Consumer spending: urge to splurge, postponed
Luxury sector must hold out hopes for shopping sprees once the pandemic ends
Hard times play out differently for the rich. “Remember, when our customer tightens their belt, it’s generally ostrich or alligator,” said the boss of upmarket department group Neiman Marcus, as he eyed the advancing recession in 2008.
Now as then, many businesses are counting on the better-off. Some may have more to spend as a result of the lockdown. The richest fifth of British households normally blow a fifth of their spending on eating out and holidays, compared with just 12 per cent of the poorest fifth, said the Institute for Fiscal Studies think-tank. After the pandemic, some might be keen to spend quickly the money they were forced to save. In China such buying binges have been dubbed “revenge spending”.
Splashing cash may not fit the mood of the times. It could be seen as socially divisive, especially given the important role played by poorly paid key workers during the pandemic. Moreover, higher unemployment and taxes will depress consumer confidence. Ipsos Mori surveys found that the economic anxieties of the affluent post-2008 took years to lift.
Airlines like Lufthansa forecast it will be years until the worldwide demand for air travel returns to pre-crisis levels. Eating out might take eight years to recover, if it followed the pattern of the recessions of 1990 and 2008, said analysts at Barclays. The impact could be more severe If social isolation becomes “normal”, they said.
But predicting consumer behaviour is tricky. To take one example, few economists foresaw the surge in UK consumer spending immediately after the Brexit vote. It is possible that the desire to spend will be sharpened by the current misery of lockdowns. There are precedents. In 14th century Europe, sumptuary laws were passed to limit the rise in conspicuous consumption following the Black Death. Something similar happened in the hedonism of the “roaring twenties” and the extravagance of Christian Dior’s postwar 1947 “New Look” fashion.
Periods of great crisis always lead to an increase in the propensity to buy, Jean-Christophe Babin — boss of LVMH’s jeweller Bulgari — told Vogue magazine last week. That might sound like wishful thinking from an industry peering over the abyss. Luxury sales are forecast to fall more than a third this year. The sector must hold out hopes that a pent-up desire to live life to the full will be unleashed once the pandemic ends.