April 28, 2021
Consumer Demand for the Rest of 2021
With some economists saying the recession of 2020 is about over and President Biden expecting most Americans to be vaccinated against COVID-19 by July 4th, what’s in store for stores and brands? Robert Gordon, an economics professor at Northwestern University and member of the National Bureau of Economic Research’s Business Cycle Dating Committee (NBER) told the Washington Post that the U.S. hit rock bottom in April of last year when production fell and unemployment reached 14.7%.
The NBER committee on which Gordon has been a longtime member has historically been one of several respected groups that officially declare the beginning and end of recessions. No such group has yet declared the end of the 2020 recession, but many observers believe an announcement will be made soon. Regardless of when that occurs, it still leaves open the question of when consumers can be expected to return to their old spending habits, if ever.
What Lies Ahead?
A recent study of consumer spending by McKinsey Research revealed interesting results. Research was conducted in China, the UK, France, Germany and the U.S. but this article will focus on the U.S. If COVID-19 is brought under control, McKinsey anticipates a strong but unequal recovery.
The reason, said McKinsey, is that those in the higher income levels will likely emerge unaffected. However, many workers at lower wage levels have been laid off, furloughed and even replaced by automation. McKinsey believes that spending by higher income and older consumers will return to pre-pandemic levels while that of lesser and lower incomes will drop after stimulus measures expire. This difference could also result in increased polarization between both groups.
McKinsey’s findings also reaffirmed earlier studies predicting that certain consumer behaviors would continue in the new normal. The firm reported that e-grocery shopping, virtual healthcare visits, and remote working, in particular, would likely remain high. Conversely, they predicted that leisure air travel, remote learning, and live entertainment would probably return to pre-pandemic levels.
Potential Ongoing Declines
Earlier studies predicted that business air travel saw a 20% decrease during the pandemic. All or most of this may remain because of the anticipated amount of remote working expected in the future. Uncertainty and/or irregularity over coronavirus and government travel policies like vaccinations could also hamper travel. Similarly, the closure of many movie cinemas and the shift by many movie studios to digital channels may lead to a further decline in the popularity of neighborhood movie theatres.
What Brands Can Do
Brands that market to upper income consumers have a lot more “wiggle room” because little is expected to change in the new normal. More focus on tailoring content and messaging will help the brand differentiate themselves from the competition. However, companies that market to a broader audience need to reconsider their strategy and perhaps even think about promoting more bargain deals and bargain days to reach those consumers who have limited budgets.
Other innovative changes that direct a company’s community efforts to assisting the underserved will also go a long way in fostering customer loyalty and goodwill. Many companies, for-profit and nonprofit alike, did well during the pandemic because much of their efforts were directed to the underserved as well as front line pandemic workers. Finding the right balance can go a long way in ensuring future community support. So too, will communicating the brand’s social values to its audiences.