South Africa's consumer sector has to adapt and reinvent

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Isana Cordier, Consumer Sector Head, Absa, Corporate and Investment Banking

The Covid-19 crisis and its impact on virtually every facet of social and economic life has revealed that moving with the times is no longer just an option for South Africa’s consumer sector. 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 that our co-dependencies are bigger than we ever imagined.

Even before Covid-19, South Africa’s retail consumer sector was lagging the international trends in adapting to a new and younger demographic market that is always digitally inter-connected, probably with good reason given our socio-economic divide. 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 now.

What we have seen so far

Covid-19 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 own produce, living of the land, and manufacturing our own soaps – retailers that trade in the essential food and household goods remain best positioned above the rest. 

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, 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, whilst 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.

Likely consequences

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 mostly 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 exceptional increase in online shopping channels even though delivery will only occur after the lockdown.

It would thus 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 – thus further pressure mounting on department store models and traditional retail. 

The high cost of leasing mall space might be what further entice retailers to reduce their physical footprint and adopt a more aggressive Omni-channel strategy to leverage their sales whilst reducing costs. Co-logistics and co-warehousing models might not be inconceivable either, where retailers share these expenses, as well as leveraging on each other’s supply to market.

Moving Forward

To try and 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 thus rather be around what new trends will emerge from this pandemic, and how our consumer sector could possibly 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. 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 the global resourcing of talent might be impacted by this change 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 quite 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, it is imperative that we 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 might not be enough any longer 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 inter-connected 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 which 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 start to imagine what the world would look like as we start back up.