Economy and Consumer Behaviour : Adapt Report 2020

Introduction

The year 2020 is a difficult one, the pandemic is a black swan event that has shaken this world’s reality upside down. A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Covid-19 has affected not just physical health but has torn down the economy, mental health and the principle of human interaction.

Expecting things to go back to how it was in 2019 is not realistic, instead we need to focus on adapting to the new normal. This is a necessary change, where unless we adapt, we may become irrelevant.

“Recovery is not a realistic word right now,” said Scott McKenzie, global intelligence leader in Nielsen. “Regeneration speaks very much to a recalibration of what consumers will do and what companies will need to do in acknowledgement of the change that has come.”

Mostly evolution happens gradually over time, so change becomes recognisable over the spread of many years but in current situation, although hard to adapt or evolve but it’s important to do so for survival.

“Evolution advances, not by a priori design, but by the selection of what works best out of whatever choices offer. We are the product of editing, rather than of authorship” — George Wald, an American scientist.

Our biggest enemy that stops us from adapting is denial. Denial is a natural tendency because of cognitive dissonance, it is the mind’s difficulty in processing two apparently contradictory thoughts simultaneously: we don’t want to follow social distancing but at the same time want to survive the virus, knowing that currently there is no cure for this. Denial isn’t the only folly, we also set a trap for our mind, we chase our losses in an attempt to make them go away. As a result we end up in a far worse place than we would have been if we made peace with our losses.

As stated by T.Harford, economist, “While denial is the process of refusing to acknowledge a mistake, loss-chasing is the process of causing more damage while trying to fix the mistake, hedonic editing is a subtle process of convincing yourself that the mistakes don’t matter.”

2021 is where we leave behind 2019 lifestyle and build yourself up with the learning and the changes that 2020 has thrown at us. What does it mean when talking about the new reality?

What does it mean for the world economy?

In Q3 2020 people will be trying to chase their losses. You can expect to see revenge buying, spike in prices, crowded beaches and, just pure chaos of trying to hold on to the concept of life we have all come to know. Unless there is a 2nd or 3rd wave, we can expect the recovery to start in Q4 which will bring us to the new era of adapting to this new reality. Reaction of people and government during Q3 will determine the chances of the 2nd wave and the 3rd one in 2021.

Isolation may be a short term solution to flatten the curve but continuing it may result in more harm than good. Many countries’ economies have opened up because the cure shouldn’t be worse than the disease itself. The failed economy has led to another set of challenges that may surpass the loss from disease. From the prediction of a V shape recovery we are now down to a Swoop. Even though it may sound good but in fact, this prediction is highly unlikely, because it doesn’t factor major bankruptcies to happen, and increase in unemployment rate. The reason why Swoop is not realistic, because it’s based on the findings that 70 % of people are temporarily unemployed, based on a survey, where the results are driven by optimism. Companies like Google, Apple, Microsoft are holding the stock market high, creating an illusion of recovery. It isn’t a healthy market if the economy is survived by only a few tech companies. If you remove these tech stocks, the impact on other companies is horrifying.

Large parts of the global population are living under some restrictions and distancing. We are learning to live differently — to learn, socialize, shop, worship and collaborate differently. And we are doing all of this though the digital world. The biggest difference between the past recession/pandemics, to now is connectivity. The role of digital connectivity in our lives has grown over recent years, but never have we been so acutely aware of how critically we depend on it. From getting the latest information and health guidance, to supporting health services, adapting supply chains and sourcing equipment from across the globe — we depend on the ability to connect across distance.

And the innovation and adoption of Digital Connectivity is how we are going to survive this new normal! The increased demands on our global networks have been dramatic. The use of both video-calling and streamed entertainment services have surged — Zoom has reported a 20-times growth in daily participants. Voice calls in some countries have tripled, and the use of communications apps have doubled.

The sudden shift to everyone living their lives online has led to unprecedented congestion and strain on critical ICT infrastructure. We also see challenges emerging with access and affordability across many countries.

What does the surge in connectivity mean for Globalisation?

COVID-19 has challenged many of our ideologies: from capitalism to neo-liberalism, from the over-significance of work to realizing work-life balance, and from globalization to nationalization. Although the immediate reaction to the pandemic will mean a more community oriented approach where nationalism will trump globalization. But the learning from the pandemic is a lesson about our common fate that would most likely have a positive impact on globalization on the long run through inspiring more cooperation and solidarity among nations.

Most countries have closed their borders to maintain public health: a seemingly big step towards nationalization. Although at the same time, there seems to be a growing atmosphere of solidarity among nations. Physicians and Medical Researchers around the globe are racing time to invent a vaccination for COVID-19. Countries are sending doctors and medical supplies for e.g. laboratory tests, protective body suits and gloves to others in need. Competitors around the world are connecting and working in collaboration from various countries to find a cure. This attitude emphasizes our argument that in the long term, there would be more tendency towards globalization and unification.

The key to this collaboration is only only the realisation of the common fate but also the gift of connectivity. Digital connectivity is how we are able to bring the world from globalisation to unification. The impact of connectivity is our major advantage that drives innovation and will not only bring the economy back on track but result in a new way of working where people are focusing on sharing their expertise over online platforms instead of in person interaction. Tech industries will likely still suffer a period of stifled innovation due to forgone in-person business opportunities.

Borderless workspaces

As now we have to live with this virus, sanitisation and limited in person interaction will become a new norm. This pandemic has been an effective case study of the work from home methodology. This trend is likely to continue in the post Covid world as people maintain social distancing etiquette. redefining how we interact and work applications like Zoom and Google Meet have been few of the applications which have made this interaction possible. From meetings with only 4–5 participants, to huge international seminars and conferences with thousands of participants all have already moved online.

Lisa Mitchelmore, head of people and culture at Ragged Edge. “I’ve observed relationships strengthen and solidarity within teams and individuals deepen. The Covid-19 crisis and working remotely has provided us with an opportunity to reset and restore, avoid the everyday bustle of London life and replace it with considered ‘check-in’ time for not only ourselves but each other. We’ll make sure to take this mindset back to the studio with us.”

While it will see future innovation in online connectivity and seamless digital workstations, the cost to the company will relatively decrease. Electricity bills, Office space cost, internet expense and consumables may become negligible by moving the most people to work from anywhere. It Generate flexibility and the

“Digital transformation was certainly a priority before, but you get a global incident taking place and it brings it into sharp focus,” says Alistair. “Once this is all over, companies will have realized that they can have people working from home and cut back on office expenses. They’ll also see that they don’t need to send people half-way around the world to their suppliers.”

To be able to work from anywhere there will be a need for fast speed internet, near-instantaneous communications, and increased connection density makes it primed for remote interactions, which has become top of mind for many organizations and enterprises. Two key areas — telehealth and teleconferencing — are becoming critical for enterprise operations amid the pandemic, and we think that increased dependence on these areas will help strengthen the appeal of secure and fast connectivity.

This change in communication and working behaviors will also result in improved technology like VR. Companies have already identified VR as a tool to improve employee training, but the coronavirus could prove to be the impetus for some workplaces to implement the technology. Almost half (49%) of business respondents are looking to use VR and other extended reality tools to mirror real-world training conditions, according to a Perkins Coie survey.

Without a doubt, we’re craving real face-to-face interaction, but working remotely has shown we can be a more flexible agency and productivity is on the up too,” says Mark Davis, co-founder and creative director at me&dave. “We’d all hold our hands up and say briefings sometimes went a little wonky back in the studio, but now we’re briefing like a boss. We’re respecting each other’s time more and making better use of it with Zoom meetings for project collaboration and Slack for quick responses that cut through the more cumbersome nature of calls.

Global supply: moving from 1 to 10

In 2019 (B.Cv.) China was the center of the global supply chain network, by holding over a quarter of the world’s supply with ? of the global manufacturing, and trading with more than 120 countries. (source: the World Bank’s World Development Indicators)

Pandemic has arguably revealed the fragility of the global supply chain. As reported by China Daily, China’s influence on the global economy is far greater than its own weight. More importantly, such influence is also reflected in China’s presence at the core of the global supply chain. Over the past decade, China has become the center of the global supply chain network, with import and export of intermediate products accounting for a relatively high proportion.

This is why it had an immediate business impact due to the origin of the outbreak being in China. In 2020, we could see that the economy has gone lowest since the great depression of 1929 that lasted a decade. This is a wake up call for the world to move away from one source of supply to a diverse option.

What can we expect to see in 2021 is a change of approach where the world supply and manufacturing of goods may be diversified to countries like Mexico, India, Bangladesh, Taiwan. China will see a major loss in demand from the world and may lose the title of world’s Factory. While focusing on multiple supply chain methods, counties will also become more self reliant going forward.

“There’s a real concern about products that may have crossed multiple borders,” Mr. McKenzie said. “People are looking for contactless experiences and guarantees of safety and hygiene along with the products they buy, hence products that come from a shorter supply chain. This affinity and trust that comes with local is something chains and big brands are using, but they’re having to rethink that positioning that may already be in their wheelhouse.”

There is an acknowledgement of the vulnerability that global economic interdependence creates. So some countries are facing difficulties in getting medical supplies, some find their manufacturing can’t run as value chains are linked with China. Countries will reconfigure their economies to look at import substitution with a greater clarity

now, as the perils and pitfalls of overdependence on foreign supplies become clear. This might lead to each state attempting to rely more on domestic production, leading to more protectionist policies and barriers to trade.

In the long term the approach may change to the multiple supply channel as domestically produced goods may not be able to meet the local demand which will inflate the price and further fuel recession. Protectionism periods were accompanied with slow growth, less living standards, and, ironically, higher inequality. This is best exemplified by the aftermath of the great depression in the 1930 and the protectionist policies that distinguished this era.

Retail : Moving from brick-and-mortar to e-commerce

In uncertain times, people are hesitant about gathering in crowded public spaces, and that is going to take a toll on the major retailers, especially at malls, according to Coresight Research. Such fear and the restrictive supply chain will result in the boom in E-Commerce.

“It is our view that the trends to optimize click and collect and delivery will double their previous investment as a result of people to avoid crowds for the next 90 days,” said IHL Group founder and President Greg Buzek “significant increases in remote tools, moves to decentralize the supply chain and AI/[machine learning], Forecasting technologies, and Analytics.”

Sudden change in the buying habits caused by coronavirus will simply change how consumers shop, because of which many retailers may become online players. People moving from offline shopping to the online purchase are going to build an interesting fast paced, dynamic, and price-transparent market. I believe that the balance between e-commerce and mortar will remain forever changed. The change is not just limited to where we shop but also payments will become contactless and people will prefer to buy online and pick up offline service than the traditional method of browsing at the mall. The physical stores will reopen but the interaction will never be the same.

Doug Stephens, author said that the emerging epidemic “will be like adding jet fuel to an already exploding segment of digital retail. Amazon and a handful of others will be the beneficiaries of a windfall.”

Many are going to online platforms for socialisation and interaction. Which can drive consumer interest in augmented and virtual reality. “If you start spending more and more time online, it is very likely that virtual goods will become much more important to you than actually physical ownership of goods,” Sethi predicts the progression of the experience economy to the virtual experience economy fuelled by the pandemic.

Digital Economy

Opportunities may expand manifolds in crypto currency, Fintech, Artificial Intelligence and Machine Learning, Blockchain technology, to mention a few. Countries will seek for faster, cleaner, safer transportation, instead of an ordinary FTA, which talks just about trade liberalisation and ‘shallow’ trade facilitation. Countries may opt for safe and secure trade than “free” trade. New “pandemic” related trade barriers may replace the traditional quota and other tariff and non-tariff barriers. The new global order will also create new jobs and skills. Global institutions require reforms to deal with the emerging situation.

At the same time, countries shall undertake reform to strengthen the digital economy and e-commerce not only to manage the pandemic but also to facilitate trade. Trade barriers won’t apply to trade in goods and services particularly those that feed the health science. Better IOT solutions will be developed for e.g. the use of “Smart” devices in “Smart” homes. For example, “smart” refrigerators will take stock and order groceries online. Such “Smart” devices will require regular software upgrades which will be transmitted via the internet. Companies could use faster internet to broadcast a software upgrade patch to all their devices, making it cost effective while also reducing congestion in the mobile network. Better monitoring and tracking solutions will be put in place. But most of all Cyber security will become number 1 priority to keep the economy moving.

“In their report, McKinsey warns to prepare for what’s next and not stop investments in digital as they’re more crucial than ever before. Businesses will need to be faster and more agile to move forward”

Travel and Hospitality

Since travel has become an important part of everyone’s life and is no longer considered as a luxury but a necessity to break away from a mundane routine and rejuvenate, we are positive that travel will revive soon. However, destination marketing services will see a drastic shift. During the outbreak of pandemics, almost everything connected to tourism is affected perhaps with the exception of the environment. In Italy, one of the countries hardest-hit by COVID-19, popular tourist destinations like Rome, Venice and Milan are deserted and occupancy rates have slumped to as low as 6%. On 26 March, the World Tourism Organization predicted a 20–30% loss in international arrivals in a press release. Meanwhile, the World Travel and Tourism Council has indicated that 50 million travel and tourism jobs are at risk due to COVID-19.

Undeniably, hotels are one of the hardest-hit industries by COVID-19. As a result of massive cancellations of flights, tours, events, hotel reservations and a resultant decline in inbound travel, hotel occupancy rates and average room rates have dropped sharply causing unprecedented declines in profit margins. In Italy, 90% and 80% of all hotel bookings in Rome and Sicily respectively have been cancelled and for a relatively small tourist destination like Ghana, hotel occupancy rates are down from 70% to under 30%, with some hotels recording as low as 5%. Also, it has been reported that hotel industry REVPAR in the United States fell 11.6% for the week ending 7th March 2020. The problem is compounded by lockdowns and other social distance protocols announced by governments in an attempt to ‘flatten the curve’.

The new normal includes social distance and health protocols which must be religiously adhered to. Orderliness here includes sanitation, health and safety as well as operational procedures. Guests will now place more premium on their health and safety than service quality. The new standard for hotel operations includes measures instituted to curtail the spread of the virus. Hotels must strive to balance the need to reduce unnecessary expenses in order to improve the bottom-line and the moral responsibility to ensure the health and safety of their employees and guests.

The recovery might be slow, but we are sure, once we manage to control this virus, the tourism industry will be the first one to see major growth. After a very long time of no international travel, people would be looking forward to explore once again.

Consumer Behavior

Consumers expect a longer-lasting impact to their routines and finances as the COVID-19 crisis continues.

Even though Consumers globally continue to experience a decrease in income, their optimism of economic recovery is high. Due to this optimism they will tend to have higher spending expectations for a short period of time, there will be revenge buying due to loss-chasing but in the long term people will be conservative of their expenditures and adoption of digital and low-touch activities will continue as a new normal. Outdoor and fitness activities, remote learning for oneself, and digital entertainment exhibit relatively strong intent to continue post lockdown. In contrast, shopping in stores, eating at restaurants, or schooling children will see a decreased activity.

Consumer views about retail space cleanliness and employee and co-shopper hygiene is likely to play on retail shoppers’ minds for some time to come. We might feel socially awkward about suspecting everyone around us of being potential Corona carriers. Bigger reliance of home brands and quality assurance of big names will attract the consumer who will play save for the next year. Spend on wellness, communication, home entertainment and deliverables will be high.