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How Uncertainty Impacts Retail Behavior

Posted: 05/11/2020 | Author: Angela Ozar for Creatives On Call | Tags: Thought Leadership

How Uncertainty Impacts Retail Behavior

Creatives On Call has a close eye on the impact of COVID-19 to retail and how it effects our retail clients. If you're looking to get help getting back on track with your campaigns, we're here to provide solutions. Reach out to us at clientservices@creativesoncall.com or give us a call at 1-866-316-8919. We have remote team capabilities as well as subject matter experts.

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Retail Spending Through COVID-19 

COVID-19 has upheaved everyday life, from dining out to working out and everything in between. So it’s not surprising that consumer behavior has changed. And is still changing as the world continues to muddle through a crisis.  

One thing is for certain, that things won’t be the same anytime soon. And that goes for consumer behavior as well. Fear and anxiety have caused people to tread cautiously when it comes to spending and visiting stores. 

Consumer spending has declined by record levels, including both in-store and online. Retail sales fell 8.7% last month, worse than during the Great Recession. Millions of Americans are out of work and staying at home, not spending if they can help it. 

Among the groups most impacted and shopping less is those over age 45. 78% of them are shopping less frequently due to nearly a quarter of them having jobs suspended. Those in the 18-44 age group “Hibernate and spend”, as EY classified them, are the most fearful but only 40% indicated that they are spending less.  

The study conducted by EY showed that the majority of consumers are spending more on groceries and less on clothing and leisure.  

Whether people are spending more or less, they are spending differently than normal. Experts forecast changes in behavior and spending habits could be permanent. 

Digital vs. In-store Impact   

With people being sequestered to their home, one would think that e-commerce sales would be booming. However, that is not necessarily the case. 64.5% of retailers surveyed by CommerceNext, who have a brick-in-mortar location and online reported they are not seeing sales shift from in-store to online. CommerceNext theorizes consumers are preoccupied with other priorities since the outbreak. 

If people are shopping and going to the store it’s because there are items out-of-stock online. The majority of people say they would feel ready to go back to stores by the end of MayMen and millennials are the most confident about going back to in-store shopping, but carefully observing how retailers are taking safety precautions.  

Consumers have been noting how retailers are taking care of their employees and managing the COVID-19 crisis. It might impact whether or not they shop with them in the future either in-store or online.   

Retail Strengths & Struggles 

The Consumer Packaged Goods (CPG) industry is a different story in regards to digital and in-store spending. The last two weeks of March in-store and online sales increased by $8.5 Billion. This is because people are only buying food and essential items.  

Because people have been forced to stay at home and can’t resume their normal activities like dining out, they’ve turned to mass merchandisers, grocery retailers, dollar stores, and convenience stores. CPGs, grocery, and mass retailers have been waiting for online grocery shopping to take off in mass popularity and now it’s here. Before the pandemic, the percentage of grocery spending online was 4%. Now, it’s reached upwards of 15%, CNBC reports. 

Post-lockdown these essential retailers are expected to come out stronger than ever. Specifically, food & beverage, general merchandise, health, and personal care, and non-store retailers are the categories within retail doing well. Food & beverage saw the highest growth in sales from March to February at 25.6%.  

The hardest-hit have been clothing and accessories, among home furnishing, food service, and motor vehicles. Many of the retailers who specialize in these categories are on the brink of bankruptcy. Across all retail, in-store spending and traffic haven’t translated to online. People are saving their money in the face of uncertainty and finding comfort in food and simple luxuries. The CPG industry has never been better, increasing sales both in-store and online.  

How Has COVID-19 Impacted Brand Loyalty? 

The coronavirus virus has single-handedly shaken everything brands have been working for - loyalty. 

As the outbreak in the U.S. rose, people fled to the stores in masses to stock up on essential items to get them through the crisis. And understandably they were less brand loyal on items like toilet paper, hand sanitizer, bottled water, and canned goods.  

This increase in demand for certain goods, messed up supply chains. Many customers found themselves buying other brands simply because the brand they normally buy was unavailable. 65% of U.S. consumers surveyed by AlixPartners, said they tried new brands once shelter-in-place was announced.   

People have been more willing to try private labels, to save money in the uncertainty of the economy and job security. A lot of consumers like the change. Up to 30% said they would stick with the new private label they tried, and 45% the new national brand they tried. Brands that can stay in stock and handle demand are winning, whereas brands that are not able to keep up, will find it a challenge to win back customers post-coronavirus. 

When consumers are loyal to a brand, it’s because they have a strong purpose and are doing good for the community. In the EY survey, 67% of the “Cautiously Extravagant” consumers (financially conservative but willing to spend more in some categories) said they would be more likely to buy from a company doing good for society. A third of them, even willing to pay extra. 

Brands may find they lost customers due to the shakeup but gained new ones. If a brand has a positive message right now and is doing good, they can forge an even deeper trust with consumers that will be hard to break in the future. Refer to our previous blog, "How has COVID-19 Impacted Our View of Companies?" for further analysis on this topic.

A Whole New World

COVID-19 has companies and consumers alike wondering what’s next? Where do we go from here? The future remains uncertain. A third of consumers are hopeful to go back to normal spending habits. However, 45% of consumers are going to be careful with spending and splurge on things most important to them. Retailers and CPGs are trying to hang in there to adapt to changes as best as they can, and meet the needs of this new world.  

Is your office starting to look at opening soon? We can help you get ramped up to tackle those projects you put off.

No matter what ups and downs there are, Creatives On Call is here for you to help support your business needs. Reach out here.

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