A roadmap to recovery for retail and hospitality? Confidence in personal finances at an all-time high as lockdown measures ease
The retail and hospitality sectors may finally have the good news they have been waiting for: people have disposable income and are ready to spend. This time, on the fun and frivolous categories that were so hard hit last year, such as eating out, going out and fashion.
Our latest Consumer Sentiment survey makes heartening reading for an industry that has seen a significant upheaval in the wake of COVID-19. Consumer confidence is now at its highest level since we started our Sentiment Index back in 2008, and it is the first time we’ve been back in positive territory since before the start of the pandemic (+3 in December 2019 after the general election). A huge improvement from this time last year, we’re seeing net positive sentiment across all regions, driven by the older consumers’ growing confidence on the back of the vaccine rollout.
These findings echo those coming out of our 24th Annual CEO Survey: that we’re hopefully seeing the end of the pandemic. The majority of CEOs interviewed believe the crisis has bottomed out, with 51% expecting the global economy to improve moderately, 26% greatly.
As people look to celebrate a possible end to the pandemic through hospitality, leisure and non-essential retail, this change in spending intention can only be good news for businesses across the UK. We look at why in more detail below.
We have tracked consumer sentiment since before the global financial crisis in 2008. While it has regularly fluctuated in response to economic or political developments, it is now the most positive it has ever been. At +8, it is higher than the previous record of +5 in December 2015 (pre-Brexit), and an incredible 34 points higher than at the start of the pandemic.
This time last year, we saw the biggest drop in consumer sentiment from December 2019 to March 2020, as consumers worried about the impact of a novel coronavirus. But since then we’ve seen a steady recovery, albeit with some undulations, and a rapid uptick following our November 2020 and January 2021 surveys.
In what is finally good news for retail and leisure, consumers appear to have disposable income just as lockdown ends. And with that, we expect to see pent-up spend across ages, regions and categories as restrictions ease.
We have seen improvements in consumer confidence across all demographic groups and UK regions. And for the first time, all UK regions now have net positive sentiment: ranging from 0 in the South East and Northern Ireland to +22 in London.
But while the results across the regions are impressive, the most marked change has been by age group. Historically, the younger age ranges are the most positive groups, often because of their optimism around entering and progressing through the workforce. Older groups tend to be more negative as their earnings plateau or they begin to reach retirement age and worry about finances. While over 65s have often been the most negative, that has changed in recent years, and by last September, they were more positive than even 35-44 year olds. That trend has continued.
Consumer sentiment among the over 65s is now net positive for the first time, and significantly above all age groups except under 35s. But while all other age groups have recovered, all those under 45 are less positive than they were in March 2019 - largely because they've been harder hit by the economic effects of the pandemic and lockdown.
There are two likely reasons for the positivity in the over 65s. As we noted in our November 2020 report, they have been least financially affected by lockdown. With no negative impact, many are likely to have ‘forced savings’.
But, perhaps more importantly, we’re seeing a positive ‘vaccine effect’. By the time of our survey in mid-March, these age groups had been offered at least a first vaccination, giving them a way out of the pandemic and back to normality. This effect is further supported by the improving sentiment among the over 55s - most of whom would also have had a first vaccine - which is also more positive than among the 45-54s, a reversal of our January findings.
We’ve seen fundamental changes to people’s spending priorities, something we are seeing for the first time, and did not see after the global financial crisis - reflecting the reversal of lockdown constraints and pent up demand. We regularly ask if people will spend more or less on certain categories in the next 12 months than against the last 12 months. We then use the difference between the two to work out ‘net spending intention’.
Since the Brexit referendum and throughout the recovery period following the global financial crisis, the results have been predictable: more people expect to spend more than less on groceries, and occasionally on home improvements and holidays, with everything else net negative. Not anymore.
Category priorities have completely upturned. While more people expect to spend more on groceries, this proportion is essentially unchanged since January. All other categories have seen an increase in spending intention in the same time scale.
The biggest increases have been in leisure (particularly eating out and holidays) and fashion. In leisure, people expecting to spend more outnumber those expecting to spend less by three to one. Net spending intentions of +25 to +32% in leisure is something we’ve never seen before, and there is clearly a pent-up demand to go out once restrictions allow.
For fashion, that ratio is two to one in favour of spending more. However, even with this expected upturn, it may still not be enough to reverse the 27% decline in fashion retail we saw in 2020. This is also a concern shared by leisure and travel, given how constrained spending was last year.
Elsewhere, even in other shopping categories, similar numbers expect to spend more as spend less. Consumers appear to be ready to spend on ‘fun purchases’ they haven’t had the chance to over recent months.
However, there remain concerns for the travel industry. Despite being one of the top 3 activities people are looking forward to, the increasing uncertainty over the timing of restrictions easing and the reopening of national borders appears to be affecting interest in holidays. While people may be ready to spend on holidays, it remains to be seen whether they will get the opportunity.
Last May, we highlighted growth around conscientious consumerism, and we wanted to see how that had changed since.
Around 1 in 5 people say they’ve been shopping more with local businesses, with a similar proportion shopping more with small businesses since lockdown. And even more people indicate they will shop increasingly locally once lockdown is lifted (and the closed stores re-open). This data echoes findings from our Store Openings and Closures report, which saw fewer shops closing in small towns, aided by people working from home, staying at home more and spending locally.
However, we did see a decline in interest from last year around brands that have looked after their staff, when news of brands mistreating staff was more prevalent.
With many conversations around introducing mandatory vaccine passports for certain activities, we wanted to find out the consensus among consumers.
The majority believe vaccine passports should be required for holidays and large spectator events, including theatre, concerts and sports.
Public opinion varies considerably depending on the activity, but there is a significant minority that believes they should also be mandatory for day-to-day activities, even including going to the supermarket or a coffee shop. Interestingly, there is much higher support for vaccine passports amongst older consumers (who are more likely to have been vaccinated) with more than half of over 55s thinking vaccine passports should be required to visit a restaurant, pub, gym or cinema.
These results are clearly good news for retail and leisure, bringing relief to sectors that have been heavily impacted by the COVID-19 pandemic. With money in customers’ pockets and an intention to spend, consumer-facing businesses simply need to prepare as best they can for reopening and the year ahead, something our Retail Outlook 2021 offers plenty of advice on.
Businesses should remain cautious, however, particularly as we’ve seen consumer behaviours change significantly (and quickly) over the last 12 months. Keeping a keen eye on trends and interests will ensure they can respond proactively to any changes or capitalise on behaviours that stick. Elsewhere, improving agility will help head off potential challenges, wherever and however they may arise: whether new variants, a third wave, tightened restrictions, or continued uncertainty in some sectors, such as travel.
For some, it might get worse before it gets better, particularly due to overcapacity in certain sectors, such as hospitality. But even if chains close, there are big opportunities for new entrants to take those spaces, especially on the back of such heightened consumer demand.
1. PwC’s latest consumer sentiment survey was conducted between 12-15 March 2021 and includes responses from a nationally representative sample of 2,067 adults.
2. PwC has asked the same question every few months since April 2008: “Thinking about your disposable income (money remaining after household bills, credit cards, etc.), in the next 12 months do you expect that your household will be better off or worse off?”. The index is calculated by subtracting the percentage of people who think they will be worse off from those who think they will be better off. Historically this index has provided an insight into the pulse of the nation, and has been a good indicator of future consumer spending patterns.