What Consumers Are Telling Us About COVID-19 and its Implications for Retail

While there's so much uncertainty about the future, we're likely in the midst of a generation-defining event that will change the way consumers behave for years to come. To better understand how consumers are adjusting their expectations, incomes, spending and shopping behavior during the COVID-19 crisis, we at McKinsey have conducted a U.S. consumer sentiment survey. We’re refreshing this data on a weekly basis to keep a pulse on how the sentiment is evolving.

In general, our findings show American consumers are relatively positive when it comes to the economy. However, when it comes to their earnings, spending and purchasing, attitudes and behaviors have been changing significantly over the last four weeks as the crisis has escalated. Highlights from our latest survey, which was conducted from March 30 to April 5, include the following:

• 37 percent of consumers surveyed expect the economy to rebound within two months to three months, which, while falling behind optimism in China, is much higher than European optimism, which stands at 13 percent to 26 percent. Consumers with higher earnings — i.e., those making more than $100,000 per year — are the most optimistic.
• While there's relative optimism about the economy’s resilience, there are also signs of concern. Forty-six percent of respondents say they will reduce their spending over the next two weeks, with 44 percent delaying purchases given the uncertainty of the economic outlook.
• There are specific categories — particularly for discretionary purchases — where this intent to spend less has been most dramatic (e.g., travel, out-of-home entertainment, apparel/footwear, home furnishings). While there are select areas where consumers expect to spend more (e.g., grocery, home-based entertainment, household supplies), consumers plan to focus their spending online. What's worth noting is while Gen Z reports the biggest reduction in income, their expectations for spending are the most positive among generations we surveyed.
• Consumers are starting to shift their behavior as well, with several categories seeing an uptick in first-timers and those increasing their participation (e.g., entertainment streaming, e-sports, online fitness).

What Does This All Mean for the Retail Industry?

Disruption is nothing new for retailers, but these are extraordinary times. Now is the time for retailers to be ambidextrous. They must anchor on what matters and do multiple things well, including managing the crisis while simultaneously and proactively planning for the recovery.

Retailers are first and foremost protecting their employees and customers. The health of their teams and communities is the paramount objective in the current crisis.

Second, many retailers are grounding their brand around purpose and taking action for today and tomorrow to build trust with customers. Use this time to better understand the unique and changing needs of customers, communicate with authenticity, and find methods to connect in a meaningful way on an ongoing basis.

Third, retailers need to have an agile, real-time focus — this applies to all areas of the business, including but not limited to marketing, cash management, inventory management, and supply chain. An example of this is using real-time analytics and data to quickly pivot marketing/media dollars to capture demand in the online channel.

Next, it’s important to have demand signals at a very granular level now and in the future. This is necessary to understand current and future demand curves by subcategory, SKU, geography, and customer type. For example, who and where is demand still resilient today? How do you expect this to change given other demand indicators shaping the path to and through recovery?

Lastly, retailers need to manage each storefront. Right now, that means getting online to work harder — and investing in it knowing that some of these online purchasing shifts are likely to stick. It also means planning for store re-openings, which will require an entirely new playbook inclusive of staging the store, refreshing assortment, preparing staff, and activating customers.

Retailers that have a clear focus for the present environment while ensuring they're planning properly for the future will be the ones best positioned to thrive in the next normal.

To see McKinsey’s latest U.S. survey results, please visit this link.

Kelsey Robinson is a partner at McKinsey & Company’s Marketing & Sales Practice, a global consultancy firm.