Show Transcript
The COVID-19 pandemic has had a significant change on consumer spending and on habits. Anthony Okolie speaks with Anita Bruinsma, Consumer Discretionary Analyst, TD Asset Management, about the latest trends that will influence the shape of retail.
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[MUSIC PLAYING]
- Hello, and welcome to the Money Talk COVID-19 Daily Bulletin for Friday, May 29. I'm Anthony Okolie. In a few minutes, I'll be speaking with Anita Bruinsma, Consumer Discretion Analyst with TD Asset Management, about the trends in consumer spending during the COVID-19 pandemic and how that's influencing the retail sector. But first, a quick wrap of today's headlines--
Canada's GDP shrank 8.2% in the first quarter of the year as steps taken to slow the spread of COVID-19 forced businesses across the country to close their doors and lay off workers. It was the worst showing since the 2009 global financial crisis.
More economic news-- US consumer spending fell by a record 13.6% in April during the coronavirus lockdowns, it's steepest decline since 1959. But there are signs that purchasing is starting to pick up as states start to reopen businesses and Americans return to work.
Oil is on track to record its best month in history, as an uptick in demand and record supply cuts by OPEC and its partners have pushed prices higher. Oil still has a ways to go, as the surge in prices follows the steepest downturn on record.
And finally, Elon Musk's SpaceX will attempt to launch two NASA astronauts to the International Space Station on Saturday after the Wednesday launch was scrubbed due to bad weather. It will mark the first time in history that a commercial aerospace company has carried humans into Earth's orbit.
And that's a wrap of today's headlines. And next, my conversation with Anita Bruinsma--
Anita, you and I have talked about how the COVID-19 pandemic has had a significant change on consumer behavior, as well as our habits, which, of course, is influencing the retail sector. What do you see as influencing consumer behavior today?
- Well, COVID-19 and the resulting economic slowdown came upon us so suddenly. And it resulted in abrupt and significant changes to consumer behavior and greatly has come as a shock to retailers. Consumers are facing economic uncertainty in the form of job loss and income reductions, and uncertainty around the direction of the virus, and so we've seen a massive decline in consumer confidence and in consumer spending.
Now, I do think there are trends, though, that are going to impact retail in the coming times. And how long those trends go on for and how deeply entrenched they become is really a factor of how long the virus continues to be a health concern for people because the longer it goes on, the more entrenched consumer habits become, the worse it becomes for consumer balance sheets.
- One trend that we've been hearing a lot about is "nesting." What does that mean, and how is that influencing our spending?
- Well, "nesting" refers to people staying at home more and sort of being cozy in their homes with their family. There are a lot of reasons why people are home more. We're working from home, our kids are at home, and even if we wanted to go out, there really isn't that much for us to do. And, of course, people are afraid of exposure to COVID-19.
I don't think this trend is going to change anytime soon. I think people are going to stay home for quite a while longer. And so this is going to influence what we're spending our money on. And one category that's done very well recently has been home decor, anything to make your house look nicer and feel nicer, maybe be more fun to be in.
And Wayfair said, in fact, that their sales were up 90% for the month of April and the first two weeks of May. And that's just a phenomenal increase.
Other categories that are doing well are things like patio furniture, anything to do with lawn and garden, and anything to do with do-it-yourself or DIY projects. We heard from both Lowe's and Home Depot recently when they reported their earnings, and they confirmed that these trends have been really, really strong.
Now, another trend that I love to talk about is athleisure wear. So athleisure wear is apparel that you would normally wear to do sporting activities, but we're wearing for everyday use. We're wearing hoodies, leggings, and sneakers.
And this is a trend that's been going on for quite a long time, and I expect that this is going to get a significant boost from this sort of nesting behavior. Obviously, because we're not going out to work, we don't need that more formal wear. We just want to be comfortable in our home. But I also think people are going to be spending more time outside, doing outdoor activities because they really don't have that much else to do.
And then in addition, we have seen an increase in interest in health and wellness in general. If we look at Google trends-- Google-search trends, searches for things like home gyms, home workouts, stationary bikes, running-- all of these searches have been up since the middle of March and continue to be elevated. And so I think this is also going to be very athletic wear and for any company that sells athleisure wear. And so this is very companies like Nike, Adidas, Lululemon, and any other company who's also in that segment.
- In this period of economic uncertainty, we've really seen the job losses here in Canada. We often hear the saying, "value is king." Do you agree to that?
- Well, we always see that trend of trading down towards value in recessionary times. Trading down is simply choosing cheaper things than you would normally choose when you're feeling more confident about your finances. We always like to have a basket of stocks that we consider to be recession resistant that benefit from that trading down. So dollar stores would be one category that falls into that, but the other one is off-price retail.
Now, off-price retail is more popular in the US than it is here in Canada, but you may have heard of the company TJX. They own Winners, Marshall's, HomeSense, and then a bunch of other companies in the US. So these are stores that sell brand-name products at a discount.
So I really believe that consumers are going to want to get out of the house as soon as restrictions are loosened and they feel comfortable about the safety measures that stores are taking, they're going to want to get out. And I really think they're going to be wanting to buy new clothing. They've been wearing the winter clothing into this beautiful weather we've been having in the US and in Canada, and they're going to be wanting to buy new clothes. And they're going to want to be getting a deal, and so they're going to go to off-price retail for sure.
The other thing about off-price retail is it's kind of a fun outing because it's like a treasure-hunt experience. The inventory at these stores change all the time, so it's actually also a fun thing to do, and I think people are going to be looking for that.
- And certainly, one of the things that we've been hearing quite a bit about is a surge in e-commerce. Do you think the shift online is temporary, or is it here to stay?
- Well, consumers have definitely relied on e-commerce very, very heavily through this global pandemic. We heard retailers say that their online sales were up between 60% and 80% in the first quarter, which ended the end of March. And then in April and May, they're seeing e-commerce sales that are up over triple digits-- so just massive increases online. So yeah, the question, of course, is how much of that is going to stick around?
So I think, for sure, some of that e-commerce-spending habit does stick around. We have people who are trying it for the first time, getting more comfortable with it, they like the convenience, and that sort of thing. But I strongly believe-- and we've talked about this before-- that people still love stores. They like the touch, try, feel experience. They like going out.
So once they do feel comfortable with going out in public, especially into stores, I absolutely expect the store traffic is going to increase. Now, how long it takes to get to pre-COVID levels is anyone's guess, and that could take quite a while. But the bottom line here is that having a good in-store presence and a good online presence is more important than ever, and that's referred to as multi-channel, a trend that we've been talking about for a long time. And it's really so, so important now.
Those companies that invested in their e-commerce business and have an amazing multi-channel experience, where people can move between online and offline any way they want, have done very well during this period. But we have certainly seen retailers that, now we can see that they're behind the eight ball on e-commerce, and they're going to have to spend a lot of money investing in their capabilities. And this is going to be very bad for profitability.
- We just have a few seconds left, so I'm going to ask you to bring out your crystal ball here. How do you see these trends playing out over the next year?
- It's going to be a very tough road for retailers. There is no doubt about that. Sales are down, costs are up, and there's so much uncertainty that it's very hard to plan anything right now in retail.
There are going to be winners. There are going to be losers. We're already seeing some of the companies filing for bankruptcy protection. But the winners are the ones who will be in the right categories, can offer value to customers, and have that really strong e-commerce and multi-channel capability.
- Anita, thank you very much for your time.
- You're welcome, Tony.
[MUSIC PLAYING]
- Hello, and welcome to the Money Talk COVID-19 Daily Bulletin for Friday, May 29. I'm Anthony Okolie. In a few minutes, I'll be speaking with Anita Bruinsma, Consumer Discretion Analyst with TD Asset Management, about the trends in consumer spending during the COVID-19 pandemic and how that's influencing the retail sector. But first, a quick wrap of today's headlines--
Canada's GDP shrank 8.2% in the first quarter of the year as steps taken to slow the spread of COVID-19 forced businesses across the country to close their doors and lay off workers. It was the worst showing since the 2009 global financial crisis.
More economic news-- US consumer spending fell by a record 13.6% in April during the coronavirus lockdowns, it's steepest decline since 1959. But there are signs that purchasing is starting to pick up as states start to reopen businesses and Americans return to work.
Oil is on track to record its best month in history, as an uptick in demand and record supply cuts by OPEC and its partners have pushed prices higher. Oil still has a ways to go, as the surge in prices follows the steepest downturn on record.
And finally, Elon Musk's SpaceX will attempt to launch two NASA astronauts to the International Space Station on Saturday after the Wednesday launch was scrubbed due to bad weather. It will mark the first time in history that a commercial aerospace company has carried humans into Earth's orbit.
And that's a wrap of today's headlines. And next, my conversation with Anita Bruinsma--
Anita, you and I have talked about how the COVID-19 pandemic has had a significant change on consumer behavior, as well as our habits, which, of course, is influencing the retail sector. What do you see as influencing consumer behavior today?
- Well, COVID-19 and the resulting economic slowdown came upon us so suddenly. And it resulted in abrupt and significant changes to consumer behavior and greatly has come as a shock to retailers. Consumers are facing economic uncertainty in the form of job loss and income reductions, and uncertainty around the direction of the virus, and so we've seen a massive decline in consumer confidence and in consumer spending.
Now, I do think there are trends, though, that are going to impact retail in the coming times. And how long those trends go on for and how deeply entrenched they become is really a factor of how long the virus continues to be a health concern for people because the longer it goes on, the more entrenched consumer habits become, the worse it becomes for consumer balance sheets.
- One trend that we've been hearing a lot about is "nesting." What does that mean, and how is that influencing our spending?
- Well, "nesting" refers to people staying at home more and sort of being cozy in their homes with their family. There are a lot of reasons why people are home more. We're working from home, our kids are at home, and even if we wanted to go out, there really isn't that much for us to do. And, of course, people are afraid of exposure to COVID-19.
I don't think this trend is going to change anytime soon. I think people are going to stay home for quite a while longer. And so this is going to influence what we're spending our money on. And one category that's done very well recently has been home decor, anything to make your house look nicer and feel nicer, maybe be more fun to be in.
And Wayfair said, in fact, that their sales were up 90% for the month of April and the first two weeks of May. And that's just a phenomenal increase.
Other categories that are doing well are things like patio furniture, anything to do with lawn and garden, and anything to do with do-it-yourself or DIY projects. We heard from both Lowe's and Home Depot recently when they reported their earnings, and they confirmed that these trends have been really, really strong.
Now, another trend that I love to talk about is athleisure wear. So athleisure wear is apparel that you would normally wear to do sporting activities, but we're wearing for everyday use. We're wearing hoodies, leggings, and sneakers.
And this is a trend that's been going on for quite a long time, and I expect that this is going to get a significant boost from this sort of nesting behavior. Obviously, because we're not going out to work, we don't need that more formal wear. We just want to be comfortable in our home. But I also think people are going to be spending more time outside, doing outdoor activities because they really don't have that much else to do.
And then in addition, we have seen an increase in interest in health and wellness in general. If we look at Google trends-- Google-search trends, searches for things like home gyms, home workouts, stationary bikes, running-- all of these searches have been up since the middle of March and continue to be elevated. And so I think this is also going to be very athletic wear and for any company that sells athleisure wear. And so this is very companies like Nike, Adidas, Lululemon, and any other company who's also in that segment.
- In this period of economic uncertainty, we've really seen the job losses here in Canada. We often hear the saying, "value is king." Do you agree to that?
- Well, we always see that trend of trading down towards value in recessionary times. Trading down is simply choosing cheaper things than you would normally choose when you're feeling more confident about your finances. We always like to have a basket of stocks that we consider to be recession resistant that benefit from that trading down. So dollar stores would be one category that falls into that, but the other one is off-price retail.
Now, off-price retail is more popular in the US than it is here in Canada, but you may have heard of the company TJX. They own Winners, Marshall's, HomeSense, and then a bunch of other companies in the US. So these are stores that sell brand-name products at a discount.
So I really believe that consumers are going to want to get out of the house as soon as restrictions are loosened and they feel comfortable about the safety measures that stores are taking, they're going to want to get out. And I really think they're going to be wanting to buy new clothing. They've been wearing the winter clothing into this beautiful weather we've been having in the US and in Canada, and they're going to be wanting to buy new clothes. And they're going to want to be getting a deal, and so they're going to go to off-price retail for sure.
The other thing about off-price retail is it's kind of a fun outing because it's like a treasure-hunt experience. The inventory at these stores change all the time, so it's actually also a fun thing to do, and I think people are going to be looking for that.
- And certainly, one of the things that we've been hearing quite a bit about is a surge in e-commerce. Do you think the shift online is temporary, or is it here to stay?
- Well, consumers have definitely relied on e-commerce very, very heavily through this global pandemic. We heard retailers say that their online sales were up between 60% and 80% in the first quarter, which ended the end of March. And then in April and May, they're seeing e-commerce sales that are up over triple digits-- so just massive increases online. So yeah, the question, of course, is how much of that is going to stick around?
So I think, for sure, some of that e-commerce-spending habit does stick around. We have people who are trying it for the first time, getting more comfortable with it, they like the convenience, and that sort of thing. But I strongly believe-- and we've talked about this before-- that people still love stores. They like the touch, try, feel experience. They like going out.
So once they do feel comfortable with going out in public, especially into stores, I absolutely expect the store traffic is going to increase. Now, how long it takes to get to pre-COVID levels is anyone's guess, and that could take quite a while. But the bottom line here is that having a good in-store presence and a good online presence is more important than ever, and that's referred to as multi-channel, a trend that we've been talking about for a long time. And it's really so, so important now.
Those companies that invested in their e-commerce business and have an amazing multi-channel experience, where people can move between online and offline any way they want, have done very well during this period. But we have certainly seen retailers that, now we can see that they're behind the eight ball on e-commerce, and they're going to have to spend a lot of money investing in their capabilities. And this is going to be very bad for profitability.
- We just have a few seconds left, so I'm going to ask you to bring out your crystal ball here. How do you see these trends playing out over the next year?
- It's going to be a very tough road for retailers. There is no doubt about that. Sales are down, costs are up, and there's so much uncertainty that it's very hard to plan anything right now in retail.
There are going to be winners. There are going to be losers. We're already seeing some of the companies filing for bankruptcy protection. But the winners are the ones who will be in the right categories, can offer value to customers, and have that really strong e-commerce and multi-channel capability.
- Anita, thank you very much for your time.
- You're welcome, Tony.
[MUSIC PLAYING]
