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How a Consumer Confidence Slump Is Altering Spending

How a Consumer Confidence Slump Is Altering Spending

We thought the Great Consumer Society was dead in 1987 when global stock markets inexplicably crashed (Black Monday); and again in 2008 when the mortgage/housing bubble burst, inciting the Great Recession. But consumers gradually returned to normal behavior, letting the good times—and their money—roll again, if with the new wrinkle of e-commerce. Those were, however, financial crises; COVID-19 is a very different economic influencer, and predictions that it will continue to disrupt businesses and lives until a vaccine can be developed mean that consumers will have time to adopt, and perhaps keep, new habits and behaviors.

It’s Hard to Be Confident When You’re Jobless

Consumer confidence is one leading indicator used to forecast future spending and saving trends in the U.S. economy. It is based on surveys of American households’ expectations for their financial situations, their feelings about the economy, unemployment numbers, and households’ ability to build savings. Compared to May 2019, consumer confidence declined 26.3%; after hovering at an index value of 100 in February 2020, consumer confidence is at 73.7% for the month. But the three-month average is pointing straight down.

As of the May 14 Bureau of Labor Statistics’ jobs report, the U.S. economy lost 20.5 million jobs in April 2020. That translates to 36.5 million Americans newly filing for unemployment assistance in the eight weeks of the COVID-19 crisis. That doesn’t include many low-wage workers who are afraid to file because they are either undocumented or have green cards, and fear being deported. Plus, many states’ unemployment systems are so backlogged in new applications, some people haven’t been able to file. (A good friend has shared her difficulties wrestling with user-unfriendly forms and glitchy interfaces; after three days of trying, she has yet to complete her application.)

Is the Consumer Society Dying?

Some consumer behaviors may be anticipated. In The U.S., watch for the “lipstick effect,” a psychological response first noted during the Great Depression, in which many Americans responded to the crisis by buying “small indulgences,” like cosmetics or candy. On April 15, 2020, the first day that individual stimulus checks arrived in U.S. citizens’ bank accounts, consumer spending rivaled Black Friday, said Obele Brown-West , head of media at search engine marketing firm Tinuiti. (Brown-West confessed she wrote her article after shopping online for face masks; she also ordered a dress and lipstick, even as she wore her university sweatshirt for the third straight day.) Brown-West observed that Americans have long associated consumerism with normality. Even during the 2008-09 Great Recession, consumers splurged on practical indulgences.

Spending in March 2020—a 20% surge in online buying as people went into state-ordered shutdowns—lifted total consumer spending, even as in-store purchasing slumped. Following the brief surge resulting from stimulus checks, online buying hit new highs in late April, possibly due to extensions to shut-down orders—or maybe people made purchases for home and garden they had delayed, or splurged on Mother’s Day gifts. In-store purchasing is down 20% since the shutdowns began, but so is total spending, as many jobless families try to figure out their financial situations.

Unless we see a huge resurgence of COVID-19 outbreaks in Fall 2020, we may see a surge in holiday travel and gift-buying come November, as people try to make up for our “lost year” of personal interactions with loved ones. Businesses must keep in mind that money will be tight for most people. Businesses need to plan now for ways to offer cost savings with less expensive products, discounts and special offers. Economists warn a deep global recession is likely, and there is no way to predict how many jobs will come back when businesses try to reopen. Brands and their agencies should plan for customer behaviors to be very different than before the crisis.

More Changing Patterns in Consumer Behavior:

Surge purchasing may occur periodically, based on trending news and rolling shutdowns. It’s not just toilet paper that became a scarce product—see also freezers (orders are backlogged by several months), smart phones (due to China supply chain disruptions), bicycles (as urbanites take advantage of traffic-less streets), and yeast (too many nascent bakers stuck at home).

Vegan eating could increase. Concerns about how the meat-packing industry has protected its employees could steer greater numbers of consumers toward vegan foods and purchasing habits, even as meat supplies become erratic due to plant disruptions.

Scaled-back consumerism due to fears of contagion could become a habit. People will think more carefully about whether they need items, rather than spending time in stores during the virus. Concerns about who previously handled that pair of jeans, bottle of soda or magazine will also deter shoppers from in-store visits. The retail industry has already announced several bankruptcy’s and store closings.

Brand names may lose luster. Supply and demand issues are prompting consumers to trial-purchase cheaper, or simply more available generics. People need certain products, so their brand loyalty, such as it was before COVID-19, is being largely abandoned.

Contactless payment could become normal and not just a coronavirus best practice. People are finding benefits to ordering online and pre-paying in order to do curbside pickup.

Increasing numbers of people will adopt “e-commerce-first” shopping. Like contactless payment, more and new consumers are buying online, and surveys indicate people will be slow to return to bricks-and-mortar outlets when malls and retail venues reopen.

Stay-cations and in-home entertainment. People fearing the virus will think twice about dining out, shopping-as-entertainment, vacation travel and cultural outings. Hotels are announcing layoffs based on expectations that recreational and business travel will be depressed for the long term. Many restaurants will not re-open, and no one is even speculating about when theaters, concert halls and museums could safely reopen.

Loss of consumer purchase power will have long-term economic effects. Behind all of these challenges and changes, there is the enormous number of newly unemployed people in the U.S. many of whom were already on the cusp of poverty, but large numbers of whom are now weekly visitors to food banks and worrying about just paying the rent. With unemployment numbers now topping the worst numbers of the Great Depression, the great consumer society may finally be dead. There is no predicting how the economy will look when COVID-19 is just an ugly memory.

How Must Brands Respond?

  • Pay even greater attention to customer feedback and research. Delivering what consumers want and need will be even more important.
  • Test for and track changes to customer purchase journeys. Trends including reliance on personal recommendations, consumer product reviews, and online deals will intensify.
  • Focus on products that people need now, and help customers with great content. E.g., hair clippers company Wahl’s promoted already-existing, easy-to-follow tutorials for cutting men’s hair at home, and saw demand surge after the COVID crisis began. Useful content is a stellar tactic even without a crisis driving demand.
  • Increase options for digital/online commerce, including direct to consumer (DTC) websites and selling, and mobile apps. COVID spurred digital adoption of new technologies almost overnight; people will emerge from the crisis more comfortable with these options. Ensure you respect consumer privacy and data collection. 
  • Improve online customer support. Reliance on digital service means client digital CSR must improve.
  • Keep an eye on pricing, as competitors face similar challenges and try to attract new customers with price cuts.

 

Even as consumer behaviors change, marketers also need to watch for what does not change. Many consumers may revert to old habits and practices—i.e., they will return to what they felt comfortable with Before Coronavirus, but that may take time to happen. Meanwhile, marketers and brands must respond to what is happening now, and try to anticipate what will be going on over the next two quarters. Research and agility are critical.

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