I read with interest a recent Bloomberg report on how people in the United States were not “much interested in going out and spending” even as the US economy started to reopen. The report described Americans as becoming “fearful and frugal” as the COVID-19 pandemic affected 3.5 million people in the US and over 13 million people worldwide.
In the Philippines, the COVID-19 positive count is now at almost 60,000. But, despite this relatively low figure compared to the US, I sense that many Filipino consumers are becoming just as fearful and frugal as the Americans. In the few times that I have been out of the house to buy supplies since mid-March, I saw people mainly in groceries only. Other retailers are far from busy.
The situation in the US “foreshadows an era of fear and frugality that could push a full economic rebound — one that Washington and Wall Street are banking on — out of reach. The data also raises doubts about how much rising consumer confidence will translate into spending, on which the economy heavily relies,” reports Bloomberg.
“People are generally expressing that they’ll do certain things less, or at home, on their own,” Bloomberg quotes Victoria Sakal, managing director of brand intelligence at Morning Consult. “There’s also a health component to how safe, comfortable and protected people feel,” she adds. Ms. Sakal’s firm partnered with Bloomberg News to do the consumer survey in late June.
What I find particularly interesting is the survey finding that many US adults “feel okay shopping inside grocery stores or small businesses, [but] more than half don’t feel safe inside a shopping center,” and that there is growing “preference for smaller retailers.” Bloomberg also reports that “even once the pandemic ends, nearly 30% of Americans say they plan to buy more from small businesses than they did before the virus.”
What may prevent this from happening, however, is the fact that many US small businesses are also folding up because of the pandemic. As the New York Times noted in its July 14 Coronavirus Briefing: “The economic pain has been particularly acute for small businesses: Nearly 110,000 closed permanently from early March to early May, researchers at Harvard found. In states like Texas, Florida and California, the resurgence of the virus and reopening rollbacks have forced many small businesses to shut down a second time — and for some, that means for good.”
Going small was already the trend in the US even before the pandemic hit, with analysts already expecting many big retailers and shopping malls to close in the next five years. Perhaps COVID-19 just pushed this faster. Long-time retailer Sears closed in 2018. JCPenney, a 118-year-old department store, has filed for bankruptcy. Major retailers J. Crew Neiman Marcus have reportedly done the same.
The New York Times have also reported that Macy’s, Bloomingdale’s, Nordstrom, and Barneys New York have all either cut down or closed stores. Victoria’s Secret is closing 250 stores in North America, while the Gap brand is closing at least 170 stores globally. Financial troubles have already hit retailers like Forever 21, Things Remembered, Payless ShoeSource, and GNC.
It seems that pressure has come from two points, at least: initially, from online shopping; and now, also from the pandemic and its resulting lockdowns. And with fear and frugality also said to be setting in, as what Bloomberg reported, I reckon there will be even greater pressure on big shopping malls and anchor retail stores and brands to change the way they do business.
Do I expect the same thing to happen here? It is reasonable to believe so, but maybe not to the same degree. Business and consumer confidence have both taken a major beating because of the prolonged lockdown and uncertainties arising from the present management of the pandemic. There is no clarity as to when and how the virus spread can end. Lost jobs and income translate to lost purchasing power. But I don’t think Filipinos are already tired or done with the mall concept.
Another aspect to look at is what consulting firm McKinsey & Company refers to as “post COVID-19 discretionary spending.” In a recent report by Stephanie Chan, Mahima Chugh, Felix Poh, and Simon Wintels, the consulting firm noted that “discretionary spending in some retail categories plummeted by as much as 90% at the peak of COVID-19 lockdown efforts aimed at easing the spread of the virus.”
They noted that “discretionary spending comprises roughly one-fifth to one-fourth of many countries’ GDP,” and covers a broad range of categories, including apparel, personal electronics, domestic appliances, and motor vehicles. They added that “survey findings point to shifts seen” in big markets like China, India, and Indonesia, and that these shifts “could remain in place long after the public health crisis ends.”
The McKinsey report also noted that retailers particularly in these countries will have “to make strategic changes — and in some cases, accelerate the changes they have already made in response to the crisis,” noting that what is emerging in these economies is “cautious optimism.” Consumers are opting “to delay or forego bigger ticket purchases, seeking to find better value, and strengthening their desire to purchase from brands they trust.”
The McKinsey survey also noted that some consumers were “grappling with guilt about spending in more conspicuous categories,” and “were more likely to indicate plans to indefinitely postpone or cancel purchases for bigger-ticket items such as jewelry, vehicles, and home construction or renovation than for smaller ones.”
Just as interesting, to me, is COVID-19’s comparison with the 2008 global financial crisis, with McKinsey noting that “the [COVID] outbreak may [also] affect consumers’ thinking about price and quality, with increased price sensitivity and more careful consideration of nonessential spending.” It added that “many consumers expect to reduce spending this year” and were looking at purchasing goods mainly from a “trusted brand” and those offering “good value for the money.”
But, in big markets like China, India, and Indonesia, while “digital shopping accelerated… physical stores [still] retain appeal,” McKinsey noted. “The COVID-19 crisis has naturally shifted consumers toward digital shopping and engagement channels. Yet the findings show uneven rates of acceleration across various types of online channels. Responses suggest that multicategory online marketplaces could be poised to gain the most momentum in the coming months,” it added.
McKinsey also noted survey respondents “expressed the desire to return to physical stores — particularly to shop for apparel in Indonesia, and mobile phones and small and large domestic appliances in India,” but at the same time, they have “accelerating intent to use digital channels while visiting physical stores to experience products.”
I believe there is much to be learned from the shopping experiences in the US as well as emerging trends in big markets like China, India, and Indonesia. These three Asian markets account for about three billion people, and for sure, global manufacturers and retailers will more or less skew their products and retail processes to meet these markets’ demands. Such changes, of course, will impact even a smaller market like the Philippines.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council