Sunday, August 9

Covid-19 changes consumer buying behaviours

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Arun Menon

The day-to-day lives of people all over the world has changed in ways considered unthinkable a few weeks ago thanks to the Coronavirus Disease 2019 (Covid-19).

In the midst of the pandemic in Malaysia, consumers have many worries to bear – fearing for the health of their families, whether they can buy for their basic needs, and the loss of freedom to move about. These common concerns are manifesting themselves in different ways as consumers adapt their old behavours – and adopt new ones.

“It’s clear that the movement control order (MCO) have had an impact on what people buy and how they buy it, but also how much the buy when they go shopping,” revealed Ipsos Malaysia’s managing director Arun Menon in an interview with BizHive.

“Stocking up on food and essential items more than before is a common response to the crisis. Almost half of them are stocking up for two weeks or more.

“With their movement restricted, it’s natural that consumers are more cautious about going out, and their shopping behaviour reflect that.”

With Malaysia nearing the end of Phase 3 of the nationwide MCO – and to May 12 seeing a further extension – shoppers are prioritising their spending since the order was first imposed on March 18, 2020.

According to a special survey pertaining to the effects of Covid-19 on Eeonomy and individuals (Round 1) by the Department of Statistics Malaysia from March 23 to 31, 2020, there was a significant change in daily needs spending before and during Covid-19 outbreak.

“Spending pattern of raw materials for cooking at the market or supermarket or grocery shows that the current purchase has shifted towards sometimes and seldom as compared to before Covid-19 outbreak,” the report revealed.

“There is a change in dining in restaurant, dining in the fast food restaurant and watching movies at cinema activities with consumers having stopped those activities during the outbreak.”

Ipsos Malaysia’s Menon concurred with this research.

“With regards to what people are buying, Malaysians report that they spend more on items with longer shelf life than they would usually do, such as pasta and rice (33 per cent) and canned food (18 per cent),” he detailled.

“People are also buying more of household cleaners (13 per cent) and toilet paper (two per cent), which have much to do with the simple fact that people spend all their time at home now.

“The opposite is the case for personal care items and beauty products (minus 12 per cent), as these are things people are using when they go out,” he added.

“Also, our data suggest that with the uncertain times we are in, people prefer to spend their money on essentials items rather than more ‘luxury’ items such as chocolate and sweets (minus 17 per cent) as well as alcohol (minus eight per cent),” Menon indicated.

This comes as the pandemic has put health and hygiene as a priority. Hence the spending allocation to these products from monthly budget has significantly increased.

“We do expect this to stay for a while even after MCO is lifted. Our studies across markets indicate consumers are more likely to stick to brands that are familiar with than looking for experimentation with in these product categories, familiarity gives them comfort and assurance.”

Source: Ipsos Malaysia

Source: Ipsos Malaysia

Speedier shift towards technology

With technology taking on greater prominence during this pandemic and MCO, a sharp increase in ecommerce activities is likely to happen.

“That is likely, and we are already seeing it,” Menon added. “In our study, we see that almost half (48 per cent) of Malaysians say they buy things online more now compared to one month ago, while only about one third (32 per cent) saying that they buy less.

“Another thing we see increasing is having food or groceries delivered to home. When our Covid-19 survey was conducted in late March, during the second week of the MCO, 17 per cent of Malaysians say that they have ordered food via an app for the first time in the past week.

“Online purchases and delivery services has increased the most among the younger population below 35 years old. When it comes to categories, people are particularly prone to buy more personal care items, groceries, and clothes online.”

In a statement, Commerce.Asia founder and executive chairman Ganesh Kumar Bangah said e-commerce continues to be one of few industries that thrive in such challenging circumstances as the ecosystem is seeing a very encouraging spike in the first quarter of 2020 (1Q20).

Commerce.Asia also foresees a permanent change in consumer behaviour, as many are expected to make their purchases via digital marketplaces even after the MCO is lifted.

“Online shopping is now the ‘new norm’ as the Covid-19 pandemic has resulted in eCommerce businesses booming globally as people shift towards online platforms,” he said in the statement.

“We are seeing significant growth in our merchants’ sales across various product categories. This change in buying behaviour shows that Malaysians are adapting to the new living situations.”

On this note, Menon said Malaysia’s transition to online or digital is less likely to reverse.

“The MCO has been a catalyst to what has been already transitioning. Once consumers are used to benefit and convenience they are less likely to opt out.”

When asked about big ticket purchases such as cars and properties, Menon said a change is “very likely.”

“More than two out of three Malaysians (70 per cent) say they are thinking about delaying a major purchase because of the situation, a sentiment that is more prevalent among the older population than the young ones.

“Furthermore, 72 per cent say they less likely to make a major purchase such as a home or a car now than they were six months ago. Even as the situation gets better, the inclination to make big ticket purchases may take some time to recover.”

Pandemic drags on consumer spending habits

The retail sector is most likely to be hit the hardest given that most outlets throughout Malaysia have remained closed for the entire duration of the MCO.

This is with the exception of certain segments such as hypermarkets, grocery stores and petrol stations which were only allowed to operate from 8am to 8pm, while in Sarawak, operating times were from 7am to 7pm.

Meanwhile, hardware shops, electrical and electronics shops (excluding telecommunications equipment as well as ICT equipment shops) and full-service laundry shops were recently added to the list of those allowed to operate during the MCO.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) expected consumer sentiment to remain soft for the upcoming quarters on the back of Covid-19 and MCO.

“The Malaysian Institute of Economic Research’s (MIER) posted 82.3 points, down 1.7ppt quarter on quarter (q-o-q) and down 14.5ppt year on year (y-o-y), for its fourth quarter of current year 2019 (4QCY19) Consumer Sentiment Index (CSI),” Kenanga Research said.

“We believe the q-o-q weakness is largely owed to the increasingly cautious spending patterns observed from the consumers, which leans more towards value-for-money purchases instead of high value discretionary spending such as vehicles, imported goods and overseas travels.

“That said, we are expecting consumer sentiment to remain soft for the upcoming quarters, as heightening Covid-19 cases recorded within Malaysia and the imposed movement restriction are likely to dent consumers confidence, which would consequently disrupts the retail industry.”

Impact of MCO on household expenditure

In a study by DOSM on the impact of MCO on household expenditure, it was revealed that the MCO indirectly affected the economic activities including household income and expenditure pattern.

“Households do not purchase durable and semi-durable goods during the MCO except on an online basis,” DOSM said in its study.

“The minimum usage of public transport, the limited movement and the drop of oil prices caused the average of household expenditure in Transport decreased up to 80 per cent.

“No expenditure on recreational and cultural services and hotels except for the services that can be accessed from home such as the pay or paid TV services.

“The expenditure for food and beverages at home increased 27 per cent, taking into consideration the purchase of raw materials for food that was consumed away from home before MCO.”

The study also highlighted that households still purchase the personal care items where it contributes 43.9 per cent from the total expenditure on Miscellanous Goods and Services.

“The consumption of utilities is expected to increase 50 per cent since households stay at home all the time as compared to only at nights before the implementation of MCO.”

According to the study, household expenditure pattern during the MCO is expected to differ from the expenditure pre-MCO.

This is because the expenditure of household is more focused on goods and services that are really required by the household such as food, utilities, health and communication, it added.

“The average of household consumption expenditure during the MCO is estimated to reduce by RM1,923 or 48 per cent while the average of household expenditure inclusive of financial expenses to record a decrease of RM3,504 or 55 per cent from the expenditure before the MCO.

“Expenditure on food and non-alcoholic beverages group increased by 27 per cent resulted from the requirement to purchase additional raw materials for eat-at-home purpose.”

Education, communication also affected

In addition, the study highlighted that the expenditure on education and communication groups is expected to remain unchanged.

“This is due to online education services that are still being implemented and communication services are being supported by the higher consumption on communication services for the current needs.”

In terms of the expenditure composition, the study saw that food and non-alcoholic beverages group dominates the average expenditure with a share of 44 per cent during MCO as compared to only 18 per cent before the MCO.

This is followed by housing, water, electricity, gas and other fuels at 19 per cent, communication at 10 per cent and miscellaneous goods and services at nine per cent.

“Meanwhile, the composition of expenditure on other groups only contributes less than five per cent.”

From the income class perspective, it was found that the Top 20 (T20) income class group showed a significant decrease in consumption expenditure with 59 per cent followed by the Middle 40 (M40) with 48 per cent and Bottom 40 (B40) with 41 per cent.

The study also found that had all households not accepted the official moratorium of loan announced by Bank Negara Malaysia, the expenditure of T20 would have dropped significantly to 63 per cent, as compared to before the MCO. M40 and B40 would have also recorded higher declines of 54 per cent and 49 per cent, respectively.

Overall, AmInvestment Bank Bhd (AmInvestment Bank) opined that the findings of the DOSM survey should not come as a surprise.

“With the combination of supply chain disruptions, jobs layoffs and uncertainties, the outlook for private consumption, which remains the anchor of growth, will remain weak, largely supported by spending on necessities during the MCO period,” the research firm said.

“However, once the MCO is lifted, pent-up demand is expected to kick in and provide a positive lift to private consumption. On that note, private consumption for 2020 is likely to grow around two per cent to 2.5 per cent from 7.6 per cent in 2019.”

Task force to help retail members

From a retaillers’ perspective, businesses are badly impacted by this slowdown in sales. As such, the Malaysia Retail Chain Association (MRCA) has set up a strategic task force, named the MRCA Action Bureau (MAB), to combat the adverse effects and impact of the Covid-19 pandemic on the nation’s businesses.

It said the retail and franchise Industry and related businesses are facing unprecedented uncertainties due to the ongoing Movement Control Order (MCO) that has brought most businesses, their supply chain and their operations to a standstill.

In a statement this week, the MRCA said it expects the MAB task force to help all its members in these challenging times in all capacities and capabilities within its means.

It said the objectives and goals of the MAB include working with the Government and all its agencies on stimulus packages, and tangible and intangible means to address the pressing issues, challenges and burden faced by MRCA members.

“The task force will also engage with members to ascertain their difficulties, and to provide advice and all assistance within its means, to work with the financial institutions on possibilities of securing financial help as well as to champion initiatives and interact with other non-profit organisations whose members are also impacted by this pandemic, to help each other and create mutual benefits,” it said.

MRCA said the MAB is also tasked with advising members on business continuity management measures especially on their business processes and IT systems and to provide them advice on legal, taxation, accounting, financing and other professional matters.

“Recognising that there are short-term, mid-term and long-term effects for recovery, the MAB will strive hard to meet its objectives. The aim is to help our members to sail through this difficult phase. Many of them have already informed the association that they have been adversely affected prior to the setting up of the MAB, due to the ongoing MCO,” it said.

The MRCA has already started their engagement strategy with members by having regular forums and discussions via online web services, and this will be taken over by the MAB and continue to proceed as such until they are able to meet face-to-face.

Slamming the brakes on car purchases

As a long term commitment, cars are considered a big ticket purchase that will be shelved post-MCO.

Initial observations previously suggested that there may be pent up demand post-MCO. However, now analysts believe that in light of the extension, any pent-up demand that existed previously would have withered by now.

MIDF Research recapped that the MCO, initiated on March 18, 2020, marked an important month in gauging the initial impact of the lockdown on the auto sector.

“Autos are considered non-essential services or products and were required to halt operations during Phase 1 (ending March 28) and Phase 2 (ending April 14) of the MCO,” MIDF Research said in a sector outlook.

“Preliminary indications suggest a 47 per cent to 63 per cent y-o-y fall in sales volume of major players in March 2020, based on preliminary numbers from the national cars and selective non-nationals marques.

The research arm noted that sequentially, the contraction in March 2020 total industry volume (TIV), for these selective players, is estimated to be in the range of 30 per cent to 67 per cent month on month (m-o-m).

“We previously did not rule out pent-up demand returning post Covid-19 to drive some form of demand recovery.

“However, given the extended MCO that is required to be undertaken and the deep, negative implications on corporate earnings, employment security and consumer sentiment, we think any pent-up demand that existed previously would have probably withered away by now.

“Consumers are likely to have turned into ‘survival’ mode with little priority for discretionary spend in the near-term.”

MIDF Research’s previous TIV forecast revision for the automotive sector, done prior to the MCO Phase 2 extension, factored in a four per cent y-o-y contraction.

Given that the MCO has now been extended into Phase 3 (April 28), the research arm is now looking at a significantly larger cut to its forecasts.

“Assuming a base case of a further extension to Phase 4 MCO, we slash our 2020F TIV forecast to 504,580 units, from 581,367 units previously.”

MIDF Research now projected 2020F TIV to contract by 16.5 per cent y-o-y, from -4 per cent y-o-y previously.

“In a worst case scenario that the MCO is extended further to Phase 5, that is till end-May, we would expect TIV to dip below 500,000; at an indicative 480,000 to 490,000.”

In line with the cut in its 2020F TIV, MIDF Research’s CY20F-21F aggregate sector earnings is slashed by 46 per cent-26 per cent.

The research arm now expected sector earnings to contract some 51 per cent this year, despite having already seen an 18 per cent contraction in CY19.

“Sector forecast risk remains elevated given the uncertain timeline required to contain the Covid-19 outbreak and its resultant impact on the domestic macro outlook.

“Unlike the 2008-2009 financial crisis or the 2016 sector downcycle, players are faced with compulsory closure of operations which means almost zero revenue during the lockdown period. A recovery upon resumption of operations could be pushed out given possibly weakened consumer sentiment post-MCO.”

A punch in the gut for property purchases

Properties are another big ticket item of concern these days. There is without doubt that buying sentiment has dropped as with other non-essential purhcases, but pent-up demand may still occur post-MCO and post-pandemic.

Sheldon Fernandez

PropertyGuru Malaysia’s Country manager Sheldon Fernandez told BizHive that the Covid-19 outbreak and MCO have undoubtedly had its impact on property buying sentiment, which was already decreasing prior to this.

This was seen in the PropertyGuru Malaysia Consumer Sentiment Study for the first half of 2020 (1H20) which saw Malaysia’s Property Sentiment Index dropping two points from 44 points in 1H19 to 42 points at the start of this year.

Fernandez believed that many will focus on bread-and-butter issues as they prioritise employment and income security.

“People are focusing on just surviving, and bread and butter issues are the order of the day. As such, many property decisions will be delayed, leading to pent-up demand,” Fernandez told BizHive in an interview.

For these demographics, he said the government’s various Economic Stimulus Packages (ESPs) and Bank Negara Malaysia’s (BNM) financing moratorium serve to help with costs of living while rebuilding financial buffers.

“However, for those with leverage, asking prices are decreasing and the financing environment is conducive,” he added.

“Developers are also likely to offer value-driven packages in the interests of moving unsold stock.

“In addition, with BNM’s Overnight Policy Rate and Statutory Reserve Requirement ratio adjustments – as well as revised EPF contribution guidelines by the government in its earlier ESP announcement – barriers to entry have been appreciably lowered.

“As such, it is an opportune time for home seekers with leverage, as well as long-term investors, to explore the market. In fact, investor activity may contribute to the property market’s tendency to ‘bounce back’ in post-crisis years, as portfolios are restructured to manage risk, with property as a potentially lucrative venture.”

Property listings halted

While statistics for Malaysia have yet to be compiled, the Malaysian Institute of Estate Agents reported that all physical viewing and listing activities have ground to a halt.

“Similarly, loan transaction data has yet to be released, but given that the approval process requires property valuation and this is problematic in light of the list of essential services under the MCO, it is likely to have decreased significantly as well,” Fernandez highlighted.

“However, if we go by international comparisons, mortgage applications fell by 30 per cent in the US in the earlier part of their infection curve.”

Looking ahead, PropertyGuru Malaysia anticipates both sentiment and transactions to bounce back once the MCO is lifted, given historic market data tracked by National Property Information Centre (NAPIC).

“Tracking these trends, it’s apparent that the property market typically recovers within one to two years after a crisis.”

“With this in mind, the earliest projected recovery for domestic property is in 1H21. As a mixed blessing, consumer behaviours and sentiment were already at an ebb prior to the Covid-19 outbreak or MCO, which may have buffered its impacts on the market to some extent. However, the trends driving this, as well as moderating growth over the past few years, mean that property in Malaysia is unlikely to perform commensurate to pre-Covid-19 levels following a return to the status quo.”

On another note, Fernandez opined that additional extensions of the MCO scope will deepen impacts to income and employment across the economy, and to near-term property transactions and prices.

How about Sarawak?

As for his views on the outlook of East Malaysian properties, Fernandez said that going by PropertyGuru Malaysia traffic data, condominiums (29.8 per cent), apartments (20.5 per cent) and double-storey terrace homes (14.9 per cent) accounted for the most queries in Sabah in March and April to date.

“In Sarawak, property seekers were more keen on semi-detached homes (21.2 per cent), double-storey terrace homes (17.5 per cent) and single-storey terrace homes (12.8 per cent).

“These figures point towards popular property types in these respective states amid the Covid-19 or MCO.”

Fernandez reiterated Napic data which showed that terrace homes were the least volatilite while retaining value during and after crisis years.

“In some areas closer to city centres, marquee high-rise properties at reasonable prices are a favourite for investors as the market bounces back,” he said.

“This may explain the demand for condominium properties in Sabah, as seen in our portal traffic.”

Whether in East Malaysia or the nation as a whole, PropertyGuru advocates holistic home ownership.

“Purchasers must consider not only costs of home ownership, but if they can afford them while managing other expenses.”

Sim Kiang Chiok

On Sarawak’s housing prices, Sarawak Housing and Real Estate Developers’ Association (Sheda) Kuching chairman Sim Kiang Chiok opined that the prices will depend on how well the Exit Plan is executed after MCO is lifted and how fast Malaysia’s economy can be revived till the end of bank loan moratorium which ends in September 2020.

“Properties market had been poor during previous few years before the MCO and presently prices of properties have already adjusted downward with the Home Ownership Campaign (HOC) and very stringent bank financing for property by Bank Negara rules,” Sim said in a statement.

“Our overhang properties in Sarawak is stable and new launches are also low.

“In view of the above and with this pandemic and after the MCO is slowly being lifted, we know that with the six-month bank moratorium, three-months wages subsidies will help cash flow of the supply (developer), keep jobs (demand) so I foresee that the price will stabilise with slight decrease to drive up interest.”

He added that this is also subject to the banks’ appetite to give end-financing during this moratorium period. Sim highlighted that after the six-month moratorium period, the price of properties will depend on how well the country’s economy restart itself and how few jobs are lost and new ones created due to the pandemic.

“If the loan defaults are low and not many forced sales after the six-month moratorium, property prices will be stable and with low discounts. If our economy is able to restart and resume quickly to the previous momentum, we can see that our businesses and incomes might not be adversely affected after the 12 months when the MCO is lifted.”