Consumers purchase items based on three specific needs: to survive, to entertain, and to connect. Across the world, when lockdowns started to be imposed, anxious consumers pinched pennies as they tried to cope with the new restrictions caused by the COVID-19 pandemic. At first, consumers, unsurprisingly, focused on purchasing items necessary to survive and protect themselves against this new, unseen threat. But what exactly did consumers purchase throughout the year due to the pandemic?
Lockdown expenses: What did consumers buy?
In the early days of the pandemic, consumers reacted to stay-at-home orders by stocking up on essentials such as food and medicine. Statista1 also reported an increase in spending on health and hygiene products, frozen goods, and cleaning materials across the UK, USA, and Germany.
As the demands for these items surged, retailers were forced to limit consumer purchases as panic buying began to take hold. JP Morgan2 reported massive increases in consumer spending on:
- Cleaning wipes (100%)
- Disinfectants (100%)
- Dishwasher detergents and kitchen cleaners (50%)
- Vitamins and supplements (50%)
However, once the initial shock wore off and the masses realized that essentials were not running out, panic buying ceased. Today, almost a year after the start of the pandemic, and with many industries beginning to gradually open, consumer spending has shifted and is even 5%3 higher than pre-COVID spending.
So, what is causing this uptick in spending?
1. Consumers working from home spend more
Surprisingly, an average employee spends more money working from home than working in the office according to a survey conducted by Creditcards.com4. While employees forced to work at home can save on gas and public transit ($33), restaurants ($27), and clothing ($4), they spend an average of $108 more per month on groceries ($182) and utilities ($121).
A survey5 found that increased grocery spending can be attributed to consumers hitting up multiple stores per shopping trip (e.g., wholesale stores for bulk items and then the supermarket for everyday needs) despite doing fewer trips overall. The same survey concluded that parents overspend and shop more frequently with children at home since that increases the demand for food.
Other significant results from the Creditcards.com survey shed a light on increased consumer spending across demographics:
| By Generation | By Parental Status | By Income Bracket |
|---|---|---|
| Millennials ($208 more) | Parents with children under 18 ($173 more) | $40,000 annual income ($151 more) |
| Gen X ($2 less) | Non-parents ($103 more) | $40,000 to $80,000 ($147 more) |
| Baby Boomers ($24 less) |
2. Consumers spend more on leisure-related activities
Lockdowns caused the global population to turn to digital leisure to entertain themselves. Since the pandemic curbed usual R&R activities (travels, vacation plans, get-togethers). Netflix6 reported a surge in revenue of almost 25% in the April-June timeframe. Amazon’s7 shares also went up to 50% more this year.
The following illustrates who spends the most globally:
Source: Ipsos
Additionally, computer software and gaming-related spending have also seen an increase. Nintendo8 reported a 41% surge in profits in the first quarter of the year when many countries first entered lockdowns. Its shares rose over decade-highs in June. In short, spending money on entertainment while at home makes sense.
3. Consumer focus on education
Deloitte9 reports that overall spending on education remains unchanged. However, the pandemic has shifted how what and where consumers plan to spend for the upcoming school year.
| Category | Average spending | YoY Change from last year |
|---|---|---|
| Clothing and accessories | $261 | -10% |
| School supplies | $102 | -13% |
| Computers and hardware | $395 | +38% |
| Electronic gadgets and digital subscriptions | $316 | +4% |
| Home / Health (COVID-19 category) | $62 | NA |
Many parents continue to be anxious about sending their children back to school, and this is reflected in their eagerness to spend on technology like laptops, tablets, and headphones to better adhere to online schooling requirements.
The common theme among all the above is that these expenses are for broad types of goods. Many services-related expenditures, like travel and restaurants, took a hit, leaving consumers with enough funds to spend on goods. Additionally, repressed demands prompted higher levels of spending because some of the purchases that did not occur in March-May due to retail shutdowns took place later in June.
However, with employment taking a hit during the pandemic, and many industries still struggling, where are consumers getting the extra money for spending?
To help to answer that question let’s examine how some countries supported their populations with much-needed relief to alleviate the challenges presented by the COVID-19 pandemic and how they allocated budgets for their healthcare system.
Regional spending
At the onset of the pandemic, many governments across the world set aside a budget to support their citizens and businesses in this time of crisis. According to a report10, Japan has the most aggressive response, with a spending package at around 20% of its economy. Spending packages for other countries are:
- USA (14%)
- Australia (11%)
- Canada (8.4%)
- United Kingdom (1.5%)
Meanwhile, many poorer countries prepared relief responses as well, but they needed to get assistance from international organizations and other donors to execute. For most countries, the aid is targeted at the people most affected by the pandemic (disadvantaged, disabled, informal sector workers, etc.). Among the countries that handed out cash assistance are:
- Hong Kong - HK$10,000 ($1,280 per adult)
- USA - $1,200 per adult earners under $99,000
- Japan - JPY 100,000 ($931 per person)
- South Korea - KRW 1 million ($820 to families in the bottom 70% income bracket)
- Singapore - SG$600 ($422)
Other countries opted to rely on safety net programs or unemployment benefits such as UK's Universal Credit to supplement their population's needs. Providing wage subsidies is another strategy employed by many countries to help companies retain their employees by covering their payroll. The Netherlands is viewed as the most generous for pledging to replace up to 90% of eligible companies' wage costs. France comes next with its offer to cover 84% up to 100% for minimum wage earners. UK and Canada prioritized furloughed employees by offering up to 80% and 75% of employee wages for up to three months, respectively.
However, with the increase in expenses towards groceries, education, bills and other necessities, these cash assistances must be viewed as short-term fixes and will not be effective much longer without knowing how long the pandemic is going to last.
Looking ahead
The promise of improved medical treatments and vaccines means there’s a good chance these spending trends focused on goods will change soon, and the rapid return of services spending may normalize the economy. When that happens, how can the markets prepare for the eventual softening of the durable goods sector and the soon to return to normal services sector? Specifically, are brands and retailers, especially those who struggled to strengthen their online presence when the pandemic first hit, ready for the post-pandemic economy?
References
1 https://www.statista.com/statistics/1108088/products-and-services-people-spend-more-on-due-to-the-covid-19-pandemic/
2 https://www.jpmorgan.com/solutions/cib/research/covid-spending-habits
3 https://www.forbes.com/sites/gadlevanon/2020/08/17/what-the-post-pandemic-economy-will-look-like/#68ada6697835
4 https://www.creditcards.com/credit-card-news/work-from-home-poll/
5 https://www.lendingtree.com/credit-cards/survey-grocery-shopping-food-buying-pandemic/
6-8 https://www.ipsos.com/en-nl/looking-escape-younger-people-more-likely-say-entertainment-costs-rose-covid-19
9 https://www2.deloitte.com/us/en/insights/industry/retail-distribution/back-to-school-survey.html
10 https://www.bbc.com/news/business-52450958
