How Covid has reshaped consumer behaviour

From shopping habits and working arrangements to house prices and savings patterns, Covid-19 is reshaping each and every aspect of our financial lives, writes Craig Johnson.
Working from home has become the ‘new normal’ for many people, but it is having a negative effect on city centre businesses used to heavy footfall, with many, including Pret A Manger, cutting jobs. Picture: ShutterstockWorking from home has become the ‘new normal’ for many people, but it is having a negative effect on city centre businesses used to heavy footfall, with many, including Pret A Manger, cutting jobs. Picture: Shutterstock
Working from home has become the ‘new normal’ for many people, but it is having a negative effect on city centre businesses used to heavy footfall, with many, including Pret A Manger, cutting jobs. Picture: Shutterstock

As the nation huddled around its TV screens in late March, there was a sense of shared experience that perhaps hadn’t existed since the Second World War.

After watching announcements by Prime Minister Boris Johnson and Scotland’s First Minister Nicola Sturgeon, people in Scotland hunkered down at home under lockdown as the coronavirus pandemic swept across the country.

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This article formed part of The Scotsman’s Talking Money magazine. You can view the 2020 emag here >>

Queueing for toilet rolls, clapping for NHS workers and carers, and “zooming” for family quizzes were the new normal. While NHS staff, carers, supermarket employees and other frontline workers went out into the unseasonably sunny spring, those who stayed at home spent the initial weeks of the national lockdown splurging on internet shopping and signing up for at-home services – from yoga and fitness classes to video streaming providers –

to help them cope with enforced isolation.

Then, people’s financial paths diverged. For those working from home, there were fewer opportunities to spend money and their outgoings dropped.

Data from trade body UK Finance showed credit card spending fell by 12 per cent year-on-year during the three months to the end of March, with a 40 per cent year-on-year April-June plunge. As restrictions began to ease over the summer, the

organisation’s subsequent figures showed spending began rising again, with £14 billion spent on credit cards in July. The 15 per cent figure was higher than in June – but 24.8 per cent less than last July.

“This data suggests that the pandemic has accelerated the shift towards internet shopping, with card spending online reaching

a record high in July,” says Eric Leenders, UK Finance’s managing director of personal finance. “Credit card spending has recovered slightly but continues to be impacted by ongoing economic uncertainty and fewer opportunities to spend on high-value items, such as holidays.”

For those furloughed, the future looked more uncertain, with concerns over job losses as Westminster wound down its job retention scheme and introduced its less-

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generous job support scheme – although furlough was re-introduced as England entered a new lockdown. For those already made redundant or the self-employed who slipped through the support net, the outlook was bleaker still.

Overall household spending continued to decline over the last month, according to data provider IHS Markit’s UK household finance index. Lewis Cooper, economist at IHS Markit, warns: “Households reported a fall in the availability of cash, a quicker reduction in their spending, further use of savings, and increased demand for unsecured credit – all of which highlight the hardship facing some UK households at present.

“With new restrictions introduced, job security perceptions remained negative and incomes from employment fell again in October.

“Moreover, the measures are likely to have a severely negative impact on household finances, and hopes of recovery will be on hold until the pandemic is under control and restrictions loosened.”

One far-reaching change in the aftermath of the pandemic could come in the way we work – and potentially live – in our city centres.

The Westminster government launched a campaign during the autumn to encourage those who could return to Covid-safe workplaces to do so, in part to breathe

life back into city centres, before the second wave saw the reintroduction of work-from-home advice.

With millions of people based once more on sofas and at kitchen tables instead of commuting into offices, landlords fear the switch to remote working could become permanent. If it does, they could be left with vacant office blocks.

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Empty city centre offices are already having a knock-on effect for surrounding businesses that rely on commuter footfall. Last month, sandwich and coffee chain Pret A Manger announced the closure of a further six branches with the loss of 400 jobs, on top of the 30 stores and 3,000 jobs – about a third of its workforce – which it had axed over the summer, as the business shifts its focus to London suburbs and the Home Counties.

It’s a story echoing throughout the retail sector, with Upper Crust owner SSP Group cutting up to 5,000 jobs – with many of its outlets in train stations, obviously any permanent move to remote working by commuters could have massive long-term implications for its business.

Meanwhile, steak bake stalwart Greggs embarked on negotiations with staff at half of its 2,000 stores to cut working hours, but warned redundancies were inevitable.

Sandwich and coffee chains aren’t the only companies suffering. Casual dining outlets that rely on quick lunches or cheeky after-work nibbles are also in the firing line. Job losses and site closures have already been announced by operators including Byron Burger, Pizza Express, and The Restaurant Group, which owns brands such as Chiquito, Frankie & Benny’s and Wagamama.

John Gathergood, professor of economics at Nottingham University, says: “The legacy of the pandemic will have two long-lasting, possibly irreversible, effects on the UK economy that the government will have to face over coming years.

“The first is the widespread structural change brought about by the ‘remote revolution’ due to enforced social distancing; the second and greater challenge is one of paying for the immense increase in government spending on support packages offered to consumers and firms.”

That shift away from working and spending in city centres has boosted local businesses in commuter areas. Smaller shops with a story to tell about provenance benefited from the rise in more mindful spending.

Accountancy firm Deloitte found 59 per cent of consumers used more local stores and services during the spring restrictions, while 82 per cent of shoppers told a study by Visa they wanted to use small businesses “as frequently” or “more frequently”

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as lockdown eased. The trend could carry on once the pandemic ends, with eight out of ten consumers who shopped locally during the lockdown intending to continue this once the crisis is over, according to a poll by Co-operatives UK.

“The period of contagion, self-isolation, and economic uncertainty will change the way consumers behave, in some cases for years to come,” say analysts at management consultancy McKinsey. “In many markets the surge in e-commerce has compressed the equivalent of several years of growth into just a few months.

“While headlines have been prone to making sweeping statements about our new digital world, the reality is that the pace at which we arrive at the ‘next normal’, and the route we take to get there, will be anything but uniform.

“The forces driving behaviour changes will likely continue at differing strengths over the next six to 24 months, with frequent starts, stops, and resets.

“What we buy has changed across categories. Think fewer cosmetics and more flour. Some behaviours that look deeply embedded now could regress.

“For example, when restrictions ease, will there be a backlash against remote experiences and a drive for physical reconnection?”

The biggest factor that will influence consumer spending in the near future will be employment. If fewer people are willing or able to go out shopping or socialising, then businesses ranging from shops and restaurants through to advertising agencies and wine importers will make less money and have to lay off workers.

In the Office for Budget Responsibility’s (OBR’s) most pessimistic prediction, unemployment could peak at 13.2 per cent during the opening months of next year.

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Those fortunate enough to hang on to their jobs could face reduced hours or pay cuts.

Yet unemployment and falling wages aren’t the only consequences of lockdown. The average cost of a home could plummet by 22 per cent come the third quarter of next year, the OBR has warned.

While in past recessions a drop in house prices has been welcome news for first-time buyers, analysis by the Resolution Foundation warns that it won’t necessarily be the case this time around – because the current low interest rates make it harder for would-be buyers to save for a deposit.

Back in the 1990s, it took a typical couple four years to save for a deposit if they squirrelled away 5 per cent of their joint income each year. Last year, it would have taken them 21 years to save for the average deposit, and the Resolution Foundation thinks the Covid-19 collapse in house prices will only shave one year from that timeframe.

The Foundation’s Lindsay Judge warns: “Although prices are projected to fall – perhaps dramatically – in the wake of the pandemic-induced recession, this drop won’t make things any easier for typical young first-time buyers looking to purchase their first home. Instead, falling incomes and credit restrictions will likely make home

ownership every bit as difficult as before for many young people.”


Colin Dyer

Head of proposition and private client management at 1825, Standard Life’s financial planning arm

“What’s important now is that people take stock of their full financial position – details of their savings, investments, pensions, debts, incomings and outgoings. This will give those facing a reduced income, or even redundancy, a clear view of their overall finances, indications of where they need to cut back or even where they might need to ask for some additional help from lenders, landlords and utility companies.

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“Where possible, people should keep saving into their pensions, due to the long-term impact of short breaks, and only use loan holidays where absolutely necessary.

“If people aren’t sure where to start, or have a particularly complex financial situation, then it’s best to speak to a financial advisor about the next steps.”

Kevin Brown

Savings specialist at mutual Scottish Friendly

“Even if people are unable to save or invest every month, an irregular approach where you put money away when you can afford to will help households to gradually build up a buffer.

“The choice they will have to make is where is the best home for that money and what options are out there if they don’t need ready access to all their money and want the potential of generating some growth.

“We expect that some families will continue to struggle and it will be important that government continues to support those that are most in need.

“Meanwhile, others may find themselves in a more fortunate position. Where people can work from home, it may be the case that they have a little more money left over than usual, which they can put towards savings or investments.”

This article is taken from the November 2020 special report Talking Money which first appeared in The Scotsman newspaper. To receive your free delivered copy please email [email protected]. UK addresses only. Subject to availability.



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