Consumer and Retail Key Themes For 2020
By Fitch Solutions
Globally, we are projecting a slower growth outlook for consumer spending in 2020, with real household spending projected at 2.8% y-o-y, a slight slip on the 2.9% expansion estimated for 2019. The dip in the global growth outlook stems from the developed markets, with an annual increase of 1.65% forecast, compared to 1.84% y-o-y expansion estimated for 2019. The emerging markets outlook, however, retains its stronger growth trajectory, with a projected expansion of almost 5.00% y-o-y, from an estimated 4.86% in 2019.
Slowing consumer spending outlook In 2020
Below are the top-line economic forecasts for some of the major consumer markets globally:
US real GDP growth of 1.8% y-o-y is forecast for 2020, a slowing on the 2.2% estimated for 2019. US-China trade war tensions are in a de-escalatory phase currently, but an igniting, which would lead to greater uncertainty, cannot be ruled out and this is feeding into a subdued business sentiment in the US.
The UK dodged technical recession in Q3 2019 and although political risks remain elevated, with a December 12 general election and a planned new Brexit date of the end of January 2020, the outlook for 2020 is set to improve on 2019’s 1.2% y-o-y growth, with 1.5% growth forecast for 2020.
The eurozone growth outlook remains stagnant at 1.2% in 2019 and 2020, as the block navigates Brexit and trade war tensions. The key eurozone economy of Germany just missed technical recession in Q319, but is facing prolonged manufacturing weakness and souring business sentiment. In 2020 we forecast a growth of 1.1% y-o-y from the 0.5% estimated for 2019.
China's growth outlook is set to dip below the 6% y-o-y growth level in 2020 to 5.9%, from an estimated 6.1% in 2019. While growth is slowing, we highlight that in comparison with other major consumer nations globally, China's growth outlook is relatively strong. As the country developed a slowdown was always on the cards, but we highlight that we have undertaken a number of downward revisions on the Chinese growth outlook this year, as the US-China trade war has impacted investment and led to some China-based manufacturing to reallocate outside of the country.
Consumer political risk remains elevated in 2020
Political risk globally remains elevated moving into 2020 and as highlighted above is a key reason for the subdued growth outlook for a number of major consumer markets. Three distinct political risk trends that impact the consumer have developed in recent years and we believe they have the potential to flare up across 2020.
Three consumer political risk themes to watch in 2020
1) Consumer boycotts associated with domestic politics: The 2016 US presidential election saw greater numbers of consumer facing companies involving themselves in political dialogue, which led to brand boycotts. The most well-known example was the backlash against Ivanka Trump’s fashion line in the lead up to and following the election of her father to president. The threat of a consumer boycott associated with a companies’ political involvement has not died down in the US and we are already seeing a ramp-up in consumer boycotts in the lead up to the November 2020 US presidential election. In July 2019 Home Depot was faced with a consumer boycott, after the company’s co-founder Bernie Marcus pledged to back Trump’s re-election bid. Grab Your Wallet, an organisation that has developed to highlight boycotts on companies with connection to Donald Trump, called for a boycott on Louis Vuitton and other LVMH brands in October 2019, after the company invited President Trump to open a new factory of their brands in Texas.
2) Consumer boycotts associated with foreign policy: South Korea’s consumer boycott of Japanese products and brands following Japan imposing stricter controls on certain exports to South Korea in 2019 has once again highlighted how a nation’s consumer can be mobilised during foreign policy standoffs and comes on the back of China’s 2017 consumer boycott of South Korean goods, during a diplomatic dispute surrounding South Korea’s decision to host a US missile defence system on its territory.
We will continue to monitor diplomatic disputes in 2020 to ascertain whether they have the potential to develop into consumer boycotts and retain our warning that the US-China trade war (although it was in a de-escalation phase at the time of writing) has the potential to enter the consumer sphere via a consumer boycott, if it is reignited in 2020.
3) Civil unrest disrupting shopping patterns and retail operations: 2019 has witnessed an increased level of political protests, with France’s ‘Gilet Jaunes’, Hong Kong’s protests (Anti-Extradition Law Amendment Bill movement) and Chile’s civil protests all impacting shopping habits, as major shopping districts in these countries have been shut down for periods of time during disturbances and retail operations have been disrupted, with stores vandalised and in some cases looted. All three of these protest movements have the potential to continue into, or flare up again in 2020. Predicting the next country that might witness civil unrest, at a level to disrupt consumer spending patterns, is difficult, but we use our Country Risk team’s Election Calendar and liaise with our Country Risk colleagues to understand whether an election result could be contested and so trigger protests, as well as remaining abreast of topics within a country's internal political discourse that could trigger demonstrations.
Private label focus for e-commerce in 2020
The slowing growth outlook, with risks to the downside, will feed through to impact consumer spending patterns. In an environment of uncertainty or slowdown, consumers typically tighten their purse strings and it is during these periods that private labels and discounters perform well. Private labels already exist in e-commerce and in 2020 we expect:
Stronger consumer demand for e-commerce private labels, especially regarding essential-spending categories.
Brand and line extensions from existing e-commerce private labels.
New entrants into the e-commerce private label space, especially in China, where consumers are expected to increasingly opt for consumer products at competitive prices, with private label perceptions improving.
On the back of a more price sensitive consumer, the revenue share of private labels (both offline and online) has steadily increased over the past years, especially in Western Europe, where private label (volume) in Germany, France and the UK accounts for 45%, 31% and 47% of retail sales respectively (according to data from PLMA’s 2019 International Private Label Yearbook). Own-label products have not only performed well in developed states but have also gained traction in markets in the Middle East (especially the Gulf Cooperation Council), India, Russia, and Brazil.
As a result of growing consumer acceptance of private label products, leading e-commerce players have launched their own brands aiming to tap into this trend and maximise profit margins.
Blockchain supported QR codes will aid mass-market companies in tackling pirated and counterfeit goods
The need to tackle pirate or counterfeit goods is most pertinent in the mass-market pharmaceuticals, medical equipment and food and drinks segments, but we also expect earlier adapters to include mass-market players in the perfume and cosmetics, toys, electrical goods and leather goods sectors.
Blockchain supported QR codes also offer companies the ability to offer greater transparency on where their products originate from, how they were made and how they have been transported. As consumers become increasingly conscious of issues within consumer goods supply chains that they do not support (e.g. use non-renewable materials, poorly paid labour, environmental issues), there is strengthening demand for companies to be able to provide this information so that consumers can make more informed choices. We believe that this will be the next step for consumer facing companies and their utilisation of QR codes.