In today's Finshots we talk about revenge shopping and why people may suddenly be looking to buy luxury goods.
The Story
Revenge shopping is a weird name. And its historical antecedents are equally interesting. The Cultural Revolution in China was a period of doom and gloom. Millions of people lost their lives and the country closed its borders to the world. For the remaining Chinese people, there wasn’t a lot to look forward to and they were deprived of the most basic necessities. But then in the late 1970s, the country began to open up. And as economic activity slowly started gathering pace, Chinese people finally had the means and the wherewithal to buy foreign products. In fact, by the 1980s, they were doing it with such regularity that they had a new name for it — “baofuxing xiaofei.” Or as we like to call it in English — Revenge Buying.
It’s different from pent-up demand — where people defer their purchases in the hopes of transacting when there’s more economic certainty. Or the kind of shopping we do to alleviate stress and depression. This is exacting revenge on fate itself, for having stolen an entire year from us. It’s fair compensation for the damage we’ve suffered due to the pandemic. And the only way to make peace is to….
Spend, spend and spend some more.
For instance, in April 2020, just as India and many other countries were beginning to shut shop, Chinese customers were walking into malls and spending ridiculous sums of money on luxury goods. In just one day, a Hermes store in China managed to sell $2.8 million worth of goods. It was crazy and by the end of 2020, China’s overall share in the global luxury market had doubled to about 20%.
This was revenge shopping at its finest.
And people now believe we might start witnessing the same trends in other countries as they begin opening up their economies as well. And they have good reason to believe so. According to Bloomberg, Americans have amassed excess savings to the tune of about $1.7 trillion. The French Economic Observatory meanwhile noted that households in their country saved ~$66 billion during confinement last year. And if you start putting all the pieces together, you’ll start seeing that people now have the capacity to spend.
The only question then — Do they have the motivation to exact revenge by throwing money on luxury goods. That, we still have to see. But if you were to ask Lamborghini — the luxury carmaker who almost sold out for the year, they’d probably say yes.
Will this happen in India?
Well, it’s hard to say. Spending is after all a by-product of your savings pattern. Or in some cases your creditworthiness. And while there’s some evidence to suggest that Indians have kept pace with previous years’ consumption figures, a recent report from Pew Research might come as a bit of a dampener. In it they note —
Prior to the pandemic, it was anticipated that 99 million people in India would belong in the global middle class in 2020. A year into the pandemic, this number is estimated to be have been 66 million, cut by a third. Meanwhile, the number of poor in India is projected to have reached 134 million, more than double the 59 million expected prior to the recession. The poverty rate in India likely rose to 9.7% in 2020, up sharply from the January 2020 forecast of 4.3%.
So if the burgeoning middle class no longer has the spending power, it is unlikely we will witness revenge shopping — the kind we are witnessing in countries like the US and China. The counter-argument however is that a bulk of the spending happens in the upper-middle-class and the high-income segment. And even though their numbers may dwarf in comparison to the middle class, their spending power makes up for it with aplomb.
So yeah, we will have to wait and see how India reacts when we finally begin to open up our economy for good.
Until then…
