ocado doesn’t expect all
of its pandemic-driven revenue boost to last.
Much of its sales bump came from customers
buying dry goods and other nonperishables;
the company predicts that demand for many
of these items will fall below normal levels
in the second half of the year, as customers
work through their stockpiles.
Even before the coronavirus, some observ-
ers were doubtful that Ocado’s grocer partner-
ships would pay off. Christopher Mandeville,
a food retail and distribution analyst at
research firm Jefferies, has criticized the
Kroger deal in particular. Other than in a few
major cities, he says, population density in
A HUMAN TOUCH
Ocado is experimenting with humanoid robots
that can handle delicate groceries and do repairs.
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Dubbed one of the ‘Wonders of the Modern World’, the Golden Gate Bridge opened to the public on
May 27, 1937. At the time, it was both the longest and the tallest suspension bridge in the world, with
a main span of 4,200 feet and a total height of 746 feet. It is still the tallest bridge in the United States,
transporting 110,000 vehicles every day. To help raise the $35 million it cost to build, the authorities in
California issued tax-free municipal bonds.
© 2020 Hennion & Walsh Inc. Securities offered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves risk including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. Past performance is not a guarantee of future results.
Still Going Strong
And, just like that iconic structure, municipal bonds are still going strong today as a way for investors to invest in civic projects, while earning income that’s free of federal taxes and potentially state taxes.
Many US investors use municipal bonds as part of their retirement planning. Here’s why:
Tax-Free Income
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T H E C O R O N A V I R U S E C O N O M Y : W O R L D ’ S 2 5 G R E A T E S T L E A D E R S
No disease in living memory has posed as great a threat to global health and livelihoods as the novel coronavirus. But since its earliest days, the battle against SARS-CoV-2 has also spurred countless people to tremendous acts of resourcefulness, courage, and compassion. We’re devoting our seventh annual leaders’ list to those who have rallied the world behind them in this decisive moment, including inspirational figures from the medical community—some of whom led by example even at the cost of their lives.
HEROES
OF THE
PANDEMIC
L I W E N L I A N GOPHTHALMOLOGIST, WUHAN
CENTRAL HOSPITAL, CHINA
WRITERS: MARIA ASPAN, EAMON BARRETT, KRISTEN BELLSTROM, SCOTT DECARLO,
NAOMI XU ELEGANT, ERIKA FRY, MATT HEIMER, RACHEL KING, ELLEN MCGIRT,
GRADY MCGREGOR, DAVID MEYER, JOHN PATRICK PULLEN, CLAIRE ZILLMAN
WORLD’S 25 GREATEST LEADERS
1
WGL.W.0520.XMIT.indd 82 4/14/20 9:24 PMFINAL
2
C H R I S G R E G O I R ECEO
Challenge Seattle
Gregoire, a former Washington governor, brought hard-hit Seattle’s business community together early in the city’s outbreak. She insisted on a science-based response, and the group, which includes some of the world’s most competitive corporate rivals, fol-lowed her lead—act-ing early, aggressively, and in unison—to help slow the virus’s spread. (For more, see
“Seattle Under Siege” in this issue.)
3
J AC K M ACofounder
Alibaba, China
A strong advocate of U.S.-Chinese coopera-tion during his time running Alibaba, Ma cut through geopoliti-cal tensions to donate thousands of testing kits and a million face masks to the CDC, while facilitating the shipment of 1,000 ventilators to New York State. He has also been quick to help other undersup-plied nations, particu-larly in Latin America and Africa. As of mid-April, Ma had do-nated nearly 18 million masks, 3 million test kits, and thousands of ventilators—reaching over 100 countries.
I F T H E PA N D E M I C H AS A FAC E , it’s the mask-clad visage of Dr. Li. After becoming one of the first to sound the alarm about a new virus emerging in his city, Li was detained by local Chinese authorities and forced to recant his warning. Within days of his release, the 34-year-old doctor returned to treating patients, only to become infected by the all-too-real disease, and then, on Feb. 7, to succumb to it. Dr. Li’s bravery—both in the face of the coronavirus and the state— inspired China and ultimately the world. (In April, the Chinese government honored Li as a “martyr.”) Dr. Li’s final post on social media site Weibo has become a living memorial, where users flock to post messages and celebrate his life. This digital Wailing Wall, as some have called it, has more than 850,000 posts and stands in rebuke to anyone who does not believe that the voice of one can be the difference between the life or death of thousands.
4
T H E G OV E R N O R SJay Inslee,
Washington;
Gretchen Whitmer,
Michigan;
Mike DeWine, Ohio
From Washington’s Inslee, who had to invent the playbook for fighting the disease on U.S. soil when his state was the first hit, to Whitmer, who refused to back down when attacked by President Trump over her demand that the federal government step up to help, to DeWine, who has held the line on his stay-at-home order, despite pressure from protesters and his own party, seeing U.S. governors rise to the moment has been a bright light in a bleak time.
5
A N T H O N Y FAU C IDirector, National In-
stitute of Allergy and
Infectious Diseases
In 36 years as director of NIAID, Fauci has guided the U.S. response to outbreaks from AIDS to Zika. After mixed signals and inaction initially handicapped the federal reaction to the coronavirus, Fauci emerged as the administration’s most trusted authority fig-ure. He has assuaged the public by speaking plainly, frequently, and honestly in briefings. And his candor about mistakes—“It’s a fail-ing, let’s admit it,” he told Congress of the government’s testing efforts—has helped prompt the White House to course-correct.
6
R AC H A E L B E DA R DGeriatrician
Rikers Island
Bedard, who cares for the oldest and sickest in New York City’s cor-rectional system, has refused to allow the risk to her incarcer-W
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LO R I L I G H T F O OT Mayor of Chicago J E N N Y D U R K A N Mayor of Seattle LO N D O N B R E E D Mayor of San Francisco
AS T H E F E D E R A L G OV E R N M E N T D R AG G E D I TS F E E T, America’s mayors—par-ticularly those leading our biggest and therefore most vulnerable cities—sprang into action to protect their citizens. In Seattle, the earliest U.S. hotspot, Jenny
Durkan established the country’s first drive-up testing site for first responders, created a $5 million grocery voucher program, and shared her city’s hard-won lessons with her fellow mayors. Durkan’s counterparts in the Bay Area—includ-ing San Francisco’s London Breed and Oakland’s Libby Schaaf—seem to have heeded her warnings. The region was the first in the nation to issue shelter-in-place orders, a farsighted step that likely saved thousands of lives. In Chicago, Lori Lightfoot showed that urban leadership extends beyond the West Coast, closing the city’s parks to enforce social distancing—and playing into the loving memes that sprang up depicting her as a stern quarantine enforcer. “Your jump shot is always gonna be weak,” quipped Lightfoot. “Stay out of the parks.”
8 4 F O R T U N E M A Y 2 0 2 0
ated patients to be overlooked. She’s used Twitter to call for a mass release of detainees, reminding anyone who will listen that jail is “a perfect setup” for a deadly outbreak.
7
J O S É A N D R É SFounder, World
Central Kitchen
The chef and restau-rateur has thrown himself into nourishing those affected by the crisis, forklifting food onto quarantined cruise ships and serv-ing nearly 100,000 meals a day to health care workers and others in hotspots—all while providing much-needed jobs for restaurant employees.
Andrés’s latest feat: turning the Washing-ton Nationals’ baseball stadium into a massive community kitchen to serve D.C. residents.
8
G E O R G E YA N C O P O U LO SChief Scientific
Officer, cofounder,
Regeneron
Regeneron and Yan-copoulos are racing to fight COVID-19 on two fronts. The company’s rheumatoid arthritis drug sped into clinical trials in March after evidence emerged from China that it may help the most severely ill patients. Since January, Yancopou-los’s team has also been developing an antibody cocktail—the
same approach that helped Regeneron deliver an Ebola drug last year—to treat the disease and serve as a prophylaxis for medi-cal workers.
9
M A RY B A R R ACEO, General Motors
GM was the first big American automaker to commit its idle assembly lines to the fight against COVID-19. Barra stood fast in the face of criticism from the President and reaped the benefits: On April 8, the U.S. Department of Health and Human Services awarded GM a $489 million contract to deliver 30,000 ventilators by the end of August.
10
B I L L GAT E SCofounder, Bill
& Melinda Gates
Foundation
Five years ago, with spooky precision, Gates warned us we’d be where we are now if we didn’t prepare for a pandemic. (We didn’t prepare.) Luckily, Gates did—putting his money in 2017 behind CEPI, an organization that has already ushered eight COVID-19 vac-cine candidates into development. In Febru-ary, Gates deployed funding to ready critical public health infrastructure in Africa and South Asia for the virus’s onslaught.
12
L E E H S I E N LO O N G & L E O Y E E - S I NPrime Minister,
Singapore & Executive
Director, National
Center for Infectious
Diseases, Singapore
Singapore was one of the first countries out-side China to confirm a coronavirus case; nearly three months on, its COVID-19-related deaths remained in the single digits. Leo’s center developed a test before the city-state confirmed its first case. It now has one of the highest per capita test-ing rates in the world. Swift border controls, methodical contact tracing, and transpar-ent communication with the public also serve as how-tos for other virus hotspots.
13
J A N E M O S B AC H E R M O R R I SFounder and CEO
To the Market
Morris’s organization matches big buyers—like Target and Mas-tercard—with a global network of nontradi-tional manufacturers, mostly women-owned and based in vulnerable communities. In March, dozens of TTM makers retooled their opera-tions to produce masks, gowns, and scrubs. Barely 30 days later, the personal protective equipment (PPE) began rolling in. Morris has orders for over 1.2 mil-lion units in the U.S. and hopes to eventually dis-tribute in Kenya, Ghana, and India too.
14
A M A D O U S A L LDirector, Institut
Pasteur, Senegal
Testing resources for COVID-19 have been particularly scarce in Africa, where a couple of months ago the continent had just two labs—one of which is Sall’s institute—that could do the job. The virologist has been focused on spreading that capacity and creat-ing a more practical way to test. Working with U.K.-based diagnostic company Mologic, Sall’s team is developing a point-of-care device that will offer results in 10 minutes. Tests will cost less than $1 and be manufactured in Senegal.
15
K I O U S K E L LYER Nurse, Mount Sinai
West
One of the countless health care profession-als putting their lives on the line—and too often losing them—Kelly is believed to be the first New York City
T H E C O R O N A V I R U S E C O N O M Y : H E R O E S O F T H E P A N D E M I C
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nurse to have died from the virus. His death spurred colleagues to defy orders and speak out about the danger-ous PPE shortages at city hospitals, motivat-ing policymakers and philanthropists to step up to help.
16
R I H A N N AFounder, Clara Lionel
Foundation/Fenty
Beauty
Rihanna’s nonprofit pledged $5 million to address the needs of families impacted by the pandemic, making her one of the first ce-lebrities to throw their financial weight into the crisis. So far, her commitments include $2 million partnerships with Jay-Z’s Shawn Carter Foundation and Jack Dorsey, and an effort to get tests and supplies to ICUs in Haiti and Malawi.
17
N E I L F E R G U S O NProfessor, Imperial
College London, U.K.
In early March, the U.K. was pursuing a coro-navirus strategy that accepted an almost unchecked infection rate in a bid to create widespread immunity. Modeling provided by epidemiologist Fer-guson and his team helped change the government’s mind. Without a lockdown, the scientists warned, over 500,000 people could die in the U.K. The White House also took note of the model, which predicted a U.S. death toll as high as 2.2 million, and stepped up isolation rules.
18
S H I R I N R O U H A N IPhysician, Shohada
Hospital, Iran
Facing a severe short-age of medical staff, Rouhani continued to treat patients even after she herself was infected by COVID-19. After her death, many
Iranians shared a photo of the doctor hard at work while hooked to an IV drip, praising her persistence and brav-ery in the face of Iran’s massive outbreak.
19
WA N G C H UA N F U Chairman, BYD
Wang was among the first corporate leaders to implement a major pivot to meet virus-driven demand. In late January, when the COVID-19 crisis was accelerating in China, Wang created a task force to design and build new production lines to manufacture face masks and hand sanitizer—goods now in demand worldwide. Today, the Shenzhen-based electric-vehicle maker claims to be the world’s largest manu-facturer of surgical masks, churning out 5 million a day.
20
A N G E L A M E R K E LChancellor, Germany
Hardly a lame duck, Germany’s outgoing chancellor has won global praise for her calm, immediate, and effective response to the pandemic. Merkel, a trained scientist, imposed strict social distancing measures and modeled them herself, self-quaran-tining after her doctor tested positive for COVID-19. Those poli-cies and Germany’s early, widespread testing have helped keep its death toll far lower than that of many of its European neighbors.
21
T H E G R O C E R SWaitrose, U.K.; H-E-B,
U.S.; Sobeys, Canada
Grocers have emerged as vital lifelines for pan-icked populations, even as their staff became “essential” frontline workers at risk of expo-sure. European chains like Waitrose were
D O RS E Y S E I Z E D T H E PA N D E M I C M O M E N T to make his first major foray into philanthropy, announcing that he would devote $1 billion of his equity in pay-ment startup Square—or about 28% of his wealth—to a COVID-19 relief fund. He’s disbursing the money transparently, going so far as to tweet out a public Google spreadsheet tracking the process. About $5.2 million had been doled out as of mid-April; one of the first recipients was the joint $4.2 million grant he and Rihanna (No. 16) set up to benefit victims of domestic violence affected by L.A.’s stay-at-home order. Dorsey is also thinking beyond the epidemic, earmarking any leftover money to support girls’ education and universal basic income, which he calls “the best long-term solutions to the existential problems facing the world.”
J AC K D O R S E Y CEO, TWITTER/SQUARE
pioneers in setting up special shopping hours and delivery for the vulnerable and elderly. In North America, Texas-based H-E-B and Canada’s Sobeys increased workers’ pay and medi-cal leave—acts that helped nudge giants Target and Walmart to follow suit.
22
L E O VA R A D K A RPrime Minister
Ireland
Closing out his term in the midst of the crisis—his party lost in February’s election—Varadkar has tackled
the situation with aplomb, canceling Saint Patrick’s Day festivities and closing schools, pubs, and other establishments without hesitation. But what has really impressed is his will-ingness to put himself on the front lines: A doctor by training, Varadkar is now work-ing half a day per week assessing patients for the virus.
23
C R I ST I A N F R AC A S S I & A L E S S A N D R O R O M A I O L ICEO & Engineer
Isinnova, Italy
As the virus pummeled Italy, Fracassi and Romaioli heard a hospital in Brescia was short on essential valves for its ventilators. The pair visited the hospital and studied the valves, which needed to be replaced after each use. They tinkered with prototypes on Isinnova’s 3D printers until they figured out how to create the parts—and then provided them to the hospital for free. Fracassi told local media: “There were people with their lives in danger, and we acted. Period.”
24
B R E T T C R OZ I E R Former commander
U.S.S. Roosevelt
As the coronavirus spread quickly through his aircraft carrier, Crozier urged his superior to help him evacuate stricken crew—and then wrote a plea to other brass after relief was slow in coming. When the letter was leaked to the press, it prompted Crozier’s removal—but not before drawing the nation’s attention to the threat posed to our troops, a reality driven home on April 13 when a sailor from the ship died from the virus.
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AMD CEO LISA SU, an engineer with a Ph.D. from MIT, has transformed the company by doubling down on cutting-edge technology.
CNV.W.0520.XMIT.indd 86 4/13/2020 2:51:24 PMFINAL
F O R T U N E M A Y 2 0 2 0 8 7
the next big thing.
Now the expectations are high. It’s
interesting, because life, as well as
product road maps, is all about mak-
ing choices. And the choices don’t
actually get easier as you do better.
The choices are exactly the same, if
not harder, frankly.
Your product road map over the
past five years included whole new
designs for CPUs and GPUs. 2 GPUs
used to be just for video gaming,
but now they’re also being used in
data centers to help compute big-
data analysis. What comes next?
We’re making large investments
in graphics and what we’re doing
around optimizing graphics for both
gaming as well as computing. That’s
a new vector where we’re putting a
lot of emphasis.
If you think about what differenti-
ates AMD, it’s the idea that we can
put the best processors together for
each of the workloads. This idea of
bringing CPUs and GPUs together
in different combinations and with
E N G I N E E R I N G A N E W A M D
When you took the reins in October
2014, AMD’s revenue was down
almost 40%; your market share
had been cut in half—your stock
even dropped below $2. But your
strategy for revamping the business
by focusing on higher-performance
chips has been a success. Your
stock is up, 1 and reviewers have
gone crazy over your latest Ryzen
chip lineup; this year 100 new
laptops are coming to market with
AMD chips. You once described the
turnaround process to me as “fight-
ing your set of wars.” How does it
feel to have won some battles?
SU: It’s been very exciting, reward-
ing—all of those things. The past
couple of years have certainly
helped build that confidence that,
hey, when we set out to do some-
thing, we can actually get it done.
And when we began, there was a lot
of convincing to do. But there’s a
lot more to do, and in our world it’s
always about what’s next and what’s
TheConversationLISA SUChipmaker Advanced Micro Devices was an industry also-ran when Lisa Su took over as CEO. Six years later, the company has made a name for itself as the engine powering high-performance tech like A.I. and gaming. In this in-depth interview, the AMD chief talks supercomputing, executing a turnaround, and running a global company in the midst of a pandemic. INTERVIEW BY AARON PRESSMAN
“It’s amazing to see a company of more than 10,000 people transition to work from home on a dime.”
THIS EDITED Q&A HAS BEEN CONDENSED FOR SPACE AND CLARITY.
PHOTOGRAPH BY D R E W A N T H O N Y S M I T H
CNV.W.0520.XMIT.indd 87 4/13/2020 2:51:25 PMFINAL
8 8 F O R T U N E M A Y 2 0 2 0
science, or Lawrence Livermore,
which does more of the national
security–type things around simu-
lating our nuclear stockpile, all of
them do better when you can take
larger data sets and do many more
calculations.
That’s what we’re doing in build-
ing these large supercomputers. But
we’re going above what normal scal-
ing would allow you to do by adding
this combination of CPUs and GPUs
and high-performance interconnect.
And that’s kind of fun because you
can see that, yes, it’s the same tech-
nology that goes into game consoles—
albeit much, much, much bigger. But
it’s used in a different way, and it’s
used in really tough applications that
will change the world going forward.
The supercomputers you’re build-
ing will reach exaflop speeds, 5 five
times as fast as the fastest current
supercomputer. How can you make
such a huge leap forward?
It’s not any one thing in particular,
Aaron. I think it’s a combination of
things. But the most important is
the idea that these components are
smarter because they have smart in-
terconnects that allow them to share
data and share operations much
more efficiently than what has been
done in the past.
My new laptop isn’t five times as
fast as my old laptop, not even close.
Do you envision that consumer
devices are going to see huge leaps
like that again?
The technology that we’re putting
into supercomputers today will
absolutely show up in consumer
devices. It might take five more years
for that to be the case, but it’s always
been the case that you use these big
applications to drive the barriers of
innovation.
Let’s solve the big problems, then,
over the next five to 10 years, you
trickle that to consumers once the
cost point gets there and once the
manufacturing technology gets there.
different interconnections really goes
toward where accelerated computing
is going in the future.
It’s kind of funny that the same kinds
of GPU chips that video gamers
needed also turned out to be the
thing that’s running A.I. and machine-
learning apps in cloud data centers at
Google and Amazon. Why are those
kinds of GPU chips, which can run
lots of simple tasks very quickly, so in
demand in data centers?
It’s the idea that computers can get
smarter and smarter. And the way
they get smarter is they get better
at recognizing patterns and match-
ing patterns and then using that
information to become a little bit
smarter in the future. And that’s the
whole concept of machine-learning
and artificial intelligence and high-
performance computing.
This part of computing is actually
moving faster than anything else
because we have this tremendous
amount of data that we’re generating,
which we don’t really know what to
do with. Each of us is generating so
much information. Our companies
are generating a ton of information.
The Internet is generating a ton of
information, and we need to figure
out what to do with it all. 3
How do you bend the performance
curve? In technology, if you plot the
performance gains made by our in-
dustry over a five- or 10-year period,
it often looks like a straight line. You
can draw a straight line through it,
and our goal in life is to change that
line. We want to be above the line,
bending the curve.
A L L A B O U T T H E E X A F L O P
AMD just won two government bids
to build some of the fastest super-
computers ever. 4 How is your tech-
nology being used in that context?
If you think about the problems that
you’re solving in science at the Oak
Ridge National Laboratory, which
does medical science and weather
B E T W E E N
T H E L I N E S
(2) Know your
chips: The CPU, or
central processing
unit, is commonly
used as the main
computing chip in
PCs and servers.
The GPU, or graph-
ics processing unit,
started out helping
speed up video
games but is also
used for A.I. and big-
data apps now too.
(1) AMD STOCK PERFORMANCE
OCT. 8,2014$3.28
APR. 9, 2020$48.38
SOURCE: BLOOMBERG
8% 54%
49
5 M
ILL
ION
4.1
BIL
LIO
N
2001 2019
SOURCE: ITU
(3) GLOBALINTERNETUSERS
% OF TOTAL
POPULATION
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Your typical word processor prob-
ably doesn’t need a much faster CPU.
But there are some applications that
I do think are going to hit consum-
ers. A lot of this machine-learning
technology, for example, is really use-
ful in things like speech recognition,
right? And if you think about your
speech-to-type conversion right now,
it’s okay, but it’s still not that good.
T H E N E W N O R M A L
The world is now facing a crisis
from the coronavirus pandemic.
On March 5, you told analysts that
the outbreak was having a modest
impact on your financials so far.
But given your global supply chain,
what are your longer-term worries?
The COVID-19 crisis is truly unprec-
edented and touches all of us. Our
priority is protecting the health and
safety of our employees, partners,
and communities. It’s amazing to see
a company of more than 10,000 peo-
ple transition to work from home on
a dime. We’ve also figured out how to
do some things differently, including
some very sophisticated engineer-
ing work remotely. At the same time,
we’re supporting our customers as
their priorities change. We have a
complex supply chain where our
products go through multiple coun-
tries to get manufactured. Although
there were some early disruptions,
we’ve been able to navigate it.
Does that mean having more redun-
dancy geographically?
That’s exactly right. It’s having redun-
dancy in your supply chain. It’s having
redundancy in your engineering
teams. It’s building the notion of, hey,
you have your contingency plans as
things change. And, in some sense, it’s
building a company that can with-
stand lots of different things related
to the environment we’re operating in.
You’re one of just 35 female CEOs
in the Fortune 500 right now.
What do we need to do to have more
women leaders in tech?
One piece is about just the pipeline
and having enough people start
in the field. And then the other
piece is making sure that women
have good opportunities. Give good
people good opportunities—they
will shine.
We are definitely very focused on
ensuring that as we look at leader-
ship, particularly in the technical
ranks. 7 That being said, these roles
are very competitive, and at the end
of the day it’s always about, Let’s get
the best person in the job.
T H E C O N V E R S A T I O N
Part of your strategy for reviving the company was to get into the business of making custom chips for gaming consoles. Now I’m seeing all kinds of cloud gaming services everywhere, no special device needed. Is console gaming still a good business?
Gaming is a great business. I think the last number, there were over 2 billion gamers if you look at from mobile to PC to console to cloud. 6
This is a big year for gaming, with both Microsoft and Sony launching their next-generation consoles. They are some of the most anticipated consumer products of 2020. And again, we like gaming because it uses technology very, very well. And we’re able to reach a lot of households, and it will continue to be an important part of our portfolio. I do think cloud gaming has opportunities, but it’s still many years out.
(4) Super deals:
In March, the DOE’s Lawrence Livermore National Labora-tory picked AMD to supply processors for El Capitan, its $600 million super-computer. In 2019, AMD won a similar deal to supply a new supercomputer called Frontier for the DOE’s Oak Ridge National Laboratory.
(5) Big, big
numbers:
An exaflop requires computing 1 quintil-lion floating point calculations per second—or a 1 followed by 18 zeros. Apple says the A13 processor in the iPhone 11 can reach one teraflop, so it would take 1 million iPhones to equal an exaflop.
(6) Play on,
players:
An estimated 2.5 billion people played video games last year, spend-ing $152 billion, says research firm Newzoo. About 45% of the spending is on mobile games, about one-third on consoles, and the rest on PC gaming.
(7) Still a long
way to go:
Women held 24% of all jobs and 18% of engineering jobs at AMD in 2018, ac-cording to the most recent data avail-able. For context: Women held 26% of computer and math-related jobs nationwide last year.
CNV.W.0520.XMIT.indd 89 4/13/2020 2:51:25 PMFINAL
WATCHES
Buying TimeA new generation of watch lovers are selling the most analog of collectibles online. BY DANIEL BENTLEY
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F O R T U N E M A Y 2 0 2 0 9 1
LAST JULY, Ben
Clymer sold 100
watches for just
shy of $1 million in under
10 minutes. The time
pieces—a version of
Blancpain’s Fifty Fathoms
diver’s watch—were
scooped up by collectors,
and a few speculators, all
fervently refreshing a web
page at 10 a.m. on a
Wednesday to drop
$9,900 on a limited
edition watch. Those in
the know need fast fingers
to score such a rarity from
Clymer’s company,
Hodinkee, and its
collaborations with some
of the world’s top watch
brands, including TAG
Heuer, Vacheron Con
stantin, and Omega,
among others.
But Hodinkee isn’t a
jewelry store, nor is it the
type of watch retailer you’re
used to. It’s the flag bearer
for a revival of interest in
mechanical watches—new
and old—and has spawned
a small but vibrant ecosys
tem of businesses bringing
vintage watches to new
buyers.
master chronograph gifted
to him by his maternal
grandfather. (The name
of his blog—and later,
company—comes from the
Czech word for wrist
watch: hodinky.) The blog
soon caught on and won
over watch enthusiasts in
cluding, notably, musician
John Mayer, who would
go on to write for the site,
become an angel inves
tor, and appear in videos
showing off his collection
of heavyhitter timepieces.
Eleven years later,
Hodinkee is more than
one man’s musings.
It’s the world’s fore
most news source for
all things watches and
watch culture, with 13
editors between its North
American and Japanese
websites publishing
articles, reviews, videos,
and podcasts on all things
horological.
It’s a tastemaker—in
variably increasing the
value of vintage watches
it blesses and creating, or
at least codifying, a new
breed of vintage watch
collector, one who might
rock a 1940s Longines
with a pair of Nikes.
That influence extends to
bringing forgotten brands
back to the fore. “[Ben]
singlehandedly ignited
interest in Universal
Genève watches, effec
tively a defunct brand,”
says Floridabased vintage
watch dealer Eric Wind.
“The strength in prices for
those watches can really
be credited to him.”
Hodinkee is a maga
zine publisher as well: Its
biannual coffeetable tome
is just as likely to feature
Hodinkee is a tastemaker, creating, or at least codifying, a new breed of vintage watch collector; one who might rock a 1940s Longines with a pair of Nikes.
Hodinkeefounder and CEO Benjamin Clymer (opposite page). [1] Omega Speedmaster Hodinkee Limited Edition, inspired by Clymer’s grandfather’s watch, $6,500. [2] Swatch Sistem51 x Hodinkee Generation 1986, $170. [3] Fifty Fathoms Blancpain for Hodinkee diving watch, $9,900. [4] TAG Heuer Carrera Skipper for Hodinkee, $5,900.
The New York City–
based company began life
as a Tumblr blog in 2009
while Clymer was working
as a consultant at UBS.
“It was after the financial
crisis, and I was effec
tively told to look busy in
my cubicle,” says Clymer.
And so he began filling
those idle hours by writing
about watches, starting
with an Omega Speed
WAT.W.0520.XMIT.indd 91 4/10/2020 10:24:20 AMFINAL
9 2 F O R T U N E M A Y 2 0 2 0
a story on vintage Alfa Romeo sports cars as it is one about Patek Philippe perpetual calendars.
But it’s making its big-gest splash as a retailer, selling new and vintage watches, watch straps, accessories, and the various trappings that might appeal to a well-heeled collector, such as Leica cameras and $1,600 cigarette lighters by S.T. Dupont.
That retail operation began with Clymer and early employees packing watch straps in Clymer’s West Village apartment. It is now headed up by chief commercial officer Russell Kelly, whom Clymer lured away from his position as U.S. brand manager of Rolex sister brand Tudor. (“You don’t just leave Ro-lex,” one industry insider tells Fortune, speaking to the significance of that hire.) In 2019, the compa-ny’s revenue increased by 85% to north of $20 mil-lion, and the number of brands it sells has grown from 10 to 18, adding huge names like Omega, Blancpain, Breitling, and soon Apple Watch.
The limited editions, released a handful of times a year, are what really set Hodinkee apart from the average watch retailer. The company’s in-house design team works with the brands to create unique timepieces or reissue be-loved watches from their archives. “We have data on what our readers and cus-tomers have in their col-lections,” says Clymer. “We know the kinds of things
they’re into.” One example: A re-creation of a yacht-ing chronograph from the archives of TAG Heuer, known as the “Skipper,” currently resells for more than double its original retail price of $5,990.
After testing the waters with a number of pop-up shops, the company is set to open its first brick-and-mortar store later this year,
in premises left vacant by the Supreme streetwear brand in New York’s SoHo. Don’t expect the white gloves and starched collars you’ll find in the boutiques of Madison Avenue. The space has been specced with slouchy leather couches, a podcast studio, and a watchmaker’s bench. “We wanted to give it a clubhouse feel,” says Kelly.
One of the more innova-tive businesses to emerge from the wave of atten-tion Hodinkee brought to vintage watches is Manhattan-based Analog/Shift, founded by long-time watch enthusiast James Lamdin in 2012. In contrast to the buyer-beware shopping experi-ence at a pawnshop or diamond district store-
HOW TO BU Y A WATCH ONLINE
BUY THE SELLER It has become commonplace for unscrupulous
dealers to misrepresent the watches they are selling, especially
online. Buy from one who points out a watch’s flaws and will take
the purchase back if you’re not satisfied.
BUY THE BEST QUALITY You’ll pay a premium for the best vintage
watches—but they’ll also hold their value. There’s a false economy
in trying to save a few thousand dollars buying a beat-up version.
BUY SOMETHING YOU LIKE Watch collecting is about having fun
and expressing your own personal taste. Don’t buy something
purely as an investment. Despite record auction prices in recent
years, the watch market can be fickle. It’s better to have something
you’ll enjoy on your wrist when the market takes a dip.
CO
UR
TE
SY
OF
JO
NA
TH
AN
MC
WH
OR
TE
R/
CR
OW
N &
CA
LIB
ER
WAT.W.0520.XMIT.indd 92 4/10/2020 10:24:22 AMFINAL
front, Lamdin’s approach is one of transparency and education. Every nick and scratch, every blemish of its pieces is photographed in high contrast—“often to our detriment,” says Lamdin. And accompa-nying each beautifully shot timepiece is a short story, practically an essay, explaining what the watch is, and why it’s cool. “I
Instagram and Hodinkee, watch collectors on the Internet were nerds on forums. Instagram made it cool for people to share their collections.” Analog/Shift uses Instagram as both a marketing tool and as a way to observe what the larger community of collectors is buying.
Buying watches on the Internet is one part of the equation—but what about selling them? A collector
line marketplace that uses data analysis of the watch market so collectors can buy and sell their watches at a fair price.
Someone looking to sell a neglected watch, or looking to fund their next watch purchase, can go to Crown & Caliber’s website, enter details on the piece and receive an instant of-fer for the watch based on market trends. The seller then sends the watch in a prepaid shipping box to the company’s Atlanta headquarters, where it’s verified by a team of ex-perts, serviced and cleaned if necessary, and offered up for sale with a one-year warranty backed by the company. Retailers like Neiman Marcus, and even watch brand Breitling, use Crown & Caliber to facilitate their trade-in programs.
“Every year $5 bil-lion worth of watches are sold in the U.S., and we estimate $100 billion worth are on people’s wrists or sitting in drawers and closets,” says Powell, “We’ve done more than 70,000 transactions and have been growing 60% every year. We think there’s a huge unaddressed market.”
Technology has always disrupted the way we keep time. Sundials replaced standing stones. The wristwatch replaced the pocket watch. But in an age when few of us need to wear a mechanical watch, it’s the commu-nity of enthusiasts on the Internet that is keeping them alive.
really enjoy storytelling,” says Lamdin. “I want to share our knowledge with our customers and anyone who comes across our site or Instagram.”
Instagram, which launched the year after Hodinkee, has had a mas-sive impact on the world of watch collecting and his business in particu-lar, says Lamdin: “Before
could turn to eBay or a watch forum, but they’re not without risks. And you know you’re probably not going to get the best deal at your local watch dealer or pawnbroker.
Georgia-native Hamil-ton Powell thought there was a better way. Using his experience in private equity, Powell created Crown & Caliber: an on-
Crown & CaliberInside the reseller’s
watch shop, where
employees inspect
and refurbish
preowned
timepieces.
Analog/ Shift A Rolex GMT
Master, circa
1968, from the
company’s
inventory.
P A S S I O N S — W A T C H E S
CO
UR
TE
SY
OF
AN
AL
OG
/S
HIF
T
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NAVIGATE THE NEW NORMAL.
FORX-6159432LH.pdf 04.01.2020 12:58 BLACK YELLOW MAGENTA CYAN
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MEXICO
–46.5%
BRAZIL
–57.8%
CHILE
–49.1%
SOUTH AFRICA
–46.3%
PANAMA
–8.3%
COLOMBIA
–58.3%
CHANGE IN INDEX VALUE, FROM HIGHEST TO LOWEST IN 2020
CANADA
–42.8%
U.S.
–33.9%
GERMANY
–39.1%
U.K.
–42.3%
ICELAND
–34.3%
TURKEY
–38.4%
NIGERIA
–34.6%
EGYPT
–37.9%
SPAIN
–38.4%
ITALY
–40.3%
GREECE
–49.5%
AUSTRIA
–51.0%
MALAYSIA
–29.8%INDIA
–42.5%
U.A.E.
–36.6%
TANZANIA
–18.9%
SAUDI ARABIA
–29.8%
RUSSIA
–50.8%
JAPAN
–31.4%
SOUTH KOREA
–40.6%
CHINA
–18.4%
HONG KONG
–25.3%
AUSTRALIA
–45.9%
INDONESIA
–48.0%
THAILAND
–40.9%
ARGENTINA
–51.4%
0%–10%–20%–30%–40%–50%–60%
9 6 F O R T U N E M A Y 2 0 2 0
A SHOCK WAVE AROUND THE WORLD NO COUNTRY’S STOCK MARKET HAS BEEN IMMUNE to the global selloff spurred by the coronavirus pandemic. To get a snapshot of where investors have been hit hardest, we examined 100 of the largest and most heavily traded markets tracked by Bloomberg. The graphic above shows how far primary stock indexes in each have fallen this year—from their peak to their lowest point. Thus far, stocks in the world’s biggest economies have fared relatively well. The U.S., despite the most cases and deaths from the virus of any country, didn’t plunge nearly as far as, for example, energy-dependent Russia. And though the pandemic originated in China, Beijing’s success in managing the health crisis has translated to the market. Chinese stocks have yet to hit bear territory. —BRIAN O’KEEFE
T H E C A R T O G R A P H E R
INFOGRAPHIC BY N I C O L A S R A P P WITH S C O T T D E C A R L O SOURCE: BLOOMBERG; JAN. 1 TO APR. 9, 2020. CALCULATED FROM INDEX PRICES IN U.S. DOLLARS
MAP.W.05.20.XMIT.indd 96 4/14/2020 9:00:27 PMFINAL
0221.fortune_fullpage.r4.indd2-5-2020 12:25 PM James Sena / Rusty Sena
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