Can Retail Reverse This Conspicuous Lack of Consumption?

To no-one’s surprise, retail sales in the US fell dramatically in April 2020. 

To many people’s surprise, retail sales fell by a mighty 16% month-on-month in the US — the steepest drop on record, by a considerable margin. This represents a 22% decline in spending compared to April 2019. 

Economists had expected a drop of between 10% and 12% in April, with online spending helping to soften the blow.

Of course, some categories were affected much more than others:

This all stands to reason, even if the extent of the decline is greater than anticipated. 

Over 90% of retail sales take place offline for the vast majority of categories.

If the stores are closed, they won’t sell much. 

Bank of America is confident that this point represents the nadir, and that things are slowly improving already.

“Total card spending is now running at a pace of -10% yoy over the 5- day period of May 3- May 7”

- Bank of America

We are all in search of illuminating data, something to cast light on the miasma in front of us.

These are clearly abnormal times and, hopefully, the current conditions will not be with us for the foreseeable future. As such, what people do now is not necessarily reflective of what they will do next year, or even next month. 

Malls that cried out for increased footfall just two months ago are now implementing technology to reduce capacity, for example.

Economists typically look to indicators like the number of new cars sold to gauge the public’s confidence, but these are rather less reliable than usual at the moment.

The ties between different sectors of the economy have frayed, making it more difficult to gauge the performance of the whole by isolating and analysing its parts. 

Still, record unemployment, severely disrupted supply chains, and an uncertain road to recovery due not a rosy outlook maketh. 

The notable outlier in the chart above is online spending, which has of course increased during the lockdown.

This is not a US-only phenomenon, naturally; Visa reports that 13 million people in Latin America have shopped online for the first time since March, to cite just one example.

The great unknown is whether this moment will mark the definitive shift to online-first shopping, or whether we will go back to visiting stores as soon as we are able. 

Many of our new habits will extinguish the second we are allowed to return to the old routine.

As Joey said in the inexplicably popular TV show Friends, “When a blind man gets his sight back, does he walk around like this?”

Such an immediate rebound depends on a rapid retreat by the disease and the so-called “V-shaped” economic recovery that would accompany it.

That seems decreasingly likely, with most experts now expecting more of an “L-shaped” economic recovery, where we experience a prolonged period of depressed activity.

Others have ventured to suggest a “W-shaped” recovery, and we really could run out of letters even before the food supplies expire.

“The recovery phase be more like a “dial” than a “switch.” There will be lots of movement of the dial, back and forth.””

- Satya Nadella

Unfortunately for those of us in the UK, the government has revealed this malformation as The Plan:

It reminded me of this chart from the less-absurd-by-the-day Brass Eye:

Small wonder we’re all confused about what’s happening next, and it feels like that confusion is the intended effect of these nonsensical, label-free, pseudo-charts.

We can’t trust the politicians, but what about the public?

Intuitively, it feels like asking people about their intentions would be a great way to get a steer on their future behaviors.

Let’s see how that approach is faring so far. 

A survey from the Washington Post and University of Maryland found that:

• 67% of people aren’t comfortable with the idea of going into a retail clothing store.
• 78% don’t want to go into a restaurant for a sit-down meal.

Ok, a sober note of caution there from the public.

Phew.

ALSO PEOPLE:

Oh, for fu… 

Now, these are two different types of data from different samples in different places, conveniently juxtaposed here for humorous effect, I know.

But still, cruises? Of all the things?

Bloomberg reported this week:

“More than 90,000 cruise workers in U.S. waters are stranded on ships due to the coronavirus pandemic.”

And yet:

Surely, it stands to reason that any cavalier lunatic willing to spend weeks shacked up on a boat in a pandemic, swimming, eating, and gorging with strangers, would also pop into a retail store to buy a few pairs of pants. 

See, there is really no point in asking people what they will do because they don’t know and, even if they did, many would lie. 

They know what they should say and they are often led to this conclusion by the framing of the question. 

In fact, there is no point asking people why they did something, after they have taken the action, because they still won’t know. 

Bloomberg also reported this week that “26% of people say they will only shop online after the pandemic”, a statistic gleefully appropriated by those with a vested interest in the growth of ecommerce.

It’s a big increase, if it happens, but it’s based on what people say they will do.

Don’t make me use the cruises headline again. 

So, let’s look at what people are doing at the moment instead. 

Google has released this handy tool, which shows search patterns for retail categories in the US, UK, and Australia.

Let’s check in on the US:

The UK:

And Australia:

A thing of beauty, isn’t it?

We could line these up side by side and show them in a gallery as a triptych: Nations Search for Recovery.

Americans want to golf, slide, and sprinkle, all while protected from sneezes.

Us Brits are sneezing too, but that won’t stop us buying party streamers for V.E. Day. Stiff upper lip, even while sneezing.

And Australia, well, they just want to keep the patio warm for some winter BBQ action. 

Search data is fascinating; very few people bother to lie to Google. The more precise and honest we are, the better the answers we receive. 

Nonetheless, there is a sense that we are looking at an ephemeral phase of activity. These data points will be a record of a fleeting moment when we all went nuts and golfed, before remembering how dull it is. 

As a very amateur enthusiast in the field of such analysis, I would offer that Reddit activity provides a handy insight into our needs right now. I wouldn’t go betting our shared future on this data, but it’s interesting nonetheless.

Comments are booming in Subreddits for gardening, conspiracy theories, jokes, uplifting news, and computer games.

We can always learn more from the actions people take than we can from their stated intentions or their search behaviors. 

How people are acting in Europe and the Americas tells us what they want in lockdown, but not what they will do when ‘normality’ creeps its way back in. 

As we so often do in these articles, let’s look to China to see what we’ll all be doing here in future.

China has started to re-open stores, but has not seen the immediate return to action that many retailers were hoping for. 

Shanghai is offering incentives and coupons to get people spending again, in a two-month shopping festival. 

Nike released a statement to say that while it was suffering in most markets, online sales in China and South Korea have helped to steady the ship.

“We are encouraged by the recovery we are seeing in Greater China and South Korea” Nike CEO John Donahoe said in an email to investors this week. 

Offline sales, however, have not yet returned to their earlier levels, as shoppers remain cautious. 

Tencent has also spoken up on the consumer activity it has seen: “We have seen a recovery in March … supply is coming back although there is still some suppression of demand,” Tencent’s chief strategy officer, James Mitchell, said on a company earnings call last month.

In the EU, retailers Primark and Superdry have re-opened some stores. So far, they observe that footfall is lower, but basket sizes are larger. 

In the US, Verizon is offering shoppers the opportunity to book a slot to meet an in-store representative, to minimize contact with other shoppers. 

Not so much of a “V-shaped” recovery, then. 

Winners and losers

As with any period of upheaval, we will see winners and losers.

Over the coming months, there will be an unforgiving acceleration of dynamics that were set in motion long ago. 

Palatial department stores have been in decline for quite some time now, but the pandemic has hastened their demise.

Where they once traded on their spectacle, they are now sparse, beige, monolithic anachronisms. 

The glamor of Macy’s is dimmed somewhat by its dilapidated presence in so many suburban malls.

Simply, they are no longer the leisure destinations they once were. 

As The Economist reported this week,

“Macy’s, America’s biggest department store by sales, lost its place in the s&p 500 last month while all its 775 stores were closed. It reopened 68 this week but expects them to do around 15% of their regular trade: more a death rattle than a recovery. By one estimate, over 300 department stores could go under by the end of next year.”

One great innovation in the grand, cavernous department stores of yore was their welcoming environment for browsing. 

Shopping arcades are arcane relics today, but once served as a place to be seen in major European cities.

This social, sensual element of shopping is not catered to in the sober world of ecommerce. How many online stores do you love? 

Before department stores arrived, shoppers would speak to the shop-keep, who would go and fetch their desired items and take payment. 

In a sense, the pandemic is forcing some retailers to return to this model. Google is highlighting retailers that offer “curbside pick-up” in its shopping ads, and many retailers have introduced restrictions on the number of customers allowed in-store at the same time. 

We can buy anything we want online. Yet, department stores catered to other needs beyond the purely commercial, that have not been catered to in the online world.

Pioneers like J.C. Penney and Harry Selfridge believed that their stores were a force for social good, as well as their own financial benefit. They were a place for families to meet, and the stores could even be a source of civic pride.

Selfridge, in particular, believed that his stores were empowering to women.

Tim Harford writes in the superb ’50 Things That Made the Modern Economy’:

“Selfridge’s biographer Lindy Woodhead even thinks he “could justifiably claim to have helped emancipate women”. That’s a big claim for a shopkeeper, but social progress can sometimes come from unexpected directions.

And Harry Gordon Selfridge certainly saw himself as a social reformer.

He once explained why, at his Chicago store, he’d introduced a creche. “I came along just at the time when women wanted to step out on their own,” he said.

“They came to the store and realised some of their dreams.””

He also made then-revolutionary moves like actually having a women’s bathroom in the store.

JC Penney introduced a variety of low-cost innovations to see it survive the Great Depression, and subsequently to thrive as consumer confidence returned. 

Times have changed.

Department stores no longer change with them. 

However, the shopping habits they engendered have remained steadfast. For browsing, we go to the stores. 

We can browse the Internet, but we don’t truly browse online stores. It helps to know what you’re looking for when you enter a website with thousands of products and precious little guidance.

Retailers know this.

Ecommerce is adapting and innovating rapidly; a lot of fertile land is up for grabs right now. 

TikTok has introduced a new Augmented Reality shopping format that will interact with the user’s physical environment. 

Pinduoduo in China, and apps like Squadded in the West, are introducing the concept of social shopping online. Visual search tools like Pinterest Lens target exactly these ‘I don’t know what I want, but I’ll know it when I see it” moments. 

Something is still lost in the transition from the physical to the digital.

The experience is not the same, but it is the closest approximation we have right now. 

When in-store shopping returns, it will be more like ecommerce. It will be clinical and navigational; we will need to know what we want before we go in.

In what could be a lengthy interim period, ecommerce will have the opportunity to satisfy our need for browsing, socializing, and shopping for fun.

Looking ahead, looking back

The one constant in life is conspicuous consumption. From the World Wars to 9/11 to COVID-19, world leaders keep coming back to the seemingly inconsequential act of buying stuff for the sake of it.

As reported in Yahoo! Finance this week, “Consumer spending represents about 70% of GDP” in the US.

Retail has always thrived when it acts in line with the prevailing social moods of its audience.

In the post-pandemic world, shoppers will have different needs and desires. 

They will also retain the same needs that were so cleverly surfaced by the department store impresarios of the 19th and 20th centuries.

For all of its frictionless simplicity, ecommerce still does not tick all of these boxes. 

By synthesizing these insights, stores can create destinations that people want to explore and browse. The experience must be complementary to ecommerce rather than a physical manifestation of the same. On convenience and price, online tends to win. 

People are more complex than this, however. They like to engage with new ideas, to be surprised, to browse. 

History shows, wherever they do their browsing, shoppers tend to buy their products too.