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How COVID-19 is influencing consumer behaviour

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It’s been three months since the World Health Organisation declared the outbreak to be a ‘Public Health Emergency of International Concern’. Despite continued efforts by governments and organisations across the world, the virus continues to spread unabated. With as many as 2.4 million cases across 185 countries and territories, it is a catastrophe unlike anything we have experienced so far.

How COVID-19 is influencing consumer behaviour

As the novel coronavirus’ effect on the global economy continues to escalate, it’s growing toll on income and spending intent are changing dramatically, which in turn is ushering in a paradigm shift in retail sentiment and behavior.

Why Consumer Sentiment is Changing?

Economic Uncertainty – There have been shockwaves along the global economy in the wake of the pandemic, and alongside this, the effects of individual financial insecurity are coming to the fore. Amidst the worldwide , a recent WGSN report outlines a fortnight increase of 14 percent in the number of adults in the USA who are concerned about the economic impact of the escalating crisis, compared to the fortnight prior. The report also suggests how ‘concerns about their financial well-being will change the value equation for many consumers in their discretionary spending.’

According to a research that focus on 12 countries hit by the pandemic, consumers from Africa, Asia, and the Americas exhibit more optimism than their European counterparts when it comes to their respective countries’ economic recovery after COVID-19. The study highlights that 52 percent of Indian consumers expressed optimism about the nation’s economic recovery in a survey conducted March 29, 2020. On another survey done on April 05, 2020, the numbers jumped to 56 percent.

Impact on Household Income – Worldwide lockdowns and other containment measures are taking a serious toll on jobs and earnings. Increasing number of households are bracing up for a dip in income which further is compelling consumers to adopt new purchase and viewing behavior. The McKinsey & Company research reveals that about 30 and 50 percent of consumers globally expect their household income to continue to fall over the next weeks. Consumers from the United States, most of the European countries, Japan, and India, are documented to have expected a dip in their income by 25 to 49 percent.

The result will be a drop in discretionary spending. Moreover, as documented by many researches, spending on anything apart from necessity and health safety will take a backseat.

What Will be the Prominent Changes?

Increasing Reliance on Digital Retail – Limited access to physical stores, social distancing, quarantining and working from home is accelerating the hold of digital connectivity in day to day lives of consumers and the e-commerce industry is reaping all the benefits. Given the restricted living conditions that global consumers are living in, most consumers are taking the wise decision – buy online and avoid long queues in crowded physical stores.

According to , the number of grocery orders placed by even the baby boomers generation was four times higher than normal during Spring Festival. Miss Fresh, another online retailer in China, claims its users aged 40 years and older have risen by 237 percent during the COVID-19 period. The National Retail Federation has outlined in a recent study that nearly 60 percent consumers are concerned about their going out due to fear of being infected. This is resulted in about 50 percent of increase in digital adoption.

While the propensity towards categories like grocery, FMCG, health and wellness and other essentials are temporary, the report suggests that the digital adoption phenomenon will not only carry forward but is only expected to gain momentum in the time to come. Even after the crisis is contained and we move back to normalcy, a strain of apprehension for crowded places is likely to continue marking a tipping point for the adoption of e-commerce and mobile commerce platforms.

India already has a booming e-commerce sector driven by high smart-phone penetration and cost-efficient data availability, with
researches pegging it at an estimated US$ 200 billion by 2026. While the retail landscape was mangled by the ongoing COVID-19 crisis, for the e-commerce segment it was a blessing in disguise. Experts now believe that the e-commerce industry will hit the US$ 200 billion mark much sooner. Business Standard revealed in an article published before the lockdown that big names like Flipkart, and BigBasket have registered a 30 percent spike in orders as COVID-19 spreads.

Shift in Spending Patterns – A fair section of consumers do not rule out the possibility of a global recession after the after the pandemic. But the good news is that consumers are optimistic about increasing their share of expenses on non-essentials once the scourge of the virus is over. Yet for the time being, a fair section is pulling back on discretionary spending and it
might take some time for apparel sales to recover.

McKinsey & Company has reveled in one of its studies that consumers from China, Indonesia, Nigeria, and India are expected to increase their spending in the near future, as the situation comes back to normal.

“Other countries, including Brazil, Japan, and Portugal, have relatively low optimism but still expect to increase spending – potentially due to stocking?up behavior driven by stay-at-home orders. Most European consumers (including those in Italy, Spain, France, and the United Kingdom) are less optimistic and, as a result, expect to spend less. While US consumers are more optimistic, they match European consumers’ reluctance to spend, the report further reveals.

Category Spending – As stated earlier, consumers’ buying behavior has adapted to suit their needs. Groceries, household supplies, personal care products, health and wellness products and other essentials are witnessing great demand as consumers across the world brace up for an extended period of lockdown.

Global marketing research firm recently studied a similar epidemic, the 2002 SARS which also began in China and claimed 774 lives worldwide, to better understand what COVID-19 may entail for the retail industry globally. The study found that consumer behavior banked heavily on categories – luxury and durable goods like apparel were more affected than daily necessities like food and beverages.

A McKinsey & Company study based on that Amazon’s sales data reveals a sharp drop in the sales of apparel, by about 40 percent, between mid-February and mid-march.

“Indoor fashion categories, such as pajamas and activewear, fared a little better—but they are highly fragmented and lower margin, with limited differentiation across brands. In a March 20–22 survey of US consumers, 63 percent of respondents said that they expect to spend less on apparel than they usually do. If the shape of the recovery in North America mirrors that of China, it could be midsummer before spending and shopping behaviors begin to return to normal,” the report states.

Consumer Sentiment Post COVID-19

The ongoing COVID-19 pandemic has completely altered the everyday lives of consumers along with instilling them with fear and uncertainty. Cleanliness is on everyone’s minds these days and everybody wants to avoid crowded places out of fear of contagion.

People are expected to turn to more immunity boosting, personal hygiene and nutrition products, as well as wellness foods, in the post-COVID-19 world. “Consumers may hesitate to go shopping apparels even after stores open after the lockdown. As of now, sales are zero but even when the partial opening will start, apparel won’t be the first category to be on the shopping list,” , Founder and Managing Director, was quoted as saying.

According to industry captains from Retailers Association of India (RAI), () and (CMAI), the fashion retail industry in India, along with take about a year to recover.

“I don’t see actual manufacturing to commence before 2-3 months. Most retailers will hesitate to take fresh stocks till festive season. Subsidiary industries such as zips and tags will also be adversely affected. Fresh production will probably start in July-August period,” said Rahul Mehta, Chief Mentor, CMAI.

Talking about expected sales of apparel in 2020, he added, “Demand in apparels may shrink by almost 40 percent in 2020. The existing online to offline buying of apparel 8 percent to 92 percent however, would tilt in favour of online apparel buys by 12 percent in coming years.”

Consumers are living through a pandemic that will change them, maybe forever. As consumption behavior shifts it is imperative for brands and retailers to connect to their consumers to understand their side of the crisis and offer tailored products and services accordingly.