Shaken by the coronavirus, consumers will be hesitant to spend – and harder to convince
After more than a month cooped up in their houses, and with many people worried about their financial stability after the lockdown ends, companies should expect consumers to be more selective about how they part with their money than they used to be, marketing consultancy form M&C Saachi said on Tuesday.
During a webcast addressing how companies should prepare themselves for the lifting of the lockdown in nine days’ time – if no extension is announced – Robert Grace, head of strategy M&C Saachi SA, said consumers’ spending will likely be fueled by the “release” need initially, prompting those who have money to spare to seek experiences like getting that restaurant meal they’ve been forbidden for a while.
South Africa’s economy is gradually opening up, but it is not yet clear whether restaurants will be open in nine days’ time – even if lockdown ‘officially’ ends. So far it’s few industries, including mining and call centres, that resumed limited operations last week, in line with the Amended State of National Disaster Regulations Extended Lockdown gazetted on 16 April.
Looking at the severe acute respiratory syndrome-related coronavirus (SARS) that broke out in China in 2003 and spread to 26 other countries, when the travel restrictions associated with it were lifted, fast food outlets turnover surged 29{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}, while “pleasure retail”, which includes expenditure on pampering oneself, recorded a 35{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} jump in turnover, M&C Saachi’s intelligence unit found.
“We are predicting a confidence rebound. When we looked back at previous pandemics or crisis, we’ve seen that,” said Grace, adding that the latest data from China is indicating a similar behaviour is happening with the current strain of coronavirus (Covid-19).
But because the South African economy was already on its knees when it confronted the outbreak, having slipped into a technical recession in the fourth quarter of 2019, and given the looming global recession, this rush to spend post-lockdown will likely dampen.
“We are going to enter recessionary times and whilst there will be less disposable income, but people’s needs and desires will still be there,” said Grace.
He said in the case of Swine Flu, this spending fuelled by a “sense of release” lasted for about three months. But the consulting firm said people are inclined to spend their limited rands on symbolic items – like visiting only places with sentimental value to them – going forward. While this does not mean no one will buy luxuries or that companies in that space are doomed, it does mean that they may need to work harder to convince buyers. Companies that saw the opportunity to reassert their care for customers during these tough times, such as Discovery Medical Scheme which was the first to open up free online doctor consultation to the rest of the country, will benefit, said Grace.
Financial services companies, in general, might come out as beneficiaries of this uncertain time as the consumerism trend starts to reverse. More people have started realising as their sources of incomes dried up during the lockdown that they need to build more financial buffers for themselves, said Diana Springer, partner and head of strategy for one of M&C Saachi’s units.
“Consumers are seeking experiences and products right that give them a sense of security and stability. I would like to hope that there is a greater sense of the need to save because all of us have suddenly thought we wish we had more to fall back on,” she said.
Mike Schussler, owner of Economists.co.za, said while people’s sense of financial security has been threatened and many will probably save more in the short-term, but that might not last either.
“We’ve seen crises before that prompted people to save a bit more, then two to three years down the line it has sort of gone back to normal,” he said.
Data from Trading Economics show that South Africa households’ saving ratio moved to a positive terrain, clocking around 0{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in 2010 after the 2008-2009 global recession. Prior to that, local households were dissaving – or spending more than they earn – with their saving ratio hovering around -2{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}. However, a year later, in 2011 the ratio dipped below 0{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} again.