K-shaped concentration

Throughout the pandemic PIRC has reported on the biggest winners and losers from Covid-19. Clearly, the travel and leisure sectors have fared badly while online retailers have mopped up, yet within those sectors themselves some companies have streaked ahead swallowing up weaker rivals along the way. The FT reports of a K-shaped recovery on the US markets indicating the gulf between the best financed corporate behemoths and those unable to keep pace with a world driven by a global pandemic has extended further.
Covid-19 has served as an accelerator to corporate concentration where an ever-shrinking pool of names dominates more and more sectors. Research from McKinsey reported in the FT demonstrates that those companies already in the ascendancy pre-pandemic continued to take control once the virus took hold. Amazon, Starbucks, Nike, Walmart and just a few examples of big-name brands already looming large over competitors at the start of last year, secured even greater market share towards the end.
As we have reported in previous alerts, this trend to concentration raises issues for responsible investors. What might be beneficial for shareholders in the big names may penalise wider consumers and stifle competition.
Importantly the way in which credit flows – or fails to flow – to companies of all sizes needs to be managed. Smaller companies are finding it increasingly hard to secure loans, while larger competitors are first in the queue for support from the Federal Reserve and the Treasury. This imbalance will need to be managed if we are to avoid total dominance by the big few.
* PIRC will be holding a webinar on industry and ownership concentration at 3pm on Tuesday 2nd February. More details soon.

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