Despite the continuing lockdown and economic uncertainty, many UK consumers have disposable money and are willing to spend. This may come as surprising - but very positive - news for retailers, particularly those in the fashion, beauty and wellbeing sectors, where consumers are increasingly looking to treat themselves.
Our May 2020 Consumer Sentiment Survey shows a slight improvement since April (from -14 to -12), indicating a slow increase in consumer confidence month by month. Though sentiment remains lower than any other point since 2014, it’s still higher than during the Global Financial Crisis (2008-09) and the following austerity period (2011-13).
Our April results came after the Easter weekend, only three weeks into lockdown and on the back of a full rollout of government support including furlough and self-employed income support schemes. It wasn’t surprising that confidence was better than in March. This time, our May survey was conducted a week after only a slight loosening of lockdown restrictions, so these are positive results.
Generally, our consumer sentiment survey is a stronger reflection of consumer spending potential than “consumer confidence” surveys measured by other organisations, which include perceptions of the economy that do not reflect money in people’s pockets, and has historically been a reliable indicator of future consumer spending.
We’ve seen a big improvement in sentiment among Millennials (25 to 44 year olds), which has offset slight declines in some other age groups. For the first time, 25 to 34 year olds have become the most optimistic age group overall, showing a net increase of +23. Financial security plays a part here: this demographic is often more established at work, has moved out of home, and child-free or with very young families.
This contrasts with a slight decline in sentiment among under 25s, which has dropped from +15 to +11, likely driven by this age bracket having more precarious entry-level jobs.
While Millennials showed an increase in sentiment, 45 to 64 year olds show fluctuating confidence. They remain the most negative age group, significantly more so than retirees. Retirees have seen little financial impact from the lockdown: 57% have had no adverse financial impact and a further 19% have even been able to save more money. Their pensions have not been affected, and they’ve had no opportunity to spend on holidays or grandchildren.
Much of the resilience is down to people’s financial security. Despite numerous reports to the contrary, many people haven’t been negatively affected financially by the lockdown.
In this most recent survey, we asked people how the lockdown has affected their finances. Only one in five has lost income, with a further quarter experiencing some other financial loss or having to make a cutback. The majority of people have either not been financially affected (39%) or are saving more money (19%).
We also asked people what they thought would happen to their financial situation over the next 12 months.
Only one in eight think they'll lose some or all of their income (less than those who have been affected since the lockdown), suggesting that many of those who’ve lost their jobs or been furloughed expect to regain their income or find new jobs.
Although almost one in three think they may need to either dip into savings, reduce their spending or borrow money, only one in six think they’ll need to save on their shopping by buying cheaper brands or going to cheaper stores, and only 13% will postpone a big-ticket purchase.
Conversely, 42% don’t expect any adverse financial impact and a further 15% expect to save more money. Fewer people expect to save over the next 12 months than have done since the start of the lockdown, suggesting that some are only saving now because they are unable to spend (e.g. on going out, holidays, etc.).
The local and ethical shopping trend we identified in last month’s survey is increasing. With a prolonged lockdown, many larger stores closed and non-essential journeys discouraged, consumers have rediscovered their local high streets. They now want to support these local and independent retailers that have helped them through these times.
We’ll see if this continues once other retailers open and movement restrictions are lifted, but for now, 24% are buying more from small shops or independent retailers (particularly popular in Northern Ireland, Wales and Scotland), 18% are buying more from their local high streets (especially amongst Londoners - 28%), and 15% have bought more groceries or food boxes from local shops or restaurants (notably amongst younger shoppers).
Although ethical brands and retailer choices have been limited so far, consumers indicate they will shop more ethically in the future. As in last month’s survey, responsible and ethical brand choices were most popular amongst younger consumers and Millennials.
As well as changing where they shop, consumers are also planning to change what they spend their money on when things return to normal. Some changes are unsurprising: significant cutbacks on foreign travel and an increase in domestic travel, and increased spending on groceries and home improvement (both DIY and home furnishings).
Leisure is the biggest loser, with eating out, pubs, cinemas and live events at the bottom of people’s spending priorities. Although some of this will be due to safety concerns, it is also a general trend we’ve been seeing since before the pandemic. In our Autumn 2019 survey, leisure activities like eating out and going out were high up on the list of expected cutbacks.
At the other end of the scale, we expect people to increase what they spend on themselves, on categories like health, beauty and personal care, for example. In a similar vein, both fashion and gym membership remain quite resilient, even if they are discretionary spends, and despite safety concerns around gyms post lockdown.
Even amongst the least prioritised categories, there was a small group of keen consumers who expect to spend more post-COVID. With 14% indicating they will spend more on eating out, and 13% claiming they will spend more on travelling abroad, there’s potentially a group of people who are determined to enjoy themselves as soon as they can.
There’s no reason why a successfully phased re-opening of non-essential retail and leisure businesses won’t see a rebound in consumer spending. Consumers have the money and the intention to buy, they now just need the option. With sentiment remaining resilient, consumers won't hold back spending if and when they get the opportunity. However, they may change where they spend and what they buy.
Retailers that prepare now for this uptick in spending, should be best placed to respond as things begin to return to normal. Our advice in our April Consumer Sentiment Survey remains relevant, but we’ve also created a series of industry-specific guidance to help retailers and brands respond to new challenges and opportunities.
COVID-19 is the most significant challenge in a generation for consumer-facing businesses. After overcoming the initial wave of adversity, organisations need to look to the future and find ways to embed resilience, capitalise on accelerating consumer trends and integrate different business models.
Our Where next? series looks at how COVID-19 is affecting industries and how organisations can transform to meet the challenge. Where next for retail? considers how and why retailers should use this moment to reshape and transform their businesses. Where next for travel and leisure? discusses how businesses could use the crisis period to reassess and reshape to help them survive and recover from this challenging period and beyond.