Has Consumer Behavior Changed For Good? | The Corona Correction | Refinitiv
Welcome to the Corona Correction Series in association with Refinitiv, I'm your host Roger Hirst. The consumer has always been a key barometer of the health of the U.S. economy. Talk has now firmly shifted towards the trends in the recovery across the retail sector. I asked Refinitiv's Director of Consumer Research, Jharonne Martis, about the findings of a recent Refinitiv survey that looked into the patterns of consumer behavior, and whether there were any permanent changes in the way that people expected to purchase goods. Many US states and retailers like Macy's and Best Buy are ready to reopen the economy. But the truth of the matter is, neither the government or retailers get to determine when the economy reopens. Ultimately it's the consumer's decision. The consumer decides when they are ready and willing to hop on the subway to go back to work, they are the ones who get to decide when they are ready to go back to the grocery stores. So the speed of the recovery of the economy really depends on consumer behavior. And our recent consumer sentiment report at Refinitiv shows that only 35% of Americans are ready and willing to return to the mall once a vaccine becomes available, even if that means a year from now. Now this is reflected in our earnings data, which suggests that retailers already saw a decline of 39% for the first quarter in earnings. And this is expected to deteriorate even further for the second quarter as earnings are expected to decline to negative 71%. Now we will start to see a recovery in the second half of the year, but it is not until the first quarter of 2021 when earnings, retail earnings, are expected to come in positive territory again. Since the recent civil unrest we're noticing that consumers are progressively becoming more in favor of the economy reopening. However, 72% of them are very much concerned that if this goes too fast, the Corona virus might spread again. Also, another trend that we're seeing is that consumers are becoming less comfortable about making major purchases like purchasing a house or a vehicle. And this is interesting because this is a reversing trend of what we've seen from the two weeks preceding the civil unrest. Now on the retail end we're seeing that the civil unrest has put a big dampner on retail earnings. Retailers are now seeing more expenses related to the repair costs and also because of the curfews in many states they are open less hours. So all in all, the civil unrest has put some pressure more worries on the consumers and retailers, but on the other hand, it's made consumers feel a little bit more comfortable about their economy reopening. Retailers are currently reporting first quarter earnings and we're learning a lot from them. The first one being that social distancing is very key on consumers mind. Consumers are making less trips to the stores, but they are spending significantly more money. And what this is doing is that this is definitely boosting e-commerce sales. Take Wal-Mart, for example. They saw a spike of 74% in e-commerce sales. But this is also coming at a huge expense for retailers. Wal-Mart and Target and Home Depot, they all had to hire many hundreds of thousand more employees in order to keep stores clean and restock during the pandemic. So as a result, we're seeing that they are seeing huge expenses of over five hundred million dollars, which is eating up their bottom line. Now, a lot of talk has been going around that the winners during this pandemic has really been the retailers that are selling key essentials. But the truth of the matter is that what's really differentiating the winners from the losers is their strong omnichannel presence. Take Home Depot, for example, they saw e-commerce spike up 80%, but over 60% of the e-commerce orders were for curbside pickup. So never has it been more important for a retailer to have a strong omnichannel presence. Well, the retail sales were impacted by the lockdown, there are obviously some clear winners in terms of volumes, though profits were still impacted by the additional costs of doing business in an environment that needed to be safe for both workers and consumers. Whilst old habits die hard many consumers are showing a reluctance to return to brick and mortar shops until a vaccine has been found. And the recent civil unrest across the U.S. has also impacted sales, though it would appear that this has increased the desire for many people to see the U.S. return as quickly as possible from lockdown. Obviously there still remains uncertainty about a second or third wave of the virus. Consumers are keen to get shopping, but it appears that they will err on the side of caution, focusing on the retailers who have a strong mix of both online and physical shopping opportunities across a wide variety of products. We'll see later with another update.