How consumer spending will differ after COVID-19
Consumer spending will almost certainly go down after the pandemic – won’t it? Sticky’s Financial Services specialists consider the possibilities…
11.09.20Financial Services audience team
As COVID-19 stormed across the planet and countries went into lockdown, it became clear that the world we emerge into after this will be a very different one. Our finances will be changed too, with the economy already more than a fifth smaller than it was at the end of 2019. Consumer spending has already changed massively since the pandemic began, from socially distanced supermarket checkouts and a surge in online spending to restaurants pivoting to offer takeaway services. But will these changes be long term?
Generally, it is renters, the self-employed, and the youngest and the oldest workers who are most likely to have had their finances hit hardest.
Job losses and money fears
As a result of the pandemic, many people have lost jobs, been furloughed or had to borrow money for their businesses to survive. Official job figures released in August 2020 show that the number of people in work fell by 220,000 between April and June. And while non-food stores and fuel sales show strong monthly growths in the volume of sales at 45.5% and 21.5% respectively for June 2020, levels have still not recovered from the sharp falls experienced in March and April.
Job losses continue to loom large. There were 140,000 redundancies announced in June 2020 alone, and with employers expected to make more of a contribution to furlough pay from August onwards, the number is expected to increase. Early indicators for June 2020 suggest that the number of employees in the UK on payrolls dropped around 650,000 compared with March 2020 (ONS), and one in three UK employers are expected to make staff redundant between July and September, according to a CIPD/Adecco survey. The announcement in late August of 7000 jobs to go at Marks and Spencer is just the latest in a series of high-profile redundancy rounds largely in the retail, travel and entertainment sector. The catalogue of losses includes Dixons Carphone (800 jobs), WH Smith (1500 jobs), Boots (4000 jobs), Pret a Manger (1000 jobs), Airbus (1700 jobs) and easyJet (4500 jobs).
Generally, it is renters, the self-employed, and the youngest and the oldest workers who are most likely to have had their finances hit hardest. Many people have lost their jobs and others will need to make readjustments after government-guaranteed loan schemes finish. Consumer demand isn’t back to pre-Covid levels as people try to shore up their financial position, and the UK is officially in ‘the sharpest recession on record’, according to the Bank of England.
An uncertain future lies ahead. So how are we changing our spending habits – and how likely are these changes to stick?
COVID-19 has forced many of us to question our lifestyle habits.
The impact of COVID-19 on saving and debt
Despite historically low interest rates, we may be witnessing a fundamental switch away from cheap credit and back into savings. The pandemic has been a wake-up call for people who had been in secure employment but just lived month to month, and people are beginning to see the risks of not having 3-6 months of rainy-day money to help tide them over should the worst happen.
In the early months of lockdown, those who could afford to pay off debt, did so. Households repaid £7.4 billion of consumer credit in April – the largest net repayment since the Bank of England started collecting this data in 2008. But by June things began to normalise: ‘Households repaid £86 million of consumer credit, on net, in June, following average monthly repayments of around £5 billion since March,’ said the Bank.
This trend favoured higher-paid, more office-based jobs that translated easily to remote working. Typically, those who could work from home and were still being paid all (or most) of their normal salary were able to pay off their debts, as they were spending less money on commuting, eating out, entertainment venues and holidays. But it tended to be the more poorly paid whose jobs meant that they couldn’t work from home who were hit the hardest.
‘Chief executives and senior officials, whose median hourly earnings are £44.08, are among those most able to work remotely, as are financial managers and directors (£31.38), as well as programmers and software development professionals (£21.97),’ reported the ONS. ‘In contrast, gardeners, whose median hourly earnings are £10.27, are very unlikely to be able to work from home, as are carpenters and joiners (£13.18) and elementary construction occupations like labourers (£10.25).’
People who can are not just paying off debt – they’re saving money too. According to the Bank of England, households’ deposits increased by £11.6 billion in June, following strong increases in March (£14.3 billion), April (£17.0 billion), and May (£26.0 billion). In the six months to February 2020, household deposits rose by an average of £5.1 billion per month. The increase in June was primarily driven by deposits in instant access accounts. Some £9.5 billion of the increase was in interest-earning accounts; non-interest earning deposits rose by £2.5 billion.
In Q1 2020 the savings ratio for households showed a marked increase on the previous recent quarters, though it’s not yet back to levels after the 2008 financial crash.
Lockdown gave the no-spend movement a boost.
A boost for the minimalism and sustainability trends
COVID-19 has forced many of us to question our lifestyle habits[SC1] . With more time at home and less security about money, many people in lockdown developed a thrifty, make-do-and-mend mindset, with a focus on fixing and maintaining what they have rather than buying new. As a nation, we spent money on gardening and DIY, as well as hobbies, crafts and technology. Some people went further, shunning shopping altogether and finding new activities that give them a longer-lasting feeling of wellbeing rather than the instant gratification of buying something new.
For some, the pandemic brought a return to a simpler way of living. Can’t get any fresh veg? Grow your own. Hair getting too long? A quick trim over the bathroom sink will sort that out. For others, the crisis has provided a chance to reconsider what we value most: health, family and friends. Suddenly the latest gadget may not really seem worth spending money on or queueing for any more. This new perspective may lead to longer-lasting changes in people’s spending habits, especially where it was a catalyst to the fulfilment of an already long-held aspiration.
Minimalism was already a trend, and being stuck at home 24/7 brought a renewed interest in decluttering à la Marie Kondo. Lockdown has also given the no-spend movement a boost. Combining mindful living with environmental awareness, this movement seeks to significantly reduce our carbon footprint and plastic use, as well as inspire appreciation for what we already have. As well as saving money, a ‘no spend day’ a week can help you see where your money really goes and give you insight into your true spending motivations.
Some, however, point to a risk of shaming with these movements. Our entire economy – and many people’s livelihoods – depends on money changing hands. As for sustainability there’s a view that there’s nothing wrong with spending, as long as it’s done responsibly – after all it keeps people in work, which in turn keeps people fed and housed.
New habits become the new normal?
Instead of hitting the high street every Saturday, some may find that after the pandemic they prefer doing other things at the weekend. These new activities might also not involve spending money – such as cooking, playing games and quizzes, crafting, learning something new, or going for a run or cycle. With psychological studies suggesting it can take as little as 18 days for new behaviours to become habits, lockdown may well have given some people enough time to change their shopping habits.
So how will some of the key consumer spending sectors be affected by the impact of COVID-19?
Who needs a Saturday session of paintball when you could virtually journey with your mates into the Costa Rican wilderness?
Carbon-gobbling travel has become an increasingly contentious hobby in recent years. The ability to fly cheaply and quickly has led to many assuming that travel is a basic right and an inherent part of their lifestyles. But that has come at a cost to the planet, as evidenced by the comparisons we’ve seen between city landscapes and carbon levels before and during lockdown.
Travel anyway is likely to change significantly: infra-red heat sensors to detect illness, antibacterial sprays, air stewards in full PPE. There’s also the threat of lockdown or quarantine suddenly being imposed while you are away or as you get back, taking the shine off your trip. All this, along with the likelihood of empty middle seats and enhanced deep cleaning of planes, will almost certainly see the costs of flights soar.
The pandemic is likely to fuel an uptick in VR and AR, as people seek to recreate travel experiences virtually. We can expect cheaper and more widely available VR and AR home systems, such as the Oculus Rift. Who needs a Saturday session of paintball when you could virtually journey with your mates into the Costa Rican wilderness?
But the urge to travel is hard-wired into us, and will no doubt return as and when it can. At least 11% of people can’t wait to travel abroad, according to Kantar – with a further 16% happy to travel overseas in the next 3 months. The remaining majority will be switching to staycations, with the UK holiday industry enjoying a bumper year. On the day UK holidays were given the green light by the government, Cottages.com reported a 455% increase in sales.
Self-care and wellbeing
Those of us who’ve been able to work out effectively at home may decide to cancel our gym memberships. However, some of us rely on wellbeing services to alleviate the stresses of daily life and you can’t put a cost on that. The immediate rush to book hairdressing appointments and the fury over discrepancies about certain treatments not being allowed in beauty salons shows the strength of feeling about this.
How we approach gyms may well be shaped by how well they managed their customers during the lockdown. Gyms such as the Bannatyne chain, who immediately cancelled payments from customers at the outset of the pandemic may have secured long-term loyalty, as compared with those where customers have had to battle to get money back for services they couldn’t access.
So, for those of us who love to spend on ourselves – of course we may well do our own brow tints cheaper at home. But we’ll find other ways to spend our money – and inventive personal wellbeing suppliers will diversify and reinvent their range of services to help us do so.
Many people miss going into physical spaces like farmers markets and grocery stores.
Food and groceries
The corner shop was a lifeline for many in the very early days of panic buying and lockdown. And around a third of customers tried online grocery shopping for the first time during lockdown, including older customers who may not have experimented with online platforms. Additionally, many will have tried boxed dinner deliveries out of desperation – and perhaps enjoyed the ease of Hello Fresh-style deliveries. Restaurants, Michelin-starred places included, began home deliveries. So grocery shopping is still likely to see some displacement and, certainly there’ll be continued developments in home delivery services.
‘You can capture incremental folks who have never shopped online for groceries before and then discover that they really enjoy it,’ says Elana Gold, chief marketing officer at Del Monte, speaking with eMarketer of changing habits provoked by the pandemic. ‘So, of course, there is organic growth of that habit in this sector. But I don’t believe that everyone will shift from stores to online—consumer behavior is difficult to change. Once things settle down, and that might not be until next year, you will see a drop in online [grocery] shopping.
‘Right now, we're doing a lot of research into the behaviors of our customers, particularly those who love shopping for fresh produce; they love to smell and touch it. [We've found that] many people miss going into physical spaces like farmers markets and grocery stores.’
Post-lockdown, restaurants are trying to make up for lost income with the additional challenge of not being able to seat as many customers as before. They were given support in the form of the Eat Out to Help Out subsidy in the summer, which included chains like McDonald’s and KFC as well as independent local restaurants and pubs. The first week of the scheme saw 10.5 million meals claimed. The Eat Out To Help Out Scheme may seem at odds with government interventions to help us try to lose weight to cut our Covid risk. But plans to end supermarket offers on unhealthy food and ban junk food advertising before 9pm may slowly begin to switch attitudes.
We’ve looked in more detail at 6 ways eating out could be changed forever by Covid-19.
A more ethical approach to fashion was emerging long before COVID-19.
Clothes and fashion
At the start of July high street footfall declined by 55.7% year-on-year, according to the British Retail Consortium (BRC) and ShopperTrak figures. Big names are closing shops and slashing staff numbers, including Marks & Spencer and Debenhams. Retailers are feeling the effects of the pandemic – they have big overheads but fewer customers with restrictions on the numbers of people allowed in at any one time because of social distancing. But other factors are also coming into play about how people feel about clothes shopping.
A more ethical approach to fashion was emerging long before COVID-19, with Stacey Dooley’s Fashion’s Dirty Secrets and Lauren Bravo’s How to Break Up with Fast Fashion reaching the mainstream. Post-pandemic, we might make more considered choices when it comes to fashion. Apps such as Good on You specify retailers who meet a list of environmental and ethical trading criteria.
Where we shop is also likely to shift. The growing tensions between the West and China, plus scrutiny of how easily diseases can be transmitted, may well have an impact on cheap fashion. Charity shops received bumper donations when they reopened as people in lockdowns had a clear-out. However, second-hand clothes may become slightly contentious and charity shops are now quarantining donations for 72 hours. Fast trading on Depop and eBay is likely to continue, however.
There is a big fightback underway to protect UK arts scene.
Some entertainment sectors received a real boost during lockdown as people searched for new ways to keep themselves amused. One of the biggest beneficiaries was subscription TV.
As people across the UK followed official health advice to stay home during April 2020, they kept themselves informed and entertained by spending six hours and 25 minutes each day on average – or nearly 45 hours a week – watching TV and online video content – a rise of almost a third (31%) on last year, according to Ofcom.
The biggest factor behind this increase was people spending twice as much time watching subscription streaming services such as Netflix, Disney+ and Amazon Prime Video. Consumer spending on streaming increased from 20% to 50% depending on the channel.
Disney+, which launched on the first day of the UK’s lockdown, made an immediate impact. Initially offering a week’s free trial, the new service attracted 16% of online adults by early July, surpassing NOW TV (10%) to become the third most-popular subscription streaming service behind Netflix (45%) and Amazon Prime Video (39%).
On the other hand, theatre and cinema faced huge losses with no audiences. UK cinemas sales are predicted to fall by £900m, which will make this year their worst for over 20 years. And they might find it hard to get people back into venues and the economics of social distancing may not add up for some. However, many have missed being in a crowd enjoying the laughs and thrills of a shared experience, and there is a big fightback underway to protect UK arts scene.
Computer games also had real boost in lockdown. Another diversion for people bored at home, many video games providers have had a real boost to revenues – Nintendo, for example, reported a 428% surge in operating profits. As other attractions begin to re-open will home gaming return to pre-lockdown levels?
Post-lockdown will see a return to old shopping haunts for those lucky enough to still be salaried.
The long-term impact of COVID-19 on consumer spending
The impact on spending is going to be significant and long-lasting. Spending might not go back up to the same levels, especially among those who are worried about losing their jobs, working shorter hours, or have money worries because of mounting debts and need to cut their outgoings. For some people, crowds and fear of catching Covid-19 may also reduce the joy of IRL shopping. Town and city centres may also become less attractive as chain retailers and restaurants shut branches, resulting in more empty premises. And even those who can afford to spend may prefer to save.
Lockdown has inspired a surge in appreciation for making the best of what we have, particularly our homes and our local neighbourhoods. Coming hot on the heels of our growing awareness of the environmental impact of our lifestyles, we can see habits of thriftiness and homemade improvisation sticking for some. But none of this precludes us from spending if we are still able to.
Post-lockdown will see a return to old shopping haunts for those lucky enough to still be salaried – where those haunts still exist, of course. Brands will also have to take on board changing customer priorities and adapt accordingly – for example, supporting local communities or demonstrating their sustainability activities. Carlsberg’s Love My Local digital platform is a good example of this.
With an awareness of the catastrophic devastation the lockdown has rendered on small business owners, continuing to spend with the right people – if you can – can be seen as the right thing to do. And of course for some, the occasional spree on non-essentials will be a way of reassuring themselves that life is getting back to some sort of normal.