It is unrealistic to expect a striking “snap-back” of spending at stand-alone, brick-and-mortar stores, cinemas, restaurants, hotels, and other places where people used to gather and spend money before the onset of COVID-19. While luxury brands proved able to swiftly bounce back from the 2008 financial crisis in a mere 18 months, and while some signs from eager Chinese consumers seem to suggest that this sector will fare well in the immediate wake of the global health pandemic, spending in physical stores on goods like garments and accessories is likely to remain significantly lower than it was pre-COVID for a long time to come.
“Even when governments relax restrictions, many people will still be worried and will go out less,” says John Daley, the CEO of Grattan Institute, an economic think tank in Melbourne. “The effects of consumers’ fear should not be underestimated,” with consumers across the globe, particularly those that fall within the age range of increased risk (i.e., older adults), shopping and spending less in physical retail outposts. This stands to impact brands, especially in the luxury segment of the market (whether it be automakers or Swiss watch companies), since spending is largely driven by older demographics, even if millennials are responsible for the greatest amount of growth.
Beyond fear, alone, Daley expects there is a significant shift in play in terms of the types of things that individuals will buy. “We are likely to keep spending on different things, and using different channels, even after restrictions are lifted,” he says, noting that consumption “habits tend to form when behavior changes consistently, strengthening over time, and particularly likely to change when behavior has been consistent for a period of months,” such as the time spent in COVID-related lockdown.
For most consumers, this has taken the form of an increasingly prevalent reliance on e-commerce, with previously digitally-averse consumers being forced to do more shopping online for things like household products and groceries, and digitally-native millennial and Gen-Z consumers increasing their already-existing reliance on and preference for e-commerce.
The numbers in this space are striking. According to a recently-released Adobe’s Digital Insights report, total online spending in May reached $82.5 billion, an increase of 77 percent on a year-over-year basis. “According to our data, it would have taken between 4 and 6 years to get to the levels that we saw in May if the growth continued at the same levels it was at for the past few years,” Vivek Pandya, Adobe’s Digital Insights Manager, told Forbes.
Adobe Digital Insights director Taylor Schreiner says that the company is “seeing signs that online purchasing trends formed during the pandemic may [result in] permanent adoption.”
Beyond merely driving more e-commerce activity, the health pandemic has sizably shifted what it is that consumers are looking to purchase. “For the week ending June 6, sales at home improvement retailers jumped 32 percent, while sales at furniture stores were up 6 percent, compared with the same week last year,” according to the Wall Street Journal. During that same period, jewelry sales were down by 39 percent and apparel sales were down 28 percent.
The WSJ also reported that “U.S. car sales rebounded in May after a historic drop in April, easily beating analysts’ expectations, though they were 30 percent lower than in May 2019, as dealerships in many states are still closed.” In furtherance of the larger pivot-to-e-commerce movement, many car dealerships are making it easier for consumers to purchase cars entirely online.
Since people are likely to continue to work from home more often even after states’ shelter-in-place orders are fully lifted, “the habits of shopping remotely, and spending more on home furnishings and less on clothes, are likely to continue, and they would be likely to continue even if COVID-19 vanished tomorrow,” according to Daley.
Taken together, these factors – paired with the market volatility and high rates of unemployment that have come with the onset of COVID-19 – make it likely that even as reopening continues to roll out, consumer activity will be well below pre-COVID levels and will inch up only slowly. While Daley says he would not be surprised if certain cities experience “opening parties” of sorts on the respective days that each particular COVID-19 restriction is lifted, after that, “consumer spending will remain very subdued and refocused for a long time.”
As for the hardest-hit sectors, from hospitality to luxury, this new reality will linger long after the restrictions are lifted, while potentially continuing to alter what consumers are prioritizing and buying, and how they go about doing so.