Retailing in the Week Ahead, Week 15
The ‘R’ word – Recession – is being used less frequently in the business press these days. It has been replaced with a new expression: the “S” word – ‘Shock’. Many business columns have switched from talking about ‘Recession related to Covid-19’ to a much fuller set of words such as the ‘Shock associated with Global Socio-Economic Shutdown’.
I like this because it avoids the “R” word, but what is perturbing is that it gives the impression that someday soon a prominent world leader will come forth and declare: “I am turning the global economy back on.” Hypothetically, that might be possible had the economy previously been ‘shut off’ by that same leader. But that has not been the case; therefore is no magic ‘reset’ lever.
Therefore, I would urge you with the maximum emphasis to avoid making direct comparisons between this period and previous economic recessions. Yes, there are similarities with this and other economic downturns, but the differences are so vast they must be reviewed carefully and methodically.
Below is a brief and not comprehensive list of some major differences. If you want a more comprehensive overview, you can engage in, with Kantar should you wish, thinking about what happens to your brands and business strategies on that day a putative leader asserts that the global economy is back up and running.
Similarities and differences between the socio-economic shock of the global economic shutdown of 2020 and previous recessions
Where the recession begins
The first and obvious difference between the current shock and previous recessions surrounds their origins. In most instances, when there is a recession, one or two industries are in bad shape and collapse, triggering bigger problems. For example, in 2007/08 the US sub-prime real estate sector imploded, dragging the global banking industry down with it.
The ripple effect was felt across economies worldwide with some countries experiencing worse problems than the US. There was a delayed reaction with much of the heaviest damage inflicted in 2009, almost two years after the initial crisis.
This time around everyone is feeling the same pain within a few weeks of each other with every industry feeling it simultaneously.
Tools used to fight the recession
The second and less obvious difference between the shock and recessions are the government tools used to slow recession and create some security for industries that are still healthy. In normal times, governments have two weapons to mitigate damage: monetary policies and fiscal policies. The former are tools central banks use to encourage lending and avoid having businesses and individuals hoarding cash and other semi-liquid financial assets. The latter are government programs designed to generate employment and keep workers active.
For this recession, we face two uphill challenges when considering these tools. On the jobs front it is unsafe for governments to go out and give people jobs right now as, with most jobs, people would need to leave their homes, thereby potentially further spreading the virus. On the banking front, most countries still have quantitative easing policies in place as a hangover from the 2009 global recession. This means central banks already have rates set at zero or very low. Reducing these further would not produce the expected results. For this reason, we are seeing many governments issue vouchers or sending checks directly to households.
Issuing cash and/or vouchers is probably the right policy for the moment to keep homebound consumers fed, but eventually these programs will need to be diverted to companies/firms to get them restarted. When this begins it will need to be a rolling program where some industries will get ‘turned on’ earlier than others.
We at Kantar expect vouchers to become the main tool used globally to get things moving during and after the shock. We could be wrong. However, we don’t see much harm in exploring ideas around how consumers and businesses will use vouchers and direct cash payments in the week and months ahead.
How consumers behave during and after the recession
The third and most obvious difference between this shock and previous recessions is how consumers behave during the recession. Typically, recession-hit consumers fall into two camps: ‘Balance Sheet’ consumers and ‘Income Statement’ consumers. These two groups exhibit different sets of behaviours.
Balance Sheet consumers are those with wealth in assets such as deep bank accounts, stocks and bonds, property, and other high value objects such as collectable art. Income statement consumers are those with very little by way of investments or savings and live purely from the wages they earn.
In most recessions, Balance Sheet consumers cease purchasing or trading their assets but can spend ‘more’ on everyday things like a coffee at a posh café instead of visiting their second home or taking a boat trip. Income Statement consumers stop buying ‘want’ items and simplify to just purchasing essential ‘need’ items.
In this recession, both Balance Sheet and Income Statement consumers face the same situation: they can only purchase essential items right now. Maybe a few rich tycoons are trading fine art privately, but ‘public’ auction houses like Sothebys and Christies are closed just like the rest of the economy.
This is important to recognise because we must now imagine how consumers will behave once our putative world leader emerges and declares the global economy turned on again. The question remains: will Balance Sheet and Income Statement consumers behave differently from one another after the shock ends, or will they behave similarly? More importantly, which ‘Balance Sheet’ assets will retain their value or be traded in the same way before the shock and after?
That said, whether you call this a shock or a recession, it appears we will all have lots of time to think about what we might do when we can return to some aspects of ‘normal’ life, such as going to the gym, attending religious services in person, eating at a restaurant, visiting the cinema, flying to another city, and so on.
Thought of the week: Have you divided your product offerings into needs and wants and built strategies accordingly?
Retail IQ Publications from Week 14:
Retail learnings from the COVID-19 outbreak in Italy
COVID-19 implications for European ecommerce
Clothing vs. COVID-19: The fashion industry response
What does sustainability mean to parents as shoppers?
Alternative routes to consumer during COVID-19: B2B to B2C
Coronavirus concerns drive unprecedented UK volumes
Good luck in the week ahead.
Ray Gaul – Ray.Gaul@Kantar.com and @Kantar or @RayGaul on Twitter plus LinkedIn.