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Will Retaliatory Consumption Occur Post-Pandemic?

· Consumer,Consumer Trends,Consumer Spending

Will Retaliatory Consumption Occur Post-Pandemic?

JD.com, a Chinese e-commerce giant, observed a sharp growth in sales in March compared to the previous month. The takeout delivery platform Meituan has also seen an increase in sales, especially in large cities, including Shenzhen, Guangzhou, Shanghai, and Beijing[1].

As consumers eventually squandered their wallets, noticing that they had bought way too much, they started to reflect on this behavior. Thus, they found out a new buzzword “retaliatory consumption”: a rare phenomenon that only occurs in dire situations like the COVID-19 pandemic.

China was the first country to suffer from the COVID-19 pandemic. Being the first country to also recover from COVID-19, Chinese researchers in Jiangsu Consumers Association recently revealed that only about 10 percent of respondents indicated that they will not practice any "retaliatory consumption"(compensatory consumption) post-pandemic.

About half of the respondents indicated the epidemic has stimulated their shopping desires and many have turned to online platforms to release their desires[1].

Definition of “retaliatory consumption”

“Retaliatory consumption” is a new term used in Asia. It refers to the behavior of restricting people’s consumption demand in a particular period and then releasing the desire to go on a shopping spree once the restriction is lifted.

Causes of retaliatory consumption

  • Individual psychological reasons

After a long period of suppression, people finally have the opportunity to release their desire to shop, and finally, have the opportunity to go out for social activities. The following graph summarized a study of consumers in China by Kantar during their lockdown period exploring the things people are looking forward to doing when the lockdown lifts.

It is highly possible that after lockdown, people may act irrationally and make “retaliatory consumption”.

Source: intu Properties, PLC, https://www.intugroup.co.uk/en/insights/what-will-happen-to-retail-after-the-lockdown/

And when people pass this period safely, people will have the urge to celebrate a rebirth or for entering a new stage in their lives. Additionally, this type of behavior can be treated as the externalization of inner fear.

From the following graph, we can observe a sharp boom(about 17.7%) in retail trade in May 2020, as a result of more states and cities allowing restaurants and shopping centers to reopen which provided opportunities for people to release their desires.

  • Social environment reasons

In order to alleviate pressure, retailers start to refine their plans. The graph below shows the share of assortment on markdown in China.

A peak can be observed from mid-April to mid-May 2020 when the restrictions are lifted nationwide. In this recessive situation, people’s purchasing desires may overflow, and retailers’ various promotional activities lower the requirement to fulfill purchasing desires which encourage consumers to engage in “retaliatory consumption” behaviors.

To stimulate economic growth in early 2020, the Federal Reserve cut interest rates to essentially 0, encouraging consumption and decreased interest rates leading to cheaper borrowing costs. In turn, people will earn less interest on their savings, and prefer to spend and invest.

A recent working paper published by the San Francisco Federal Reserve Bank studied the path of real interest rates following 15 major pandemics each cost more than 100,000 lives and provided the above graph[2].

The graph shows that on average, interest rates will remain low for four decades after the end of the pandemic. Under this assumption, people will prefer spending money to saving it after the pandemic, which will make those people easier to trigger “retaliatory consumption”.

Covid-19 vs. SARS

The SARS outbreak started in December 2002 and was gradually controlled in June 2003, and it dropped China’s national growth from 11.1 percent to 9.1 percent in the second quarter but rebounded soon. Because of Covid-19’s similarities with the SARS, people expected a similar pattern to occur during the aftermath.

However, the impact of Covid-19 is significantly deeper and wider.

The number of cumulative confirmed cases worldwide has reached 43M, compared to a total of 8,422 global confirmed cases of SARS as reported by the WHO back in 2003. Therefore, the damage to the global supply chain and financial system is much more severe and may restrict behaviors of consumers.

Although situations may vary, it’s still possible for people to conduct short-term retaliatory consumption based on previously discussed context.

Therefore, retailers and consumers should be prepared for this expectation.

The potential “retaliatory consumption” may lead to a worse supply chain disruption and supply shortage to retailers, so retailers should forecast this situation and plan ahead. Customers should turn to rational consumption and be conservative.

Conclusion

The author suggests that a short-term “retaliatory consumption” may occur after the coronavirus pandemic. However, as winter is in the corner, in-door activities will increase, another wave of Covid-19 will likely arrive, and we are hard to predict the economic impact.

Even if we were able to anticipate the possibility of retaliatory consumption, the ending of the pandemic remains unknown. The author sincerely hopes this calamity may end soon. Until then, enjoy your new life stage and shopping spree rationally.

Written by Weiyi Jiang

Edited by Alexander Fleiss, Gihyen Eom, Calvin Ma, Jenelle Kang, Michael Ding

Sources

[1] People in China ready for post-COVID-19 shopping spree. (n.d.). Retrieved October 26, 2020, from https://news.cgtn.com/news/2020-03-24/People-in-China-ready-for-post-COVID-19-shopping-spree-P7fsAANoAM/index.html

[2] Jordà, Ò, Singh, S. R., & Taylor, A. M. (2020). Longer-Run Economic Consequences of Pandemics. Federal Reserve Bank of San Francisco, Working Paper Series, 01-16. doi:10.24148/wp2020-09

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