In times of crisis, it is only natural to want to look beyond the volatility and imagine what the new normal will be when things settle down. As we all do our best to weather the storm of Covid-19, there is no shortage of forecasts and predictions about how the world will look once we have collectively beaten the pandemic.
The new reality will be shaped by the beliefs, habits, and behaviours that consumers form during this time, based on their experiences in the pandemic as well as how the outbreak affects their finances in the medium-term. Behaviours have already changed under national lockdowns, but the more relevant question is how permanent these changes will be.
The answer is not necessarily clear-cut, because it depends on how long the pandemic lasts, how it comes to an end, and how deep and lasting the damage to the world economy will be. A large boost in consumer confidence will occur, for instance, if an effective vaccine or treatment comes to market within the next 12-18 months.
Conversely, if there is a second and worse wave of infections and deaths in the forthcoming northern hemisphere winter, it will take longer for consumer confidence to recover and the world economy will remain on shaky ground.
Having set that context, here are a few ways we expect the virus will affect consumer behaviour and habits in the years to come.
An Accelerated Move to a Digital Lifestyle
Digital brands like Netflix, Microsoft and Amazon have seen their valuations soar as millions of people worldwide turned to, or increased their use of, digital channels for shopping, work, and entertainment. Before this period of economic lockdown and regulatory restriction on freedom of movement, the online trend was already evident. But confinement to home, caused by responses to Covid-19, has accelerated digital adoption by several years.
This is a trend we believe will outlast Covid-19 – people who have used online shopping, ordered takeaways on an app, and become used to remote working will not necessarily rush to embrace analogue habits again. Many will still want to practice physical distancing for a while because of residual fear about the virus, while others will simply have become used to digital convenience.
Many Old Habits and Preferences will Survive
Right now, consumers are spending heavily on hand sanitisers, online exercise solutions such as Peloton bikes, and hair colour. But should fears about the virus subside, these purchasing habits may dissipate, along with the habit of constantly washing our hands and the need to stockpile goods.
We should not be too surprised if restaurants, gyms, tourism, sports, concerts, and conferencing start roaring back as soon as people feel that the pandemic is truly behind them and pent-up demand is unleashed, especially in the early months. Many of these experiences are not easy to replicate on digital channels – people miss and value the ability to interact in person, travel, or to attend live performances.
As an example, the live music industry in the UK, having faced massive redundancies due to social distancing regulations, has called on the government to commit to a “clear, conditional timeline” for reopening venues without social distancing, as well as financial support, and a VAT exemption on ticket sales, all in order to boost the industry once restrictions ease.
Consumers will Look to Brands they can Trust
Over the past ten years, we have seen the rise of a more conscious type of consumerism, with young people, in particular, holding companies to higher standards in terms of environmental standards, governance, social issues, and ethical behaviour. Covid-19 has amplified these trends and consumers are likely to expect more from big brands in its aftermath.
The research firm, GfK, found that 83% of consumers in the US reported that brands’ behaviour in these times will determine whether they do business with a company in the future. Some 78% agreed that companies have been acting as a “force for good”, while others said they noticed companies “trying to take advantage” during the crisis.
At the same time, it would not be surprising to see people gravitate towards the safety of trusted brands, especially in sectors like financial services. A period of volatility is likely to inspire people to look for the stability and sustainability they can find in the companies and brands that have endured the test of time.
What is Next?
As Yogi Berra, the American baseball player, said: “It’s tough to make predictions, especially about the future.” This is especially true as it is now some seven months since the onset of the pandemic in Wuhan, and there is still much uncertainty as to how and when it will end. A swift return to relative normalcy later this year might spur resurgent consumer spending, but a further round of lockdowns could prompt consumers to adopt a culture of saving.
At the time of writing this article, reports have revealed a 17.7% rise in US retail sales for May. Low interest rates and stimulus payments no doubt helped to boost consumer spending, along with loosening of the lockdowns in some major cities. But over the longer-term and given the risk of renewed Covid-19 outbreaks in a globalised economy, it remains to be seen how the depletion of savings and high unemployment will affect the psychology of the consumer.
Interest rates have, after all, remained low in many countries in the wake of the Global Financial Crisis. Lowering them further might not be enough to spur consumer spending on durables and discretionary items, especially as people may continue to be afraid of the virus and have experienced a reduction in wealth or income. According to McKinsey, there is a strong correlation between consumer optimism around an anticipated economic recovery and their spending plans.
In this article, we have not touched on how the pandemic may affect geopolitics and the global economic landscape in the years to come. For example, it may well further dampen enthusiasm to open borders and promote globalisation at a time when protectionism is already on the rise. This, too, could affect the psychology and confidence of the consumer, not to mention the negative economic impact.
At Dynasty, we monitor these trends with great interest, but also know that – given continued uncertainty around the global timeframe of the passing of the pandemic – we are unlikely to accurately predict both the timing and the extent to which consumer behaviour will revert to pre-pandemic norms.
Our next opinion piece will cover the shifts in business behaviour during and beyond the pandemic. We will then conclude by outlining how we are positioning our clients’ portfolios to secure successful outcomes in the context of the trends we are seeing among businesses and consumers.