Abacus: Retail During the Holidays
Thomas Barwick
Consumption represents the single biggest contributing factor to the lauded Gross Domestic Product, and the holiday season that traditionally occurs from November through the end of December has served as the annual pinnacle of consumer activity. Indeed, the purchasing of gifts, the high use of transportation services, and the attendance at various live events have all done favors to the economy during more normal times.
However, with Covid-19 decimating people’s natural ways of life, the upcoming holiday season will surely look far different from those of the past. One of the biggest sectors that will be affected by this change is the retail industry.
Despite improvements in sales since May, certain US-based retailers have continued to struggle. Clothing and accessory stores, as well as restaurant establishments, have fared the worst since March: sales for the former were down 19.9% in July compared to February, and 19.7% down for the latter.
It’s hard to envision sales for stores in these two sectors picking up to pre-pandemic levels in the upcoming months, as companies that offer hospitality and travel related-services are likely to be the hardest hit by reduced traveling. Yet, optimism prevails for certain businesses, specifically for those that largely operate online.
With the popularity of e-commerce rising due to a higher share of citizens working from home, Deloitte projects that online expenditures between November and January will rise a staggering 35% compared to the previous year. The optimistic forecasts could allow for many firms to re-capture lost revenue from prior quarters
The past summer may be an indication of things to come in the winter: from Memorial Day through Labor Day weekend, the Transportation Security Administration screened 76% less people than they did over the same stretch in 2019. An uptick in daily passenger traffic from a recent low in April has stalled since July.
With Delta and United Airlines reporting third quarter losses of $5.4 billion and $1.8 billion respectively, many airline analysts do not expect pre-pandemic levels of revenue anytime soon. In fact, the International Air Transportation Association recently stated that airlines could continue to sustain losses until 2022.
The impact of Covid-19 on consumer markets in general should not be understated. Just as consumer tastes have changed as a result of historical events from the past, a pandemic can alter customer preferences to a considerable extent. Unsurprisingly, home-based and sanitation-related goods are expected to remain popular.
Perhaps more interestingly is that certain businesses which primarily appeal to in-person shoppers, such as stores that supply luxury clothing brands, beauty products, and certain alcoholic beverages, will have to adapt to changing circumstances. Companies that offer such goods will have to re-adjust their e-commerce efforts, which could put them at a disadvantage to firms that traditionally operate online.
As integral as consumer spending is to the economy, the activity of consumption itself reflects one of the biggest traditions of developed countries. Ever since the beginning of the pandemic in March, recreation has changed remarkably and most are still adjusting to new constraints. This has had large effects on how people shop.
One such change is where people buy their products. For example, in certain countries, such as those in the Middle East and North Africa, 84% of consumers have reported having increased feelings of value and loyalty towards locally made products since the beginning of the pandemic.
Moreover, given current restrictions regarding other facets of life, such as schooling, working, and traveling, the hobby of shopping has become more cherished. Given the relative ease to modify shopping to be ‘safe’, such as through limiting the number of people in a mall at any given time to comply with social distancing protocols, in-person shopping will likely remain comparatively low-risk in the near future.
As consumer demand is likely to be sustained in spite of the pandemic, challenges will largely remain with retail brands to better market their products. In addition to focusing on adapting to an online presence, companies should be fixated on a myriad of changing inclinations among consumers.
In particular, customers have put greater emphasis on factors like discounts and promotions, as well as on products that are on sale. Moreover, consumers have also placed greater value on advertisements, believing that businesses should make the pandemic the focal point of their attention: nearly three-quarters of people polled by Kantar are satisfied with the high volumes of Covid-19 related advertisements.
In effect, the changes in consumer tastes have two significant consequences on retail stores. On one hand, the greater appreciation for local businesses could put small businesses at an advantage, all other factors held constant. However, the other, more significant effect, pertains to the recognition for increased advertisements, product differentiation, and pricing strategies, none of which traditionally applies to small businesses.
Indeed, the results based on these preferences have already been witnessed, with more than 40% of small businesses closed in cities like San Francisco, New Orleans, and Honolulu as of September 2020. As chaotic as the resulting impact from the pandemic has been on retail firms and consumer markets, change in consumer preferences is par for the course in a free-market economy.
Any reshaping of the times, such as those that are derived from the ramifications of a significant event, can lead to changes in the goods and services demanded by a country’s people. It is up to the firms that supply those goods and services to adjust as necessary.
Failure on the part of firms to adapt can lead to their extinction, whereas the ability to acclimate to the times can lead to increased sales. As the pandemic prolongs, it will be interesting to see how consumer desires continue to evolve, as well as which companies will be able to adjust, and which will not.
