Coronavirus Will Change Not Just How, But What, We Buy
(Bloomberg Opinion) -- As the coronavirus pandemic continues, Bloomberg Opinion will be running a series of features by our columnists that consider the long-term consequences of the crisis. This column is part of a package envisioning a new consumer economy. For more, see Mary Duenwald on technology changing how we shop and on how consumers respond to crises, and Tara Lachapelle on fixing the broken business model of streaming.
During the coronavirus lockdown, a particular meme has been doing the rounds on Instagram and Twitter.
It shows a woman in a pink ballgown, complete with tulle train billowing out behind her. She’s not reaching for a cocktail or standing on a glitzy red carpet. She is in a supermarket produce section, clutching a bunch of carrots in one hand and reaching for a red pepper with the other.
The image encapsulates how some consumers feel: After being cooped up at home for months, they can’t wait to finally have an opportunity to get all dressed up again.
But for many others, what they wear, how they shop and which products they buy will be forever altered by the pandemic. The Covid-19 outbreak, which has tragically infected more than three million people and killed more than 219,000, has also struck at the heart of consumerism around the world.
With a quarter of a million stores closed across the U.S. at the height of the lockdown, according to research group GlobalData, the ability to purchase, long a symbol of affluence and status, is in peril. Never has materialism seemed so emasculated.
First of all, there’s the immediate economic impact. With millions of workers temporarily furloughed and laid off, they will be reining in their spending. If these become permanent job losses, the effect will be even more severe. Conspicuous consumption is going to look ugly for a while.
And habits learned in lean times often stick around. Witness the acceptance of discount retailers, such as the German no-frills supermarkets Aldi and Lidl. The cash-strapped middle classes in the U.S. and Europe discovered the delights of their cheap wine and value toilet paper during the 2007-2008 global financial crisis, and the budget grocers have prospered ever since.
Then there’s the slow and incremental process of coming out of lockdown. Even individuals who have kept their jobs and full salaries may make longer-term changes to their spending, as it will be some time before they feel comfortable visiting crowded malls and dining out in restaurants again.
With social distancing potentially staying in place for up to two years, according to KPMG, this could mean far-reaching consequences for the operation and physical design of stores. For example, stores might have to require appointments for visits, offer more check-out free locations and even rethink facilities such as changing rooms. Who wants to pick up discarded garments when the world is emerging from a pandemic?
So far, there are some encouraging signs coming from China, where consumers emerging from lockdown seem to be embracing shopping once more. PwC estimates that as of early April sales at non-food retailers were at 50-80% of their pre-crisis levels. In luxury, the recovery has been even more extreme: A Hermes International flagship store took in $2.7 million when it reopened in Guangzhou in mid-April, believed to be a record daily haul for a boutique in China, according to fashion trade bible WWD. LVMH said some of its big brands on the mainland had seen 50% increases in sales in April compared to the previous year.
This phenomenon is being called “revenge spending,” a phrase first coined to capture the desire for consumer goods unleashed in China during the 1980s, after the poverty and chaos of the Cultural Revolution. At the moment, Chinese shoppers are flush with cash after cancelled travel and events. However, this demand may not last, especially as the number of people allowed in boutiques at any one time is limited and initiatives such as temperature testing have been put in place.
The bigger impact of this crisis, then, may be a shift in what consumers choose to buy.
The outbreak has hit something we largely take for granted: our health. While more government resources are directed to healthcare — something that will have implications for taxes and disposable incomes — there will also likely be a reassessment of personal priorities. That could mean spending even more of one’s income on private health insurance or buying products that help boost immunity.
Wellness had already become one of the few rich seams for consumer groups, giving rise to Beyond Meat Inc.’s plant protein burgers, South Korean gold-laced face masks and vitamin infusions sold in upmarket department stores. Despite criticisms that so-called self-care is the expensive preserve of millennial hipsters, society’s desire to ensure it doesn’t get sick will likely turbo-charge demand for these products.
The pandemic has also fostered a renewed sense of community. This plus the inability to travel very far could encourage spending in more local shops and on brands with strong regional identities, as opposed to the big retailers who may have had empty shelves or struggled to deliver online orders during the crisis. Underlining the new mood, one British retailer with a long history of trading on the high street told me they’ve even noticed more customers saying thank you to staff in their daily interactions.
One sector that is poised to suffer tremendously going forward is clothing. Most consumers have effectively skipped a fashion season, being unwilling or unable to buy apparel for spring and summer. Conferences, parties and weddings have been cancelled, so we’ve simply needed fewer new clothes. There may be some pent-up demand when consumers rediscover their freedom, especially if retailers are having to cut prices to clear stock. But for many, essential grooming such as getting a haircut or a fresh set of eyelash extensions will take precedence over buying a new outfit.
Some consumers who bought fewer clothes during this period may continue to reduce their wardrobe spend. The size of the average U.S. closet has already shrunk over the past three years, according to GlobalData. If you combine the pandemic and concerns about fashion’s environmental cost, it’s not hard to see how men and women may buy even less apparel in the future.
During the prolonged shutdown, there will be some retailers that consumers simply don’t miss and therefore may not return to. U.S. department stores, such as Macy’s Inc. and J.C. Penney, already grappling with the shift toward online buying and with few compelling products, may well fall into this category. J.C. Penney skipped a $12 million interest payment and is evaluating alternatives including a potential bankruptcy filing to restructure its finances, Reuters reported recently. Macy’s, meanwhile, is exploring ways to use its real estate to secure fresh cash. Indeed, some storied names may shut their doors forever, or decide that the time is right to close a number of locations.
How brands behave when the chips are down will also determine how customers react to them when they come out of lockdown.
Some have acted particularly well, adapting their offerings to meet changing needs. For example, luxury goods groups, including LVMH, Kering SA, Prada SpA, Burberry Group Plc and Ralph Lauren Corp, repurposed their facilities to produce protective equipment such as hand sanitizer, masks and gowns. Brands like Nike and Lululemon have engaged shoppers with online workouts; while British clothing and food retailer Marks & Spencer Group Plc. has offered meditation sessions. This nimbleness won’t be forgotten.
Whether out of necessity or choice, shoppers will want goods that are appealing — and, after a health scare, make them feel good — but are priced at a level they believe is appropriate. This doesn’t always mean the cheapest, but it does mean a perceived sense of good value for money. That’s at odds with the approach of higher initial prices followed by steep markdowns that has become a hallmark of much U.S. retail. But as customers become more discerning, store groups will need to distinguish themselves with more than just discounts.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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