Don’t Count On ‘Revenge Spending’ Post-Crisis

Revenge spending. It has a nice ring for retailers battered by the COVID-19 pandemic. In fact any kind of spending has a nice ring, but revenge spending was a phenomenon seen as Wuhan and other Chinese regions came out of the coronavirus funk. The following passage in The Diamond Loupe luxury trade news outlet was typical:

“As consumer’s plans and spending came to a standstill for over a month, they are now flush with cash and a desire to regain a ‘real life’,” it read on March 16. “Interestingly, online shopping did not seem to fill the gap of brick and mortar shopping, as goods that were bought online often didn’t reach their destination during lockdown. As the rest of the world remains in lockdown, Chinese consumers, who traditionally spend a lot shopping abroad, will likely focus on the local market, a trend amplified by lower import duties and taxes.”

The big problem with revenge spending is that it never really came to fruition in China. Yes, consumers got back to the malls and some long queues were seen at regional favorites like Nike. But by and large the predictions of a spending surge as the coronavirus abated were quickly replaced by a more conservative tone. So as U.S. retailers start to envision a life beyond quarantine, they should not do so expecting explosions of sales as spend-starved consumers behave like it was Black Friday.

The reality is that China is facing a severe economic downturn that inconsistent spending won’t address. Retail sales in January and February dropped 20.5 percent from 2019. In February, China’s car sales plunged 79 percent from a year earlier, the biggest-ever monthly decline.

According to a recent survey reported in Quartz, conducted by Cefuture, a Chinese consulting firm, focused on logistics and transportation, found that 41 percent of respondents said they would reduce spending to prepare for future crises. Only 8 percent expressed willingness to do more shopping after the outbreak. In another survey 68 percent of people say they expected their income this year to be lower.

While the U.S. is counting on massive spending stimulus packages to restart the economy, again the Chinese have been more conservative,  using tactics like prepaid vouchers and coupons that can be put toward purchases. Chinese firms including Alipay and JD.com are introducing discounts and coupons to boost spending as well. In fact payments companies are facilitating a spending boost.

“Some local governments in China are sending citizens vouchers through WeChat Wallet, illustrating the role payments firms can play,” says Business Insider. “Payments companies that successfully partner with governments can be a part of getting funds and vouchers to consumers, and because those offerings may be held in their digital wallets, prepaid cards, or other payment instruments, the payments firms may be able to garner greater payment volume in the process.”

Retailers looking for a good story out of China might do well to mimic Nike. It basically doubled down on digital assets, not just eCommerce. Nike fitness apps were widely used as the crisis took hold. The company reopened physical spaces strategically and its digital channels, the company says, aided with a quick bounce-back.

“The quarter that closed at the end of February included the most drastic economic effects of the virus in China, and the closure of, at one point, 75 percent of all retail stores selling Nike products in the country,” says a report in Medium. “Meanwhile, Nike’s digital sales rose 30 percent in China during that period. To be sure, there was still damage: The brand’s overall sales in China fell by a bit more than 5 percent. Still, as one Wall Street analyst put it in a research note: “The impact from the coronavirus in China was more muted than anticipated, and business there has begun to normalize,” adding that Nike’s rebound looks like ‘a good proxy’ for recovery in Western markets.”