And now, after a year and a half of lockdowns, countless business closures and severe shortages of both essential and non-essential goods, comes the revenge economy.
The term refers to a surge in purchasing — closer to a mania, really — by consumers who are bursting to return to some semblance of normalcy (whether or not “normalcy” is truly upon us). One might say they’re taking revenge, not only on COVID-19, but on the crimped lifestyle they’ve been forced into during this difficult time.
Revenge spending as a phenomenon is hardly new; it often follows periods of deep economic despair. Call it an indication of the human desire to shake off disaster through positive action. Or maybe an urge to assert control over that which is ultimately uncontrollable. However one wishes to spin it, “revenge” is upon us.
For consumers today, it's not a question of going into debt to make a statement. The money is there to spend: Bloomberg reported earlier this year that Americans had amassed $1.7 billion in savings — funds that are burning one heck of a hole in their collective pocket. So let the bingeing begin.
That doesn’t stop economic observers from questioning the timing. In the face of the Delta variant, states, cities, businesses and schools are rapidly rethinking their relaxation of mask mandates and rules for gathering in public places, even as the spending rages. “I think we’re opening up whether we’re ready or not,” says Richard Howells, vice president of supply chain with SAP.
One problem, says Howells, is the geographically biased lens through which many choose to view the pandemic. Signs of recovery in the U.S. (notwithstanding flareups of the virus through the nation) aren’t being duplicated elsewhere in the world, and COVID-19 doesn’t respect national borders. Many regions aren’t even close to achieving herd immunity. “We have to fix this globally, rather than country by country,” says Howells. So
Back in the U.S.A., the spending surge is running up against another barrier: persistent shortages of the items that revenge-minded consumers want most. New cars — a reliable sign of prosperity in any economy — aren’t to be had, thanks in large part to a severe shortage of the microchips that make up modern-day vehicle technology. And prices for many other goods in high demand, from food to gas and lumber, are soaring. Flexport recently reported that prices in the Consumer Price Index category of Commodities Less Food and Beverages have risen at an annualized rate of 18% over the last six months.
Key consumer items can become unavailable for any number of reasons, including runaway demand, factory shutdowns, unavailability of raw materials and logistics bottlenecks. In the case of essentials such as toilet paper during the early months of pandemic, the reason lay not in production but in packaging, Howells notes. “They weren’t available in the packing sizes we wanted as consumers,” he says. It took a while for producers to shift from serving institutional buyers such as universities and conference centers, which had come to a standstill, to the consumers who were stocking up for sheltering at home.
Sudden surges in buying can also have more than one cause. What’s seen as “revenge” today was panic in early 2020, as consumers acted out of fear that products wouldn’t be available in time of need (then made sure that happened through their own actions).
Whatever the reasons behind the current chasm between supply and demand, Howells doesn’t expect it to end anytime soon. “Consumer spending is going to stay strong, and money is available for that as long as signs trend in the right direction from the pandemic’s perspective,” he says.
So how should businesses respond? For starters, by dispensing with methods that work in times of “normal” demand. “If you run your supply chain based on a sales forecast, you’re usually looking at historical numbers,” says Howells. “You can throw those out of the window, based on the last 18 months.”
The trick is to adopt more of a “forward-looking” view of demand, incorporating consumer sentiment analysis, what’s trending on social media and other types of unstructured data. (Of course, even such enhanced methods in 2019 wouldn’t have prepared merchandisers for the economic cratering that was to occur a year later.) In addition, says Howells, sellers need to look carefully at the channels through which consumers are actually buying product, as they adapt to a hybrid model that manages both brick-and-mortar and internet purchasing.
Turning to the upstream supply chain, manufacturers and retailers need to do a better job of incorporating risk calculations into their sourcing decisions. Those that relied on a single supplier for essential materials, components and finished product have learned some hard lessons over the past few years, thanks to disruptions caused by flooding, earthquakes, tsunamis and, of course, COVID-19.
In the end, wild swings of consumer sentiment are impossible to predict with any accuracy, given as they are to the vagaries of human psychology, combined with random external events. But that doesn’t mean suppliers and merchandisers shouldn’t be taking steps to mitigate their impact.
“Putting those processes in place takes time and might cost you more,” says Howells, “but in the long term you’re in a better position. It reduces the risk of lost sales and opportunities.”