Light at the end of the Tunnel?
After a bruising 12 months, the Consumer sector is (understandably) reluctant to celebrate the return of ‘normality’ – be that the ‘old normal’, the ‘new normal’ or the ‘next normal’ – just yet. However, despite the inevitable caution which is colouring many of our conversations with clients thus far in 2021, the news that the vaccine program remains on-track, and the growing belief that schools may reopen in early March, possibly shortly to be followed by non-essential retail, offer some glimmers of hope. There are many questions about what such a recovery might look like, and how long it will take certain sectors to recover, along with questions about whether certain changes to consumer behaviour are here to stay – but below are our predictions for what a recovery in the consumer sector may look like.
The big winner throughout 2020 was of course online shopping, which has remained strong into 2021. Analysts predict it will continue to boom, as many consumers continue to spend more online than they might have done pre-pandemic. This is a change in consumer behaviour which is unlikely to return to pre-pandemic habits, and many businesses which hastened to add some kind of online offering (for example restaurants offering deliverable meal kits) will need to consider whether they will make those add-ons permanent.
Despite the boom online, it’s not necessarily bad news for bricks-and-mortar retailers. The Bank of England has estimated that households have saved around £125bn throughout the pandemic, as their usual sources of spending – leisure activities, meals and drinks out – were unavailable to them. The Bank expects around £6bn of those savings to be spent upon the reopening of non-essential retail but is keen to underline that the recovery could be sped up if the public spend more. It is anticipated that some of those sectors hardest hit by the pandemic – such as clothing and footwear – will likely see the biggest rebound as consumers celebrate being able to go out and shop once more.
Homeware as a sector was one of the surprise ‘winners’ of 2020, as consumers embraced large-and-small scale home improvement projects. The sector is predicted to continue strongly in 2021, with an emphasis on big-ticket items for the home which traditionally sell better in stores than online. Expect longer waits for mattresses, sofas, and other goods that customers like to ‘try before they buy’.
Having witnessed growth in 2020, groceries are expected to contract as consumers embrace alternative avenues for their spending. Where many households increased their spending on groceries as one of the few areas where they could indulge, an increase in eating and drinking out will likely hit the supermarkets as expenditure balances out.
Other sectors may be facing a slower climb back to pre-pandemic levels. Luxury goods experienced a weak Q4 in 2020 – historically their best time of year – and even with pent-up savings, it is predicted their return to full strength will be slow and steady as consumers struggle with confidence following the economic upheaval of the last 12 months. It is a similar story for automotive manufacturers – expensive items require higher levels of consumer confidence that simply won’t return overnight.
The big question mark on the horizon is of course the impact of the end of the furlough schemes and the potential upheaval that will bring, which depends a great deal on when, and how, that might happen. Any drastic rise in unemployment as the scheme comes to an end would likely depress consumer confidence further, delaying the sectors’ recovery. However, if this is managed well, some studies have predicted the possibility of the sector achieving growth of 2 – 2.5% in 2021.
Travel and tourism face a very uncertain summer, and could go either way, depending in large part on what the rules and regulations will allow. Domestic tourism is anticipating a second ‘bumper year’ in a row, and it is safe to say that if the rules do permit overseas travel, there will likely be a great deal of torrent of bookings for late-summer sunshine!
We look forward to these positive developments in the months to come, as they would no doubt provide welcome relief to many of our clients, leaders in sectors which have suffered 12 months of turbulence unlike anything we have seen before. It is a testament to their resilience, and that of their teams, that they have survived the storms of 2020 with humour and ethics intact. The challenge will then be to ensure that their teams are placed optimally to take full advantage of the recovery, and any further adaptations that may be needed in the months and years ahead.
To discuss this topic and/or the wider market in more detail, contact Lucie Shaw, Partner of Retail & Consumer at firstname.lastname@example.org / 07540 915 077