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LONG-TERM STUDIES SHOWING THAT COVID CRISIS HAVING FUNDAMENTAL EFFECTS ON CONSUMER BEHAVIOR

 

With most of the year having played out in the shadow of the COVID-19 coronavirus, with billions of people around the word living with lockdowns and social distancing, 2020 is likely to be recognized as one of the most significant watersheds in the history of mankind.  

In the retail environment consumers have been forced to shop differently, reprioritizing what is essential and reconsidering how they buy and what they spend. An ongoing study by J.P. Morgan Research looks at how COVID-19 has changed consumption trends globally, very often in the long-term.

Initially, the report shows, while the sale of non-essential products dropped precipitously, demand for basic items, like food and hygiene-related items skyrocketed, often driven by panic buying. That, however, eased off, as consumers realized that things were not going to go out of stock.

“The next wave to look at is the fact that people are going to be at home much more going forward. Firstly, a lot of at home working will continue so there will still be a need to eat or consume more at home. Also, even if you are allowed to go out, restaurants are probably not the first place many people want to be,” said said Celine Pannuti, Head of European Staples and Beverages Research at J.P. Morgan.

“In the next 12-24 months, consumers are going to be left with less money in their pocket. Many people will be left unemployed and will have less to spend. This will reinforce the trend for staying at home. We could also see some downtrading as consumers settle for more affordable options, though for now we have seen consumers buying big brands and, choosing household names over value or private label products,” Pannuti added.

WINNERS AND LOSERS

The lockdown, and thereafter the realization that further lockdowns are likely, not to mention restriction on travel also have a marked effect on consumer behavior. Cosmetic and makeup took a real hit a hit this year, with people as staying in and working from home became the new normal. 

The L’Oréal corporation reported said the beauty market had fallen 13 percent to 14 percent in the first half of the year, with luxury beauty, professional beauty, makeup and fragrance sales all falling around 25 percent.

Likewise of sunblock creams fell this year as holidaymakers cancelled or postponed trips. Nivea parent group, Beiersdorf, said sun care was the most negatively impacted skin care category, with the group seeing ‘deep double digit’ declines in sales.

In the retail environment consumers have been forced to shop differently, reprioritizing what is essential and reconsidering how they buy and what they spend.

In contrast, products that enhance home comfort and entertainment were major beneficiaries of the COVID economy. As working from home became the norm, Nestlé in Europe saw fresh roast coffee sales climb by around a third, and in the United States Starbucks at-home products, Nescafé and Coffee-Mate grew at double-digit rates during the first half of the year.

A company’s whose fortunes are most closely connected to the lockdown regime was the video streaming giant Netflix. It gained 16 million global subscribers in the quarter ending in March, as stay-at-home orders dominated in Europe and began taking hold in the United States. Growth continued in the spring, with the period from April to June adding 10.1 million subscribers around the world.

But July, August and September, as many Americans emerged from shutdowns— saw much slower growth, adding just 177,000 in the United States. This is contrast to the spring, when 3 million new American subscribers were added.

An empty airport terminal is not necessarily bad news for the diamond industry, since one of diamond jewelry’s most dogged competitors in recent years has been the travel and tourism industry, which is a sector that has been particularly hard hit during the COVID epidemic. Disposable income may now be directed more at items like jewelry.

LESS TRAVEL HAS IMPLICATIONS FOR JEWELRY SALES

When it comes to jewelry, and in particular diamond jewelry, a number of interesting and sometimes contradictory trends were evident. In the luxury category, one of diamond jewelry’s most dogged competitors was the travel and tourism industry, a sector that has been particularly hard hit during the COVID epidemic.

With essentially there being a hard stop on travel well into 2021, A De Beers study showed that 70 percent of consumers were looking at “timeless classics” over “new trends,” suggesting that diamonds would be poised to be the gift of choice this holiday season.

Two-thirds of Americans feel more inclined to give a significant gift to someone they love now, compared with how they felt pre-pandemic. And for those in a relationship, the number increased to 77 percent, the De Beers study indicated.

The most popular type of diamond jewelry that consumers would be willing to invest in at present is a diamond ring, at 36 percent of all respondents. This was followed by a diamond pendant or neckpiece, at 30 percent, then stud earrings, at 22 percent. Amongst women, the preference for stud earrings was higher, at 27 percent.

But that’s the good news. For many high-end jewelry companies in the West, less travel means fewer Asian tourists, and that relates into lower sales. But their loss is their Chinese counterparts’ gain.

The region’s largest jewelry chain Chow Tai Fook has reported that, during the three months to September 30, the company’s total sales rose by 2.6 percent. This, however, was despite a 51.6-percent decline in its once core Hong Kong and Macau market. On contrast, Mainland China contributed 87.9 percent of the group’s total turnover for the quarter, with sales increasing by 21.2 percent.

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