COVID-19 has impacted consumer behaviour in many ways, especially in spending, one of the most important forces for global economic growth. From conspicuous spending to being prudent. From shopping spree to itemising essentials. From purchasing daily needs to forgoing travel abroad, Covid-19 has altered consumers' habits.
Spending has been constrained by the enforced lockdown that minimised the urge to spend. While many businesses are still not fully functioning, consumers tend to be more reluctant to travel. There is a heightened tendency to indulge in online purchasing and using door-to-door services. Convenience is becoming the option for consumers during lockdown restrictions.
Spending is also influenced by consumer confidence, unemployment levels, and cost of living. Any disruption to the supply food chain in the market will influence consumers to decide what, when and how much to spend. The unemployment level, if factored in, will reduce consumer spending as take-home pay and disposable income have come to a halt. The labour market has shrunk and it will be a long haul before the economy picks up and people get back on their feet to work.
A global survey by McKinsey & Company analysed how consumers are reining in their spending, and an interesting trend now seen is impacting industries. There is also a link between market sentiment and an intent to spend amongst consumers. Indiscriminate buying is no more the norm. But, optimism of a reduced level will promote higher household spending. According to the survey, this is the case in India and evident in China, Indonesia, and Nigeria.
It is true that generally, consumers continue to spend. In some cases, spending more compared to pre-pandemic levels, especially on some necessities such as groceries and household supplies.
However, there seems to be a spike in spending on home based entertainment. Korea shows massive spending in gaming. In China, as the country eases its lockdown, spending on gasoline, wellness, and pet-care services appear to be bouncing back.
A similar trajectory could be expected in other countries, though need-base spending will be more prominent than anticipated spending on non-essentials. Categories showing an alarming decline include restaurants and out-of-home entertainment. This would be expected as they are categorised as non-essentials.
However, there are two particularly hard-hit industries showing declines across every category and country: travel and transport. Tightening on movements has cut mass travelling, as social distancing becomes a preferred measure for all affected countries. Not only are lockdowns enforced within countries but also between countries. Some even go as far as barring visitors from certain countries. Spending on tourism has sharply plummeted.
From records, the US travel industry can expect to see an average decline in revenue of 81 per cent for April and May. Throughout 2020, losses will equate to roughly US$519 billion – translating to a broader US$1.2 trillion contraction in total economic impact.
According to the World Travel and Tourism Council, a staggering 50 million jobs are at risk in the industry, with 30 million of those jobs in Asia. It is a reality that Malaysian consumers are easily influenced by consumerist culture, have poor financial knowledge, the wrong attitude and poor financial habits leading to irresponsible financial behaviour.
AKPK (Credit Management and Counselling Agency) is presently overwhelmed with consumers being declared bankrupt seeking assistance. Covid-19 will see more cases of financially-trapped consumers as their savings are drained out. Those declared bankrupt, almost 300,000 cases, will increase over failure to settle credit card, car, hire-purchase, personal, housing loans and social guarantor debts. More worryingly, 70 per cent of those declared bankrupt are between the ages of 35 and 45, according to AKPK.
Prudent spending has always been the key to financial health of consumers. It is up to all consumers to unlearn and relearn their ways of consumption. Covid-19 may be a painful experience, but consumers will have to return to basic-need living. Wasteful, over spending and indiscriminate consumption will have to go.
It will be unfortunate if consumers fail to learn and look deeper into the way they are seduced into limitless consumption, which is in itself a cultural pandemic that we have failed to deal with.
The writer is Chairman of National Consumer Advisory Council
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times