Managing Director & Senior Partner
A look back sounds appealing. As lockdowns continue across most US states, many people are reflecting on what life was like before COVID-19. The inclination to reminisce is certainly understandable on a deeply human level: a few months ago, consumers were engaging in life-enriching activities ranging from taking vacations to shopping in nonessential stores to dining in favorite restaurants to simply greeting family and friends with a touch—and as of January 2020, the US was in its 126th month of economic expansion, the longest period of continuous economic growth the country has ever experienced.
Since November 2019, BCG and its survey fielding partner Dynata have surveyed more than 16,000 US consumers about their feelings and outlook on anticipated spending versus current (and recently past) spending in multiple categories. (See Exhibit 1.) Understandably, not anticipating COVID-19, we did not test consumer sentiment in certain categories—such as business travel and public transportation—in late 2019. The samples used in the November 2019 baseline survey and the pulsed surveys in March and April 2020 are comparable (with slight increases in 2020 of US consumers from Western states and from urban zip codes). This week, we compare consumer sentiment disclosed in our COVID-19 snapshot surveys with corresponding sentiment expressed in our pre–Black Friday November 2019 survey, on products and services excluding at-home food. Our goal in doing so is to reveal consistencies heading into 2020, pre-existing trends that the coronavirus accelerated and intensified, and potentially new consumer behaviors to watch, particularly as US states and cities begin to open.
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First, though, a quick review of the generational definitions we use. (See Exhibit 2.) Members of Gen Z are Americans from 10 to 25 years old; for purposes of tracking consumer sentiment, however, we consider only Gen Z adults (ages 18 to 25) here. The oldest millennials are now turning 40. That generation includes people who are at the average marital age in the US and those who are at the average age for having a first child. Gen-Xers account for about a quarter of the US adult population, but they punch above their weight in spending—in part because of their life stage and wealth accumulation, but also because of their financial recovery from the 2008 recession. Baby boomers remain the largest generation, at about a third of the US adult population; in our 2020 research, we combine baby boomers and members of the next-earlier generational cohort, the so-called silent generation, under the heading “baby boomers+” or “56+.”
Despite growing consumer premonitions of recession in November 2019, US consumers were relatively confident about their personal financial situations heading into 2020. In other words, at the time, Americans were worried for others but feeling personally secure. After about eight weeks of life during the COVID-19 pandemic, however, 51% to 66% of US consumers (broken out by generation) now say they are worried about their personal finances, and 24% to 40% of them say they are worried about their savings levels. (See Exhibit 3.) Overall, people in the 56+ group are more secure in their savings than younger generations are.
Consumers’ lack of confidence in the economy today is about three times as high as it was just five months ago. COVID-19 has undoubtedly accelerated consumer convictions that a recession will occur ahead of the 2020 US Presidential elections, but consumer uneasiness was already fairly widespread in 2019. In November 2019, 27% to 30% of US consumers already believed that a recession was probable, and an additional 26% to 31% agreed that “the economy is starting to slow down” ahead of early COVID-19 press coverage in the United States. (See Exhibit 4.) In our survey of April 10–13, 2020, 31% to 41% of Americans say that a recession is imminent, while another 37% to 53% believe that the recession is happening now. In 2020, surveyed members of Gen X tend to be more pessimistic than Americans of other generations, whereas in 2019 the views of different age groups showed less variation, on average.
Although COVID-19 clearly has US consumers on edge, the inclination among consumers to trade down—that is, to buy lower-priced, lower-quality, and/or unbranded products and services in categories of lesser personal importance in order to save money or fund purchases in categories of greater personal significance—was already higher in November 2019 than in 2017. In particular, readiness to trade down was greater in 2019 than 2017 among Gen-Zers, by 11 percentage points, and among baby boomers and the silent generation, by 5 percentage points. (See Exhibit 5.) Conversely, expectations about trading up—buying branded, higher-quality products and services in categories of greater personal engagement—had declined by as much as 6 percentage points in November 2019 from its numbers in 2017. Sentiment favoring trading up ranged from 14% to 32% in 2019 (comparable to the 2017 range), and sentiment favoring trading down ranged from 36% to 42% (a significant increase from the 2017 range of 32% to 38%).
Typically, in uncertain and recessionary times, consumers pull back on discretionary spending for their household as well as for themselves individually. In November 2019, US consumers were already anticipating the need to decrease their spending in 2020 across such personal goods subcategories as handbags, jewelry and accessories, luxury personal goods, and luxury leisure travel. (See Exhibit 6.) In addition, near the end of 2019, US consumers expected to decrease their spending in home categories such as furnishings and décor, kitchen and small appliances, and large appliances. In April 2020, many similar categories are high on the list of areas that consumers designate for decreased spending. On the other hand, various COVID-driven forces and behaviors—including travel restrictions, canceled flights, shelter-at-home orders, fear, and social norms—have helped populate the top ten list of decreased-spending categories with some that consumers in 2019 had not anticipated, including public transportation, out-of-home entertainment, and various types of clothing (likely reflecting work for home, social distancing, and reduced participation in outdoor activities and sports that draw groups of people).
In late 2019, thematically consumers anticipated increasing their spending on services in 2020. In the days before COVID-19, they expected to increase spending on education, childcare, adult care, personal training, and weight loss services. (See Exhibit 7.) Unprecedentedly, the top 10 categories for increased spending (not counting at-home food) included seven services. Excluding products from the list altogether yields a list of top 10 services that further includes discretionary health care services, cosmetic procedures, and vacation travel.
To date, our COVID-19 consumer sentiment pulse has focused on essential spending categories, at-home food, and discretionary spending products (rather than services). However, within five months, travel shifted from being a top increased-spending category to being a top decreased-spending category. Eating out also appeared as a top decreased-spending category. As many parts of the US seem to be on the verge of starting phased reopenings of businesses, questions remain about how long decreased demand for (and supply of) consumer services—particularly services delivered in close physical proximity—will persist. Will discretionary spending revert from “experiences” to “things” (that is, “goods”)? How enduring will the shift toward experiences be as the memory of COVID-19 begins to fade?
In April 2020, consumers say that they anticipate increasing their spending in fewer categories than their counterparts did in November 2019. Four of the top 10 areas of increased spending are related to food, and an overlapping five reflect the exigencies of life in the shadow of COVID-19, including pickup and delivery of restaurant food; cleaning products; preventive health care/testing; vitamins, minerals, herbs, and supplements; and in-home entertainment.
2019 Plans to Maintain Spending: Clairvoyant?
On the eve of 2020, when asked to envision changes to their spending in the event of a recession, most US consumers in our survey anticipated maintaining their current spending levels on their pets, on mobile devices and access, on preventive and discretionary health care, on insurance, on consumer health and wellness, on at-home entertainment, and on savings levels. (See Exhibit 8.) Five months later, consumers’ perceptions about where they will maintain current levels of spending are generally similar. Personal care and color cosmetics rose to the top of the list in 2020, a development that may breathe new life into the previously decelerating category of color cosmetics. And users of tobacco products accorded greater importance to those products over the course of March and April. (Interestingly, products designed to help people quit smoking or otherwise using tobacco also rose in digital commerce between March 2019 and March 2020.) In other words, consumers were consistent for now in their plans to maintain spending in certain categories, during both an imagined recession and an actual pandemic.
But were—and are—those plans an accurate reflection of their actual behaviors?
Stackline data from a similar time period—March 2019 and March 2020—confirms many consumer-reported trends from category dynamics in digital commerce.
Stackline’s data on subcategory decreases over the same period reinforces consumers’ reported decreased-spending plans during the post-COVID-19 period in travel and accessories; in various products for transporting personal items (luggage, briefcases, backpacks, gym bags, and the like); in clothing, footwear, accessories, and jewelry; and in supplies for entertaining. In short, consumers seem to have been prescient in many respects about changes in spending that have occurred between March 2019 and March 2020, as gauged by digital commerce.
One major difference between consumers’ anticipated behaviors in response to a recession and their observed online behaviors in March 2020 involves home and food-prep subcategories—although not large appliances and other big-ticket items. According to Stackline data, the top online home subcategories include laundry accessories and supplies, cleaning equipment and supplies, bathroom accessories, humidifiers, safes, and yoga accessories. COVID-19 thus may have been responsible for restarting home subcategories that were stagnating in the second half of 2019. So far, consumer expectations of increased demand and spending on bigger-ticket home items have not been accurate, although we have seen a subcategory shift in favor of home fitness equipment, refrigerators, bread making, home office furniture, and chairs. As of March 2020, relatively few home categories appeared among the most decreased online subcategories.
At the end of 2019, affluent US consumers—defined as US households that earn $150,000 or more—were significantly more likely to trade up in categories relevant to them, particularly during their prime earning (and spending) years, from their mid-20s to their mid-50s. (See Exhibit 9.) Not surprisingly, affluent consumers are significantly less likely than other consumer segments to trade down. Affluent US consumers also account for an outsize portion of online spending growth, in part because they purchase online more frequently, and in part because they spend more per online basket than their counterparts do. The upshot: in 2019, a small fraction of total consumers accounted for a disproportionate share of e-commerce transaction trends.
At the end of 2019 and through mid-March of 2020, affluent consumers did not report plans to decrease their spending across discretionary spending categories. As of mid-April 2020, affluent consumers’ sentiment remains resilient overall and only slightly below that of their lower-earning counterparts. (See Exhibit 10.) In the intervening four weeks, however, affluent consumers’ intention to reduce their spending on discretionary categories has shifted and is tracking closely with the spending sentiment of most other US consumers. Affluent consumers say they intend to decrease their spending in 2020 in categories such as handbags and accessories, luxury goods, automobiles, and home furnishings and décor. Like most other Americans, affluent US consumers plan to continue spending in consumer electronics and home appliances, reflecting a focus on working from home, sheltering at home, and more frequently eating at home. In fact, during the 2008 recession in the US, luxury and aspirational-priced items in apparel, handbags, accessories, home furnishings and décor, and beauty declined in the same year with the rest of the category, saw deeper declines, and took longer to recover to their 2007 starting point, although they also generally saw faster-than-average growth during the past six to seven years.
Just as responses to recession and to COVID-19 disclose age and generational differences among consumers, they also reveal regional differences. (See Exhibit 11.) Even though, overall, a large majority of US consumers view a recession as imminent or immediate, those in urban areas share the sentiment more acutely than do their suburban and rural counterparts. Americans in states with more confirmed COVID-19 cases, meanwhile, are more convinced—by differences of as much as 14 percentage points compared with those living in states with fewer cases as well as in less densely populated suburbs—that the virus will permanently change their behavior. Urban Americans feel personal financial concerns most acutely, but the band on this measure is relatively tight. Only about 35% to 40% of Americans believe that their spending habits will bounce back once the coronavirus is adequately under control, but Americans from states with fewer cases are most likely to believe now that they will return to spending normalcy in due course.
Heading into 2020, only 5% to 25%—depending on the generation—of US consumers anticipated spending more online in 2020. By April 2020, some 31% to 43% of Americans planned to increase their online spending in the immediate term. Urban and suburban consumers in “hot states”—defined as the ten states with the highest absolute number of confirmed cases of COVID-19—planned to increase their online spending the most. (See Exhibit 12.)
For affluent Americans—most notably for affluent millennials and Gen-Xers—the planned increase in online buying number was 1.7 to 1.8 times higher than for their lower-earning counterparts. In addition to accelerating digital commerce, COVID-19 may reduce the influence that affluent Americans have on online spending and incremental digital commerce growth as lower-earning US consumers increase the frequency and category range of their online purchases.
As we look back at November 2019, we see consumers who were relatively confident about their personal finances, more willing to spend, and, when affluent, more inclined to trade up. Nevertheless, the picture wasn’t entirely rosy as the year wound down: 27% to 30% of consumers said that they anticipated a recession; an acceleration in trading down behavior was evident; and many people expected discretionary spending to slow—all in the days before the COVID-19 pandemic emerged. The old normal was already on its last legs as it approached its 126th month of growth, but it nevertheless provides a useful reference point as we turn our attention to reviving and reshaping the economy over the next 24 months.
Our next Snapshot will look at which consumer behaviors and spending changes are likely to be lasting and which ones more evanescent, as we move into recovery and a new normal. We will also issue a special report in the middle of next week about how consumer sentiment and spending changes are evolving in the Asia Pacific region, including Japan, Australia, and India.
BCG’s COVID-19 Consumer Sentiment Snapshot series is based on data drawn from an online survey of consumers that is conducted every one to two weeks across multiple countries worldwide. Each Snapshot highlights a selection of insights from a comprehensive ongoing study that BCG provides to clients. The survey is produced by the authors, who are members of BCG’s Center for Customer Insight (CCI), in partnership with coding and sampling provider Dynata, the world’s largest first-party data and insights platform. The goal of the research is to provide our clients and businesses around the world with periodic barometer readings of COVID-19-related consumer sentiment and actual and anticipated consumer behavior and spending to inform critical crisis triage activities, as well as rebound planning and decision making. The research does not prompt consumers about the virus when asking many of the key questions, including questions about spending changes in the next six months, in order to avoid biasing the results. A team composed of BCG consultants and experts from CCI completes the survey analytics.
We would like to thank our key US contributors from the 2020 survey research effort:
We would also like to thank our key US contributors from the 2019 survey research effort:
We appreciate the generous support that the following people have provided in producing COVID-19 research and the associated article series:
We also thank BCG’s Center for Customer Insight (CCI) team globally, Scott Wallace, and Dynata.
Boston Consulting Group’s Center for Customer Insight (CCI) applies a unique, integrated approach that combines quantitative and qualitative consumer research with a deep understanding of business strategy and competitive dynamics. The center works closely with BCG’s various practices to translate its insights into actionable strategies that lead to tangible economic impact for our clients. In the course of its work, the center has amassed a rich set of proprietary data on consumers from around the world, in both emerging and developed markets. The CCI is sponsored by BCG’s Marketing, Sales & Pricing practice and Global Advantage practice. For more information, please visit Center for Customer Insight.
Dynata is the world’s largest first-party data and insights platform. With a reach that encompasses 62 million consumers and business professionals globally, and an extensive library of individual profile attributes collected through surveys, Dynata is the cornerstone for precise, trustworthy quality data. The company has built innovative data services and solutions around its robust first-party data offering to bring the voice of the customer to the entire marketing continuum—from strategy, innovation, and branding to advertising, measurement, and optimization. Dynata serves nearly 6,000 market research, media and advertising agencies, publishers, consulting and investment firms and corporate customers in North America, South America, Europe, and Asia-Pacific. Learn more at www.dynata.com.
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