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Retail consumption is usually extremely high over the holidays. This year, the pandemic may result in lower sales, which could hurt businesses and the economy as a whole. The effects will likely be unevenly distributed among goods depending primarily on how much more of them people usually buy during December, and how well they can be sold online.

Thanks to the holidays, retail consumption tends to be about 20-25% higher in December than in the other months of the year on average. Last year, it was around HUF 1200 Bn (EUR 3.33 Bn), up by about HUF 200 Bn (EUR 550 Mn) from the months prior, which was approximately 0.4% of GDP.

This year, due to the effects of the pandemic, retail consumption is expected to be curtailed. At the moment, citizens are under strict restrictions, consequently, sales of many goods are low for the time being. Even if regulations were relaxed, which is itself rather dubious, it is doubtful that people would be as eager to go shopping en masse as normally, if for no other reason than because the crisis has resulted in many losing their livelihoods in part or completely, therefore a significant portion of households will likely be more pressured for money than usual. 

Gov't to Review Covid Situation and Effectiveness of Current Restrictions Next Week
Gov't to Review Covid Situation and Effectiveness of Current Restrictions Next Week

Talking about the timeframe of the current restrictions and whether the government had any plans to tighten them, the head of the Prime Minister’s Office said the government had not discussed the implementation of tougher measures. The cabinet will review the situation and the effectiveness of the restrictions currently in place at a meeting next […]Continue reading

Losing a large portion of holiday sales in 2020 due to the pandemic could be problematic for both firms and the economy as a whole. Businesses are already under a fair bit of pressure due to the coronavirus crisis. Many of them may be relying on the Christmas season to keep them afloat. The Hungarian economy is now expected to contract 6.4-6.5% by the end of the year, and this could be quite significantly better or worse depending on how the holiday season turns out. More businesses going bust or having to lay off employees will certainly hurt the economy further in the medium term, making recovery even harder, which will again affect the livelihoods of many Hungarians.

The Hungarian Economy and the Pandemic - Hungary at First 'Site' Conference
The Hungarian Economy and the Pandemic - Hungary at First 'Site' Conference

At an international “Hungary at First ‘Site'” press conference organized by the Friends of Hungary Foundation,Hungary Today’s publisher, and held online this year due to the coronavirus pandemic, Gábor Gion, State Secretary for Financial Policy Affairs, and Radován Jelasity, CEO of Erste Bank Hungary spoke of the Hungarian economy and the financial sector during the pandemic, […]Continue reading

Of course, additional retail consumption is not distributed equally among products (and services), so different businesses may be impacted to varying degrees. Based on the most recent pertinent retail consumption data available, watches and jewellery retail could be hardest hit, as it tends to see a 60% increase in consumption over the last quarter, most likely almost entirely because of Christmas. This means an up to 180% increase in consumption in December, assuming most of this is concentrated around the holidays.

Household electronics are next in line, then phones and media devices, other IT electronics, books, clothes, and finally, hobby goods and games still see a 30% (up to 90% in December) increase normally. Typically, other fixtures of malls such as restaurants and coffee shops also experience a significantly higher number of customers during the shopping season, which is especially unlikely to be the case this year.

On the other hand, sales in some of these categories will probably be disrupted less than others thanks to online shopping. As elsewhere, e-commerce has taken a stronger foothold in Hungary due to the pandemic. Consequently, sales of products that people do not mind buying online, or downright prefer to, such as consumer electronics, will likely not be impacted as strongly (if at all). This is especially likely given that people spend more time at home due to restrictions on movement during the pandemic, and is well-illustrated by consumer attitudes towards Black Friday, which was last week.

However, when it comes to watches and jewelry, for instance, consumers might prefer to inspect the goods before purchasing, and sales will therefore drop as physical shopping declines. Clothes are in a similar position, because consumers may typically like to try them, see how they fit, and inspect their materials (delivery and returns are more problematic and costly in Hungary at the moment than in the U.S. through Amazon, for instance). Moreover, since there are fewer social events, there may not be as much of a reason to buy clothes this year, anyway.

Moreover, it is important to note that since people spend so extravagantly during the holidays, retail consumption often falls dramatically in the first quarter of next year, especially January. If excessive spending is curtailed by the pandemic in December, then in some categories of goods and services, the loss of revenue compared to the year prior may be somewhat balanced out by higher earnings over the following months.

Of course, this can only be the case for goods and services which are not expressly tied to the holiday (especially non-functional gifts), and for the portion of the fall in consumption which is due to people’s unwillingness to expose themselves to the danger of shopping, and not the result of an inability to afford purchases.

Featured photo illustration by Zoltán Máthé/MTI