COVID Spending: Pre, During and What To Expect Now
No one wants to talk about COVID anymore, yet here we are, still dealing with the economic impact of it…years later. As we slide into Q4 2024, it’s vitally important that we reflect on the shifts we’ve seen over the past few years - how consumers spent pre-COVID, during the pandemic, and what we can anticipate in the near future. Listen, it’s not all pretty, but you need to know what’s going on so you can plan - and thrive - the rest of the year.
Pre-COVID: A Stable, Experience-Driven Economy
Before the pandemic, consumer spending was largely driven by experiences. People were willing to invest in dining out, travel, entertainment, and non-essential retail purchases. Small businesses, particularly in the service sector such as restaurants, cafes, local shops, and tourism-related businesses absolutely thrived in this environment. Consumers had steady confidence in the economy, leading to discretionary income spending on experiences that brought joy and connection.
However, even pre-COVID, there was a rising trend toward e-commerce. Shoppers were increasingly relying on online platforms for convenience, variety, and competitive pricing. This shift encouraged small businesses to establish an online presence, but the majority were still focused on in-person sales.
During COVID: A Shift to Necessity and Safety
The onset of COVID-19 in March 2020 dramatically altered consumer behavior. With widespread lockdowns, health concerns, and economic uncertainty, spending shifted dramatically towards essentials in RECORD time - groceries, household supplies, and health products. Non-essential businesses faced significant challenges, with many forced to close their physical locations or pivot quickly to survive. (Remember that word? I wish I never had to type pivot again…but alas here we are).
Small businesses that adapted to these changes by implementing contactless payment options, ramping up online sales, offering delivery or curbside pick-up, and diversifying their product offerings to include essential goods. This was all to weather the storm better than those that couldn’t pivot quickly enough.
And most importantly for small towns: Consumers became more conscious of supporting local businesses during the pandemic, understanding the importance of community and the struggles many small businesses were facing because we were open about it online, when interacting during pick-ups, through commercials and more. It was the time of true transparency, where small business owners dropped their masks and asked of help - and our communities listened and responded in full force.
A few other things to think about:
Low Mortgage Rates and Real Estate Boom: Mortgage rates dropped to historic lows during the pandemic, spurring a surge in the real estate market. With rates hovering around 2-3%, many consumers saw an opportunity to buy homes or refinance their existing mortgages, increasing their disposable income dramatically - some scoring more than $1,000 in monthly mortgage decreases. This shift not only boosted the housing market but also drove consumer confidence as people felt financially secure enough to invest in property and also use the newfound money from their reduced mortgages locally. The real estate boom led to increased spending on home improvements, furnishings, and appliances, benefiting small businesses in these sectors.
Eviction Moratoriums and Financial Relief: Government policies, such as eviction moratoriums, played a crucial role in stabilizing consumer confidence. Knowing they couldn’t be evicted, many renters felt a sense of financial security, allowing them to spend on non-essential items or support local businesses rather than saving every dollar for rent.
Stimulus Checks and Enhanced Unemployment Benefits: The distribution of stimulus checks and enhanced unemployment benefits injected cash directly into consumers' hands. This immediate financial support was a lifeline for many, leading to a temporary surge in spending. Consumers used this extra cash to cover essentials, pay down debt, or invest in small luxuries they might have otherwise not gone after. For small businesses, especially those able to pivot to online sales (and remember, online sales didn’t necessarily mean a website - it could be Facebook Live selling, or FaceTiming a store…just a way to connect virtually) or offer relevant products, this influx of spending was a crucial survival mechanism during uncertain times.
Post-COVID: The Digital Transformation and New Consumer Priorities
As restrictions eased, a hybrid model of spending emerged. While there was a return to in-person shopping and dining, many consumers retained their online shopping habits. The pandemic accelerated digital transformation, with consumers now expecting seamless online experiences and the option for in-person or hybrid shopping experiences.
Moving into 2024, consumer spending has seen a slowdown compared to the initial post-pandemic recovery phase. Several factors contribute to this trend. Let’s go through them.
Why Consumers Aren't Spending as Much in 2024
- Rising Interest Rates: After a period of historically low mortgage rates during the pandemic, the Federal Reserve and central banks worldwide have raised interest rates to combat inflation. Higher borrowing costs have led to reduced spending power, as consumers face increased expenses for mortgages, auto loans, and credit card debt. This change has been significant for potential homebuyers, many who have cooled it on wanting to purchase right now.
- Lingering Inflation Concerns: Even as inflation rates have stabilized (arguably…somewhat…maybe?), the lingering effects of elevated prices on everyday goods and services have strained household budgets significantly. Just take a look at your grocery bill Consumers are more cautious, prioritizing essential spending and cutting back on discretionary purchases like dining out, travel, and non-essential retail goods.
- Economic Uncertainty: Despite a gradual economic recovery, uncertainties persist around potential economic slowdowns, political tensions, and the labor market's stability. This uncertainty makes consumers more risk-averse, leading to increased savings (the little that we can, as nearly 50% of Americans find themselves living paycheck to paycheck) and less spending overall.
- Diminished Financial Buffers: Stimulus checks and enhanced unemployment benefits that boosted disposable income and all small businesses benefited from through increased sales are no longer available. Many households have exhausted their pandemic-era savings or are now more focused on rebuilding their financial cushions, especially given rising costs and interest rates.
What Small Businesses Can Expect in Q4 2024
As we approach Q4 2024, small businesses need to be mindful of these economic conditions and adjust their strategies accordingly. Here’s what to expect and how to prepare:
- Cautious Consumer Spending: Consumers are likely to remain cautious with their spending, focusing on necessities and value-driven purchases. Small businesses should emphasize the quality, durability, and value of their products or services in their marketing. Offering promotions or loyalty programs can encourage repeat business and help maintain cash flow during slower periods.
- Increased Competition for Discretionary Dollars: With consumers tightening their belts, competition among businesses for discretionary spending will intensify. Small businesses must differentiate themselves through unique offerings, exceptional customer service, and personalized experiences that larger competitors may struggle to provide. It’ll be vital that you market correctly during this time to capture as much brand awareness as possible.
- Digital and Hybrid Shopping Experiences: The demand for digital convenience remains strong. Businesses should continue to invest in their online presence, ensuring seamless e-commerce experiences and considering hybrid models like buy-online-pickup-in-store (BOPIS) or curbside pickup to attract both online and in-person customers.
- Localized Marketing and Community Engagement: The ‘support local’ sentiment remains a valuable asset for small businesses. Engaging in community-focused initiatives, partnering with other local businesses, and highlighting the local impact of each purchase can help deepen customer loyalty and drive local foot traffic.
Looking Ahead: Positioning for Success in Q4 2024
While the current economic environment presents challenges, it also offers opportunities for small businesses that are prepared to adapt - especially with Q4 marketing, where you have a HUGE opportunity to capture significant sales with the right plan.
By understanding consumer behaviors, managing costs, and leveraging the local support movement, small businesses can navigate the complexities of Q4 2024 and position themselves for future growth.
