Decrease in Non-essential Spending Indicates Rising Economic Concerns
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With the uncertainty the pandemic has brought and reports of a slowdown, it may come as no surprise that economic concerns are once again at the forefront for many consumers.
“As the reality of the duration of the pandemic sets in and impacts on the economy deepen, this percentage is rising again, up five points to 67% as of the beginning of August,” according to an analysis by Hanover Research, about the economy, which saw its ranking as a concern among consumers drop steadily from 71 percent in April to 62 percent in July.
Economic concerns rise as consumer spending decline
Along with economic concerns, there’s also a decline in consumer spending on non-essential items. This trend is reflected in a report by Hanover Research, a firm that specializes in providing market research and analytics.
While the holiday season is typically a time when consumers increase their spending, the pandemic has put a damper on that significantly.
“Despite increased optimism in the economy, most Americans continue to believe that the impact of the crisis on their routines and personal finances will last beyond the next four months,” according to a survey conducted by McKinsey & Company. “Compared to other weeks, consumers report a slight increase in overall spending, while discretionary spending remains negative.”
“Consumer to shift to online shopping across categories, with half of Americans planning to spend more online than in-store for the upcoming holiday season. Most digital and contactless services have seen increased adoption since April, with more than half of new and increased users reporting an intent to continue post-COVID-19.” – McKinsey and Company.
Consumer spending decreases – a first in months
Reinforcing this trend is data that shows a decrease in non-essential categories in consumer spending – a first in months.
“From April through July there was a steady increase in the percentage of consumers spending in non-essential categories (to 73% in July from 62% in April),” according to Hanover Research. “However, as of the beginning of August, consumer spending is down 3% in at least one non-essential category.”
Even though a significant number of consumers continue to spend on non-essential items, this declining trend shows a change in attitude following “months of steadily increasing confidence,” the report states.
This reluctance to get back to pre-COVID activities and habits is shared by many.
Nearly half of consumers say they won’t return to “pre-COVID-19 levels of activity until there is a vaccine available,” according to a survey conducted by KPMG, a global network of professional firms providing Audit, Tax and Advisory services.
According to those surveyed, respondents indicated an unwillingness with spending in discretionary categories while a lockdown was in place.
Strategic planning is critical
While this is a concerning trend, there are strategies businesses can implement to lessen the impact.
“Retailers need to rapidly re-evaluate their customer base, uncover the signals of permanent change and transform their business to meet customers where they are, in the new reality,” said Scott Rankin, Principal, Advisory, Strategy, of KPMG. “Strategies may include revised price, promotion and discount structures, as well as preparing leading digital platforms and applying advanced data and analytics to achieve greater efficacy.”
It’s recommended that businesses strengthen their core markets and start the process of recovering those losses in growth in other markets that either saw none or limited impact, or were positively affected by COVID-19, according to the Hanover Research report.
That said, having a strong understanding of your businesses’ customer base is key in navigating this economic landscape, the report indicates. Essentially, strategic planning is critical here.
“Organizations need a clear sense of their customers’ key concerns so they can respond accordingly; this insight also helps to inform effective, data-driven growth planning.” - Hanover Research.
Here are some other lessons the research shares:
- Avoid making decisions that aren’t backed by data-driven analysis due to the long-term negative impacts on your business.
- Stay as close as you can when it comes to exploring growth in new markets. Using consistent and repeating processes to evaluate growth opportunities is vital for a successful outcome in capitalizing growth opportunities.
If you’re looking to give your small business a boost during an economic slowdown, consider trying some of these suggestions mentioned to help ensure the survival of your business.