What Germany’s Soft Reopen Portends For The US Market

What if an economy had a grand(ish) reopening — and almost everyone decided to sit it out?  Such is the question German officials are facing this week as the government has begun its early experiments with re-opening, emerging from the era of enforced social distancing in the name of better containing COVID-19.  According to Reuters reports, as regulations are lifting and physical retail is coming out of the deep freeze, consumers are still eschewing shopping for the most part, the national retailers association said on Wednesday.

“It was very relaxed, there were no lines, there were no crowds,” Stefan Stukenborg, head of an Ikea branch on the outskirts of the western German city of Cologne, told Reuters.

So why the subdued reception?  There are a few factors in play.

One is that the re-opening, as will soon be the case in the U.S., is happening in a phased manner with differing parts of the economy coming online at different rates. The initial round of openings is targeted at smaller shops of 800 square meters (8,600 square feet) or smaller as well as car and bicycle dealers and bookstores that adhere to strict social distancing and hygiene rules. In some parts of the country some larger furniture were allowed to open as well.  Schools are targeted for re-opening by May 4th.

That gradual opening period with a focus on smaller stores is simply confusing to consumers who are both unsure if venues are open and if they’ve actually been given the all clear to shop at them, Berlin shopper Marius Fahner told Reuters.

“I think they should open many more of the shops, you need to give people the chance to live their lives and that can only happen if the shops are open again,” he noted.

Other German consumers may be more reticent, the German retail association HDE noted through a spokesman, as they are beset by economic anxiety — consumers hit hard by the relative shutdown in the German economy since March 17 are now in “crisis mode” with sentiment that has fall into “the doldrums.”  Apart from an attempted reopening, the German government has attempted to level out some of that economic anxiety with an injection of 750 billion euro ($811.95 billion) in relief funds spread across a range of measures aimed at heading off a steep recession triggered by the national shutdown.

But Germans have another layer of anxiety overlaying economic woes that have them pinching their pennies — health remains a pressing concern, and these early attempts at re-opening are being watched closely for their public health results. And though data is early, what has been reported so far is less than encouraging.  Germany’s confirmed coronavirus cases increased by 2,237 to 145,694, data from the Robert Koch Institute for infectious diseases showed on Wednesday (April), marking a second consecutive day of new infections accelerating. The reported death toll rose by 281 to 4,879, the tally showed.

And though German consumers are different form their American counterparts in many regards, the latest edition of the PYMNTS 2019 COVID-19 brief series may have some light to shed.  Like their German counterparts, Americans have been under mandated social distancing measures that have by and large required them to stay at home.

They’ve also been hit hard economically.  The Bureau Of Labor Statistics reports that 159 million people were employed in the U.S. in February 2020, representing approximately 63 percent of the country’s adult population.  Our latest data indicates that figure has been in free fall since early March of this year, having dropped to 59.3 percent by March 6 and to 51.7 percent by March 27. Only 40.9 percent of consumers reported having jobs or earning incomes by April 11.

And even among those who have kept their jobs, pay cuts have become endemic — 29.2 percent of consumers who were still employed as of April 11 had experienced an income decrease since the pandemic began.  Those drops have hit the consumers who could afford them the least the hardest — consumers earning $10,000 or less a year have experienced a 42.1 percent drop, while 41 percent of those earning between $10,000 and $24,999 annually have soaked a decrease in salary since the pandemic began. But salary cuts have not spared higher income earners — 24.6 percent of those earning more than $150,000 per year report a decrease in pay.

Because of all of that economic uncertainty — which PYMNTS figures clearly demonstrate has been on the rise as social shutdown has worn on — the fallout effects have become more pronounced. But consumers’ main anxieties in the U.S. still aren’t economic.  Only 4.4 percent of consumers report their main worry is losing their job, only 3.3 percent report fearing a spouse’s lose of employment and only 2.2 report a reduction in hours or pay as a primary concern. The primary concerns remain about health, with 37 percent reporting the main worry being that they or their loved ones will become ill and 25 percent fearing they will die.

Moreover, U.S. consumers aren’t apparently waiting on either federal or state officials to lift restrictions on physical commerce or interactions — fewer than ten percent said lifted restrictions would be highly persuasive to them in resuming elements of their normal lives.  Primarily important, the data shows, is a vaccine before anyone feels really comfortable moving back to “normal.”  And, as the data makes clear, consumers understand that they are likely in that wait for quite some time.  Among those surveyed, only 47.9 percent of them are expecting to resume their normal activities once it is over, compared to 32.1 percent who say they will perform more activities at home and fewer activities away from home than before, and 16.1 percent who say they will not resume any of their pre-outbreak activities once the pandemic has passed.  Of the roughly 66.5 million consumers who have switched from working in offices to working remotely, our data found that roughly a third ( 22.9 million) plan to use digital channels to make the switch permanent.

Finally, PYMNTS’ latest data shows, consumers — en masse and across demographics — seem to be getting more accustomed to the idea that the pandemic in progress may be an ongoing experience to be measured in months, not weeks. Almost half of all consumers, 44.7 percent, expect the pandemic to last six months or longer, compared to 32.9 percent who believed that on March 27 and 30.6 percent who believed the same on March 17.

So why aren’t German consumers heading back to shops en masse?  They might, as some have speculated, be pinching their pennies out of economic concern, concerns that theoretically could abate if the re-opening proceeds apace and economic activity in Europe’s largest economy begins to pick up speed again.

If, on the other hand, German citizens resemble their counterparts here on the other side of the pond and are primarily concerned about their health — and the infection and mortality rates climb alongside the re-opening?  That might push a chain reaction in the other direction and keep even more consumers at home.

But given that Germany’s re-opening proceeds the officially planned date of May 15 for the U.S. in general by a little under two weeks (barring the handful of states opening early), it might offer an interesting national scale test case to answer just how honed consumer hunger is to get back to “normal,” and how durable that desire is.