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Stay-at-home economy optimism

An optimistic take on the stay-at-home crisis economy

We’re living in uncharted territory when it comes to Covid19 and its impact on the global economy. Without visibility into when a solution/vaccine or mass testing will be available, we’re left to choose whether we’re optimists or pessimists about when the current economic crisis might peak and ease. The real pessimists see this as a march towards the Great Depression. Optimists see current economic policy measures being the blanket that will tide us over until a solution is found.

Admittedly, with consumer confidence falling levels off a cliff in March and April 2020, not unlike 2008, and combined with never-before-seen increases in unemployment, this doesn’t make for much optimism. But is there really no hope? Here’s an optimist take from the lessons of 2008-2010.

Last time was different

At its peak, the Global Financial Crisis of 2008-2010 saw housing prices fall by over 30% nationally, contributing to over $16 trillion in lost net worth, and over 10 million people lost their homes to foreclosure. Along with similar declines in the stock market, wealth across the entire economy was perceived as at-risk and declining. Consumer spending subsequently fell off a cliff… literally (see figure 1)

Figure 1 & 2: Decline in US discretionary consumer spending + consumer spending patterns


Figure 2, however, also highlights that while overall spending fell off the cliff together, spending on durable goods (cars, appliances, furniture – stuff that lasts) fell much harder and took longer to bounce back, as opposed to non-durables (food, cosmetics, clothing, footwear) that dropped slightly at the onset of the recession but quickly recovered to pre-recession levels. Unlike today, back in 2008-2010, the service sector was largely insulated from major declines in spending.

So, what about this time?

For the sake of simplicity, let’s do a little exercise. Let’s assume unemployment in the US hits 20% by July 2020. This is the stuff of policymaker nightmares. Based on data available today, we also assume that the vast majority of this unemployment will come from households in the bottom half of the income spectrum (bottom two quartiles) owing to the primary hit the crisis has taken on the hospitality, travel and service and retail industries. Secondary impacts on manufacturing, tech and elsewhere will hit but hopefully gradually, and at income-levels that are again around the midpoint of the income spectrum.

So what’s going to happen to consumer spending?

In a perverse way this current economic crisis might actually be “better” than the Global Financial Crisis of 2008-2010. Back then, the combination of housing price crash and stock market crash saw both rich and poor – bankers, construction workers and cashiers alike - take to the sidelines. While the current crisis has hit stock markets, higher-income households are largely insulated in the short-to-medium term as employers try to ride out the storm (thanks in part to wage supports).


Update May 8: StatsCan just released its Labour Force Survey and low-and-behold this confirms that the top half of wage earners have been relatively insulated through this crisis:

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This is pretty important because high-income households are responsible for the majority of discretionary spending. And it’s even more important in a “stay-at-home economy” where a couple of key consumer categories are likely to maintain consumer attention as individuals spend weeks sitting on uncomfortable office chairs, cleaning religiously, looking good while pretending to exercise and keeping their kids, themselves and pets entertained.

I’m not pretending that even amongst these sectors there won’t be major drawbacks in spending in the short term. However a) I’m an optimist right now, and b) these sectors, along with food and beverage, are likely to remain relatively constant given it is high-income households who spend the most on them:

  • Household furnishings and household supplies - over 70% & + 60% respectively by top 50%

  • Personal care products - over 70% by top 50%.

  • Pets and Toys (these are strangely lumped together in US government data) 70% by top 50%.

  • Reading – Over 60% by top 50%.

Target those sectors and you might just emerge from this. But … one important insight from the recession of 2008-2010 related to these purchases: consumers shifted their spending to “good enough” products, lessening a reliance on brand and perceived quality and increasing the focus on value. This is likely to repeat, albeit in online form. As a result, the edge during this current crisis will go to those who can help commodity retailers in the categories above reach “stay-at-home” consumers. Amazon has a leg up in filling consumers’ baskets however there’s still significant room for others to help merchants, in particular larger, mid-range and value-oriented ones in the categories above.

So while Alibaba and Jing Dong Trading used the SaRS crisis to jumpstart extensions (Taobao for Alibaba or JD.com for JDT) in their business model to reach new, everyday customers, today’s winners might be those who do the same for “good enough” brands, grocers, pharmacies and more who need to reach a new type of “stay-at-home customer.”

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