What effects has the COVID-19 pandemic had on consumer spending?
While some parts of the U.S. have begun to lift shelter-in-place orders and certain businesses think about reopening their doors slowly and cautiously, the ongoing coronavirus pandemic is still affecting all of our lives. In the last few months, we’ve seen countries all over the world implement measures in an attempt to slow down the outbreak and as of April 2020, over a third of the planet’s population was living under some form of restriction. As a result of these global lockdowns and the disturbance to daily lives, the impact on consumer spending all over the world has been major.
Consumer spending currently accounts for 70% of the U.S.’s total economy. Over the last two months, the U.S. economy has been hit hard by the changes the novel coronavirus has caused in consumer behavior. Globally, experts are predicting that the virus will eventually lead to $1 trillion in total losses. While there was no predicting the impact this virus would have on the world’s economy, the 2020 forecasting of economists at the year’s start may now be irrelevant.
Analyzing current industry data, Fiserv recently published a SpendTrend® Special Report on consumer spending during this historic moment. Below is a summary of the findings; to download and view the full report click here.
What were the consumer behavior predictions for 2020 before the coronavirus outbreak?
2019 ended with a lot of hope that we would enter the new decade with spending continuing to increase, especially with the help of technology making payment transactions much easier for the consumer.
Fiserv’s 2020 outlook from earlier this year analyzed several factors from 2019 and the expectations for this year seemed positive. The holiday season saw a retail spend growth of 3.8% and a total spend increase of 5.9%. Consumers had increased their spending over Thanksgiving and Christmas particularly on electronics and appliances which saw an increase of 8.4% from 2018. The Bank of America praised the strong finish during this period and it gave us reason to be excited for 2020.
Along with this, major banks, such as Capital One, were making significant improvements to their client experience by moving to a cloud infrastructure. Benefits of these changes included the consolidation of its infrastructure, savings from costs and providing a better client service. These positive changes were made in 2019 to allow them to compete with the influx of “challenger banks” that started to enter the market. Digital banks such as Revolut and N26 have business models aimed at targeting retail consumers that feel at ease with their mobile technology and want to reap the rewards of commerce spending. These “online-only” banks have also attracted the attention of small and medium businesses who feel underappreciated by their originator bank and have decided to adopt mobile banking. In the USA alone, 61% now use mobile banking compared to 53% in 2018. The overall satisfaction among these businesses that have implemented mobile banking is higher than those who have not. As a result of this data, 2020 was originally expected to see an increase in the focus of small business digital banking.
Outside of banking, other influencing factors seemed promising for economic growth and consumer spending. B2B eCommerce sales were growing and it was initially anticipated that by 2023, this would be up to $1.8B from $1.1B in 2018. The efficiency with the eCommerce experience, saw many more businesses behave like everyday consumers by purchasing what they need online fueling growth in the market. Retailers were also starting to notice changes in consumer preferences. Big name clothing retailers started to explore rental services and this market was expected to grow to $2.5B by 2023 - this would’ve been a five-year increase of 150%. The rise of technology also gave us economic hope for the food industry. Revenue for online food delivery was expected to increase by 32% over the next four years based on the figures from 2019. It was also predicted that there would be 116 million users of online food delivery services by 2024.
We can learn from all of this research that we entered 2020 with excitement of how convenience for the consumer could develop steady and consistent growth for the U.S. economy in the coming years.
How has COVID-19 impacted the anticipated behavior of consumers?
March was the first month that saw real change in consumer spending. Although the coronavirus has been in the news since December, the focus was mainly on China and many people dismissed that the illness would head west. By early March, the WHO (World Health Organization) declared the Coronavirus a pandemic as Italy and Spain saw a rise in infections and it was clear that the U.S. would soon experience cases. By April, the U.S. had the most confirmed COVID-19 cases in the world.
Fiserv has produced an updated report analyzing the effect that the coronavirus outbreak is already having on consumer behavior and the dramatic impact that it is having with the pace of commerce around the world. Monthly SpendTrend trajectory since January 2019 was increasing month on month (MoM) based on year on year (YoY) sales growth. March 2019 saw a YoY sales growth of 4.3% from 2018 and each month saw a positive trajectory. February 2020 saw a growth of 1.8% as the virus hadn’t yet affected daily life in the U.S., but by March 2020 the situation had worsened and there was a massive decrease in the figures with YoY sales being -7.2% from the previous year – a significant deceleration.
It’s interesting to see how COVID-19 has affected the behavior of consumers in different industries. Food and grocery sales were fairly consistent until early March when growth rates rapidly increased with transaction growth and average ticket sizes, as a result of ‘panic buying’ that was seen across the country with concerns of a pending lockdown. As weeks have passed, we have now seen the figures decline at a similar speed and become more normalized to pre-coronavirus rates.
As expected, dining out and restaurant spending has decreased significantly. Mandatory restaurant and cafe closures across the country were a major contributor to a -42% decrease in spending. The decline rate has seen a slowing with the increase in deliveries and “drive thru” or curbside pick-up options. The opportunity to continue to spend at restaurants while their actual locations are closed has resulted in those businesses being 21% better off than the initial projections once the closures were announced. Major dining categories will continue to weaken during this time but that downward turn has been slowed due to the ability for contactless delivery. Learn more about options available to businesses that remain open for accepting payments safely.
While many have been stuck in their homes, perhaps taking up new hobbies or spending more time with old ones, the initial impact of lockdowns also caused an increase in consumer spending with building and garden supplies, peaking at 15% growth in mid-March. This is suspected to be due to the amount of DIY that people may partake in while they had to remain homebound. This has now dropped back to normal levels, showing a similar trend to grocery sales.
As mentioned from the holiday period, electronics saw the best increase in YoY consumer spending before the pandemic. This peaked again during the initial coronavirus outbreak as people prepared to work remotely and stay entertained at home. Like with other industries, consumer spending on electronics has now decreased significantly since the beginning of March.
The sharp increase in consumer spending before the heavy decrease is not consistent in every industry. Gas stations were steady before decreasing to -21% based on the previous year as people had only been allowed to drive for essentials only. Growth trends on consumers buying clothing have been among the sharpest to decline to -98%. Luxury, Travel, Leisure and Entertainment and Furniture are also industries that have been hit the hardest.
Consumer behavior has changed dramatically due to this unique situation that we have found ourselves in. The closure of shops, ‘social distancing’ and the expected delays in eCommerce deliveries factor in when accounting for why consumers are spending less and less. While businesses across more than half of the country begin to open again, slowly, there is hope that things can begin to regain normalcy and we can start to put the pieces back together, however, there is no doubt that the declines in consumer spending will continue to fall until there is more certainty of our future.
To discover more of Fiserv's SpendTrend special report on the impact of COVID-19 on consumer spending, visit this page to download the PDF.