While the impact of the pandemic first showed up in global markets and financial projections several months ago, the downstream effects on employment are still being revealed daily. Based on SMG’s second wave of proprietary coronavirus research, this blog combines those results with cross-client analyses and other research to help brands understand what to expect from a drastically transformed consumer-driven economy and competitive landscape.
Financial concerns are widespread—but younger, lower-income demographics are the most impacted
I’ll preface this with a note for those searching out good news: the data paints a pretty grim picture, but there are some reasons for optimism (detailed in the next 2 sections). Our study revealed that 71% of respondents are currently concerned about their financial situation amid the pandemic—which certainly aligns with the fact that we’re seeing historic unemployment rates. In fact, Goldman Sachs has estimated unemployment in the U.S. could peak at 25% in 2020 and remain relatively high for the next 2 years.
To get a more granular picture, we cut the data by demographic information and learned that—even though the data shows younger, lower-income individuals were more likely to be impacted in the form of layoffs or furloughs—respondents in the 45–54 age group are most likely to be concerned.
As always, there are many factors to consider, but there are a few worth mentioning in detail:
1. Job type + emergency aid: Many of the early job losses were in the service industry, particularly for non-essential retailers and restaurants forced to scale back operations. While that doesn’t diminish the loss of work by any means, the stimulus package and increased unemployment benefits may have been enough to curb some initial concerns for younger individuals until their employers began to reopen.
2. Career-pathing: It’s becoming apparent that some industries will struggle more significantly even post-pandemic. Though possible, the adage that it gets harder to switch career paths the further along you get could lead that 45–54 age group to be wearier of the long-term impact on career trajectories and future job prospects.
3. Eye toward the future: Whereas younger adults have more time to pivot career plans and long-term retirement strategies, those 45–54 are not only in their prime earning years but also more sensitive to significant market fluctuations that could impact 401Ks and other investments.
So, how are these concerns and financial situations impacting consumer behavior?
Consumers report spending less—but traffic + purchase data is starting to bounce back
SMG’s research showed 72% of respondents report spending less than before the pandemic, with 15% saying they spend the same and 13% saying they spend more. While financial concerns undoubtedly factor in, we broke out spending habits by income level and discovered people making $25,000–$55,000/year and those earning salaries of $150,000+ indicate they’re spending “a lot less than before the pandemic” at the same rate (43%).
To determine if decreases in spending habits were driven by financial concerns or just general lack of shopping options and attempts to avoid public gatherings, we used our BrandGeek® market intelligence tool to investigate traffic patterns since March 1 across segments. Note: the charts below use index scores to normalize the data, where 100=average # of visits based on historical data, 50=half the average, 200=2X average, etc.
As illustrated above, essential retailers saw spikes in traffic (most notably: home improvement, club, + grocery), while those forced to hault or limit operations suffered significant drops (most notably: department stores + fine/casual dining). One caveat to call out is that even if traffic has dipped, the financial impact for many brands has been at least partially offset by higher average spend per visit. Our cross-client analyses consistently show consumers are making the most of it when they venture out by buying meals for the family or stocking up on supplies to cut down on visit frequency.
To test one hypothesis that consumers may be “trading down” to stretch their budgets as much as possible, we used BrandGeek to investigate visit share data in the grocery industry—the most stable essential retail segment in terms of traffic. While ALDI has seen a .7-ppt increase in visit share since February and Whole Foods as seen a 1.3-ppt decrease, the overall trends suggest that consumers are mostly opting to remain loyal to the brands that have gained their trust.
So, given that we collect all this feedback to inform future strategies, what can we predict about consumer behaviors in order to help brands prepare for the next normal?
Future intent remains murky—and actual behavior will vary greatly across demographics + segments
The unfortunate truth is that circumstances, perceptions, and expectations are shifting so quickly and drastically that using self-reported intent data to predict future behaviors is difficult to say the least (though still very much important). While much can change in a given week, a recent study from The Harris Poll showed that only 31% of consumers expect to stop sheltering in place in May or June, with 29% saying between July–Sept., 17% between Oct.–Dec., and 19% as late as sometime in 2021.
That level of caution alone will obviously have a massive impact across industries, but another major consideration is that not all industries stand to be equally affected. That same study from The Harris Poll asked consumers how long it would take them to do each of the following activities (and how soon) once they saw evidence of the curve flattening:
If you look at this top to bottom, it’s clear how they rank in two ways—overall cost and perceived level of risk in terms of contracting the virus. That means non-essential retailers and service providers have two key thresholds to overcome: 1) prove their value and 2) regain consumers’ trust. To achieve both, brands will have to revisit some major strategic focus areas, including competitive positioning, overall value proposition, reopening strategies (likely tailored to regional guidelines), and ongoing commitment to the health + safety of employees and customers alike.
Stay safe, healthy, + informed
It seems like the economy all but shut down overnight, and early indications show that a V-shaped recovery—where the uptick mirrors the shape and velocity of the downtick—is unlikely to happen soon. While there will be a lot of contributing factors for how brands weather this storm, the fundamental step we should all be taking is listening to employees and customers to ensure we’re able to adapt quickly to their changing expectations and behaviors.
While I encourage you to keep tabs on SMG’s COVID-19 Resource Center, these frequently updated, industry-specific trend reports will prove especially valuable in helping you stay up-to-date:
Paul Tiedt | SVP, Research