Revenge Spending to Lift Retail Sales?

Recovery in the retail sector may accelerate in the coming weeks fuelled by “revenge spending”. That’s the view of some. The term was coined by Amrita Banta, managing director at Agility Research, to describe pent-up consumer demand. Then there is, of course Hari Raya, which may lend weight to that view!

Source: gfycat

The retail scene has been impacted by the Covid-19 pandemic. According to Retail Group Malaysia’s preliminary report on the retail scene, a decline of 9.3% is expected in Q2,2020. Malaysia’s retail sector crashed 18.8% during Q1,2020. For the 3^rd and 4^th quarters, retail sales in Malaysia are projected to grow by 2.5% and 3.3% respectively.

Retailers are preparing aggressive marketing promotions to draw back customers. That’s according to Datuk Seri Gary Chua of Malaysia Retail Chain Association (“MRCA”). The constraint is social distancing. Capacity is then going to be limited to 40-50%, especially for dine-in outlets. Others feel growth is not likely anytime soon and recovery in sales will take at least eight months.

Regardless, it is not just Covid-19 and MCO but also trade wars and oil price slump. Other sectors that may benefit from revenge pending include health, safety and cleanliness.

Deloitte Southeast Asia’s consumer industry leader, Pua Wee Meng believes crowded places like malls, cinemas and sporting events will be frequented less. Many will opt for online services. Even eateries will need to revamp cleanliness and food content. Online education services may see a surge. New skill sets are required for those in tourism and e-commerce.

Households may increase spending on health supplements, herbal products and medical devices to prepare for future lockdowns.

Many consumers may flock to gyms and fitness centres to get back in shape.

Overseas travel will be restricted, delaying recovery in the aviation, hotel and tourism sectors.

The reality, however on revenge spending is that it may not surface. Why? There is deferred spending to be expected because of the lockdown but revenge consumption suggests it is going to be a binge! The fact is consumers are going to be more conservative, when they are faced with a deep recession. It is not a “Black Friday” event.

Retail sales in China fell 20.5% in January and February compared to same period in 2019. Car sales in China for February, plunged 79% from a year earlier. That does not bode well.

With incomes lower (or none), binge spending is not likely to arise in China, U.S. or Malaysia. But Governments need to invest massively in infrastructure and encourage exports in goods and services to recover from this recession.

References

1.     Focus Malaysia, Sharina Ahmad, 5 May 2020.

2.     Marketing, Janice Tan, 16 April 2020.

3.     PYMNTS.com, 8 April 2020.