The Great Shift in American Spending - Permanent or Temporary?

by Christopher Levarek

“The secret of change is to focus all of your energy not on fighting the old, but on building the new.”

- Socrates

Already mid-month through November, the holidays are quickly approaching and with them the now famous “Black Friday” spending or holiday shopping. The overall rush has begun for many to purchase holiday gifts and find the deal or sale of the century.

Yet up to this point, and for this year in general, spending has drastically changed. Today we dive into some interesting changes the pandemic has instigated and the long term implications of these new buying habits.

American Spending Categories in 2020

Much has changed in the year of 2020 in how Americans are investing or spending their money. If I were to say that Travel, Entertainment and Auto Transport spending costs have decreased since 2019, most would agree this is entirely explainable during a health crisis. People are spending less in these categories because they are traveling less and avoiding theaters, theme parks and the like.

However, what about the if I were to say that Investments, Pets and Education categories showed the highest increase in spending between 2019 and 2020? Would these be the first guess as to the area people are spending more?

Online is the Answer

One of the biggest shifts of 2020 in American spending has been the dramatic increase in online spending or purchases on the internet. This sector of spending, known as eCommerce, increased by 30.1% overall for the first 6 months of 2020. In fact, “$200.72 billion was spent online with U.S. retailers in Q2, up 44.4% year over year.” according to Digital eCommerce 360.

Source : Digital Commerce 360 analysis of U.S. Department of Commerce data

Some of the companies that have experienced the highest increases in online sales, according to company reports gathered in a CNBC article include names such as Bestbuy, Target, Home Depot and Lowes :

If we simply focus on American spending online, we find that most that the categories in which American are spending most of their money are in Groceries (44%), Clothing (30%), Entertainment ( 26%) ie. video games/movies and Home Improvement items (23%).

I would bet if a survey was done in 2019 on American spending online, not many would put their money on American spending being strongest in the “Groceries” category.

Of course Amazon, the online retail giant, registered a 197% increase in sales in Q3 2020 when compared to Q3 2019.

We can only expect a sharp uptick in online sales for many companies with Black Friday approaching and already sales/deals to be found by those who have instituted a “Black Friday month”. Walmart, Bestbuy and Target will sure to be offering “great deals” throughout the month and also see considerable increases in online spending.

In Final

Investing habits and spending categories have changed due in large part to the pandemic in 2020. However, it is starting to become clear to many that these online spending changes are here to stay. The practicality and comforts that these remote and online choices have brought are appreciated by the masses. It will be crucial for many companies to ramp up their online presence both in sales and in business operations to stay relevant.

In here lies the opportunity for the real estate investor or apartment investor. Understanding which areas will see residential growth as remote workers move out of the cities and which shutdown physical retail shopping centers will be able to convert into Warehouses/Delivery centers are going to be some of the opportunities of the future. Invest Smart!