MONTREAL -- The COVID-19 pandemic has forced businesses to close, industries to grind to a halt and consumer patterns to change drastically.
For those lucky enough to avoid being laid off and can work from home, daily costs related to work have undoubtedly changed.
It is something Concordia University marketing and finance professor Robert Soroka has been watching closely.
“Consumption patterns are difficult to break and this pandemic has forced consumers to break their shopping patterns,” said Soroka. “People who would have never, ever considered a) buying online or b) hoarding, that’s what they’re doing. In a couple of weeks, this pandemic has done what it would take years to accomplish if a marketer was trying to change consumption patterns.”
The change in patterns has sent some industries such as tourism into a tailspin that will be difficult to emerge from, but also led to saving habits that have put more cash in many consumers' accounts as they're not spending on daily goods and services they were paying for before being forced to stay home.
With some of the world's top economists projecting 2020 to be the worst year for the global economy since the Great Depression, people's tendency to save rather than spend is understandable.
PEOPLE ARE SAVING
The website HomeSnacks took a stab at calculating how much people are saving while being stuck in isolation at home during the crisis, but still able to garner an income.
Co-founder Nick Johnson said he and his partners searched online for what an average family spends on takeout meals, gas, restaurants, bars, and other general costs, and came up with a formula that shows roughly how much is being saved each month.
“Initially, a lot of people realized, ‘I think I’m saving a bit of money,’ but I don’t think people really thought about how much money,” said Johnson.
A person in a family of four with two children in childcare that drives 15 miles to work, goes to a bar once a week, restaurant once and gets takeout food twice will save $2,946 each month on those costs according to the calculator.
Increased costs like electricity, ordering in and alcohol may offset the savings, but Johnson has heard from many who have used the formula and found it’s accurate in determining how much they are saving including himself.
“I’m kind of a social butterfly, so I’ve saved a lot of money because I’m always going out. I looked at my chequing account and thought, ‘Why do I have so much money in there?’” he said.
The formula matches what economists who study finance have found.
“We know that people who don’t go to work tend to save money,” said Soroka. “Those expenses that are normally being attributed to work are now being saved,” he said.
A cup of coffee, cheap meal at a food court, or even a monthly metro pass could add up, Soroka said, to about $20 a day that is now being saved. Over a month, that’s hundreds of dollars.
BOUNCING BACK
The Canadian economy is expected to see negative growth of 6.2 per cent, and the US is close with 5.2 per cent.
With gas prices as low as they’ve been in decades, cruise ships docked, and the least air traffic since before the turn of the century, industries will be looking to bounce back once the crisis ends.
Some will have an easier time transitioning out of the downturn than others. If the demand remains low, prices will remain low.
“What will be cheaper are the things that you typically buy which you’re not buying now,” said Soroka.
Cruise lines, tourism and other luxury industries will almost surely struggle to charge the same prices they did before the crisis. That reality has caused brands to offer deals Soroka has never seen before.
Holland America Cruise Lines, for example, is offering up to $2,300 US in extras including free drinks to customers to purchase a trip now that they can redeem once the industry can restart.
“What we have learned is that when a company or an industry is being like this, you have to do all kinds of crazy measures to get people back to consumption," said Soroka. "You have to entice them with some unreal offer… Holland America, to my knowledge, is a cruise line that has never given away free alcohol. You’re talking about desperate times, desperate measures.”
Soroka said that industries will need to work aggressively to overcome consumers’ fears post-crisis.
Companies will want to inject cash as soon as they can once they can open.
“They’ll forego bigger margins later to get some money in right now,” he said.
Soroka said that though the pandemic is unique, there are still patterns that industries can follow to help them jumpstart their business once the situation improves.
“Even though this is all uncharted territory, there are still some basic tenants of consumption that people will follow.”
