During the depths of the market’s reaction to the Coronavirus outbreak I listened in on company and journalist conference calls and held multiple webinars and Microsoft Teams sessions with clients, planners and brokers. Quite often I heard comments along the lines of, “this will change the way we live, work and travel forever”. I am adamant in my belief that humans will revert right back to the way they have always done things, as soon as it safe (or permitted, whichever comes first) to do so.

Take travel for example; many believed travelers will abstain from cruising given the infectious hotbed vessels have apparently become. But I imagine one of the first items to be ticked off the list after being cooped up at home for months will be a holiday. According to one anecdote we’ve heard, Carnival Cruises offered refunds or a future trip with a $200 credit to spend on board, and almost without exception jilted passengers opted for the future cruise with an extra $200 spending money.

And according to a Credit Suisse survey where consumers were asked about their travel plans and specifically, how quickly they would you jump on a plane for international travel, 25 per cent said immediately, while 75 per cent said within next 6 months. Presumably the numbers will improve when the perceived threat of infection declines. For example, if a vaccine was announced today, you’d expect those numbers to switch with 75 per cent willing to travel immediately.

One friend I spoke with this week, had assumed a protracted lockdown would result in the world’s citizens contemplating the importance of individual relationships and consequently eschew meaningless consumerism. Unfortunately for that dream, recent Australian data published by a division of Accenture reveals not only has consumerism returned with a vengeance, but it never left.

Take a look at the graph in Figure 1., which demonstrates that while spending initially plunged ahead of the crisis, spending bounced back as soon as helicopter money hit consumers’ wallets. The bounced has gained momentum as lockdown begins to ease and further supplements are paid.

Figure 1. Spending rebounds

Source: Chart: Created by Illion & AlphaBeta (part of Accenture)

The Accenture data is also reinforced by weekly Foot Traffic data published by Kepler Analytics through their Kepler Retail Index. Kepler track people walking past shops, conversion rates and sales linked to POS. They track 1500 clothing, footwear and homewares stores in Australia and New Zealand.

In the week ending last Saturday 9 May 2020 – passers-by were still down 80 per cent year on year (yoy) but up 61 per cent on the previous week.

As of last week, only 48 per cent of stores tracked had reopened, but despite this, POS sales were up 47 per cent week on week, and still down 51 per cent yoy.

So it appears that foot traffic remains depressed but shopping conversion is much better, indicating those out and about aren’t wandering around aimlessly, they’re shopping with purpose.

Some of the recovery is due to lockdown restrictions being eased. This is evidenced by the fact that Victoria data, where the tightest restrictions remain in force, is the weakest. However it is important to recognize that some of the recovery is due to financial handouts. What happens when these end only time will tell, but for stores franchises owned by the likes of Adairs (ASX:ADH), Premier (ASX:PMV) and Accent (ASX:AX1) the news is promising.

The analysts at Credit Suisse are assuming wages are 16 per cent below base in May with weakness continuing through June then beginning to recover through the year. They are also assuming a 20 per cent reduction in hours worked through May and June then moderation. But this is partly offset by withdrawals from Superannuation which amounted to $4 billion in April and $4 billion in May according to APRA. When all combined it equates to about a nine per cent reduction in household income over May to June, and Credit Suisse are assuming the declines will then moderate to five per cent before normalizing.

Overall, they expect a satisfying bounce back in consumption as stores open over May and June. They are expecting a lot of promotional activity with June being a big month for sales. Beyond that the sustainability of the recovery will depend on income levels which are likely to remain subdued over rest of year.

For a more detailed insight into how various sectors have been affected, Accenture have provided the data-picture shown in Figure 2. Note the data is to 27 April 2020.

Figure 2. Shutdown-affected categories. Weekly index of consumption per person, Normal weekly average = 100

Source: Illion & AlphaBeta (part of Accenture)

Lisa Sanderson

I agree with you that people who want to go on cruises again so soon are crazy. However, travelling overseas isn't always mindless consumerism. I think that it is, indeed, rarely mindless consumerism. There are many Australians who have family overseas and travel is necessary for them. Also, travellers experience other cultures, broaden their minds and see how people in other countries live. I do hope that you are not happy to go on business class holidays while wanting the 'plebs' to stay home?

Lisa Sanderson

Travelling isn't always mindless consumerism. Many Australians have family overseas. Also, travellers experience other cultures, broaden their minds and see the differences between other countries and Australia. Most overseas travellers think that Australia is wonderful compared with the others.

Michael Hill

Roger, thank you for this data and opinion. I hesitate to contradict without appropriate scholarship but my gut tells me it may not be that simple. Firstly, a surge of spending after lockdown would be expected but will it carry on? Secondly, any delay in returning to full employment and/or drop in house prices won't encourage spending. Thirdly, a glib survey result on one news channel last night said 87% surveyed would never take an ocean cruise in the future. Lastly, my experience of my parents indicates that their experience of the deprivations of the Depression shaped their saving and spending habits for their lifetime. Thank you for your always thoughtful musings, Michael

Roger Montgomery

Hi Lisa, I am not sure where in my article I said people who wanted to go on a cruise are crazy. I am sorry the article left you with that impression. All I wrote was "I imagine one of the first items to be ticked off the list after being cooped up at home for months will be a holiday". And it was the friend I spoke with who had hoped there would be a migration away from what he called mindless consumerism. At no point did I say going on a holiday was mindless consumerism. Wow, it really is amazing how far from intended is the message you took away from my piece.

Roger Montgomery

Thanks for sharing your thoughts Michael. I suspect the truth will be somewhere in between those two bookends. With respect to the short and medium term consumption picture (the article above refers to a longer term scenario when all restrictions are lifted including international borders) We anticipate a short-term increase in spending as a result of pent-up demand (Westfield Bondi foot Traffic up 325%w/w last Saturday) and post-lockdown promotions. Beyond that spike, discretionary spending is likely to fall as households manage significant declines in household cash income.