CONSUMER INSIGHTS | 30 APRIL 2020 South Africa’s consumer sector has to adapt and re-invent to survive the new normal Absa | Corporate and Investment Banking > Insights and Events > South Africa’s consumer sector has to adapt and re-invent to survive the new normal Isana Cordier Head: Consumer Goods and Services SHARE Can the consumer goods and services sector re-invent and re-birth itself? Its survival might depend on it. The COVID-19 crisis and its impact on virtually every facet of social and economic life have revealed that moving with the times is no longer just an option for South Africa’s consumer sector – but this might be a good thing. We will most likely require a re-invention and re-birth of the sector in order to shape a new normal across all socio-economic classes, as we start to recognise our co-dependencies are more significant than we ever imagined. The good news is that this might just result in a more inclusive retail sector. COVID-19 is levelling the playing field Even before COVID-19, South Africa’s retail consumer sector was lagging with the international trends in adapting to a new and younger demographic market that is always digitally interconnected. This is probably with good reason, given our socio-economic divide, but also not conducive to a sustainable, inclusive sector. However, the pandemic might very well be the event that will start levelling the playing field, forcing both the sector and all consumers to change their behaviour more than we can anticipate. What we have seen so far The global pandemic has revealed once again that when times are tough, food and essentials still trump all. Unless human beings learn to again become self-sustainable on a macro scale – growing our produce, living off the land, and manufacturing our own soaps, retailers that trade in the essential food and household goods remain best positioned. We have also witnessed this in the past, with Black Friday sales via our card acquiring data that the biggest portion of spending goes towards food and basic goods. It, therefore, echoes true that these retailers are most resilient in all economic conditions. There were also other beneficiaries of the pre-lock down spending outside the essential bucket, such as building materials, sports equipment, and gaming, as well as home entertainment. These could have continued in trading well (even if only online) if they were allowed, as people potentially have more money and time to spend on home improvement and entertainment while being locked in their houses. The unexpected ‘die-hard’ sector in all tough conditions – the liquor and gaming sector – for the first time faced a situation where it has borne the brunt of an economic crisis through Government interventions. No doubt a territory they are unfamiliar navigating through. The likely consequences of COVID-19 in the retail sector If the consumer’s behaviour was on a slow trajectory towards online and Omni-channel shopping, the pandemic has, and probably will, further accelerate this to a large extent. Social distancing is most likely here for the medium-term, and one can presume if online sales are allowed, that these will take off quite significantly. Most retailers have already reported an exceptional increase in online shopping channels, even though delivery will only occur after the lockdown. It would therefore not be inconceivable that this trend will continue past the lockdown and the pandemic, as people become more accustomed to shopping online, and reduce their trips to shopping malls – further pressure thus mounting on department store models and traditional retail. The high cost of leasing mall space might be what further entices retailers to reduce their physical footprint and adopt a more aggressive Omni-channel strategy to leverage their sales while reducing costs. Co-logistics and co-warehousing models might not be inconceivable either, where retailers share these expenses, as well as leveraging each other’s supply to market. The future and beyond To understand this potential new economy and consumer we will be facing, we might need to consider things from a different perspective. Perhaps the question should rather be around what new trends will emerge from this pandemic, and how our consumer sector could adapt to these? What will we value in the future? Will we go back to travelling and how long will that take? Will we value family time and health, creativity and education more than before and how will this shape our behaviours? As our ways of working are potentially changing for good, we need to try and consider how this will impact our spending patterns as well. For instance, if we do not have to travel to the office, or be bound by office hours or country borders, how will this impact our shopping behaviour in when, where and how we shop? Additionally, we need to consider how this change might impact the global resourcing of talent in the ways of work, and even the currencies people will be capable of earning, as a result of a potentially borderless resource talent pool. We are effectively not only recognising our co-dependencies as South Africans, but our global co-dependencies could possibly drive significant change as a result of this worldwide pandemic. The success of the future is going to have a lot to do with collaboration between corporates, public enterprises and across sectors, both locally and on a global scale. In this respect, we must start partnering with each other, to leverage our competencies, strengths, and resources, which will enable South African retailers and other companies to find ways to adapt to a ‘new normal.’ Only time will tell who will survive and how this will play out in the future. As the power shifts in economies at large, chasing after profits may no longer be enough for organisations. We are most likely entering an era where everything we do, would be to have an impact for the greater good of all in this interconnected and co-dependant reality. If ever there was a time to build a company strategy around social and environmental sustainability, it certainly is now. In this new world that we will have to navigate, the best advice to the consumer sector is probably to remain agile, adaptable, innovative, and to find the opportunities amidst the change that will most definitely come. It has been said more than once that COVID-19 has effectively pushed a worldwide reset button – we can only begin to imagine what the world will look like as we start back up again. Isana CordierHead: Consumer Goods and Services https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles Podcasts The AfCFTA and Africa’s Existing Regional Economic Communities Africa is a patchwork of independent and overlapping regional economic blocs. Rather than simplifying matters, the African Continental Free Trade Area adds an extra layer of complexity for businesses trading on the continent. In this podcast, we untangle the mess. Podcasts What Does The AfCFTA Mean For Africa? The African Continental Free Trade Area is now active, bringing with it the promise of significantly easier intra-continental trade. CONSUMER INSIGHTS Is it time to reimagine Black Friday in the African context? Consume This, CGS Monthly: Volume 3, Black Friday 2023. 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