Following a year where most of us were unable to lead the same lifestyle as before when the lockdowns were lifted, revenge spending became a worldwide phenomenon. The pandemic changed not only the way we live, but also our consumer behavior, and even with the reopening our behavior will not be the same.
This has impacted businesses and pushed technological sales and ecommerce to a wider range of users. It has also prompted investors to look for reopening trades, or businesses that are poised to benefit from the reopening and revenge spending.
What is revenge spending?
Revenge spending is a psychological phenomenon that is characterized by consumerism after a period of avoiding making any purchases. During the pandemic, most of us were forced to stay home. Our habits changed, forcing us to consume less and less. During a period of lockdowns and uncertainty towards the future, we saw savings rates increase exponentially.
As businesses started to open up, individuals returned to their previous spending habits. Some of us, if not most of us, felt an urge to spend more money than we did before. Resulting in a surge in retail sales driven by revenge consumption, which is changing the future of retail. Some thought that this would be a momentary spike, the reality is that increased spending continued until recently.
What leads to revenge consumption?
Most of us were deterred from spending during the pandemic and changed our behavior as consumers. It is expected that after a period as challenging as this one, our old behavior will eventually come back. Consumers might feel an urge to spend more than what they would normally do, following a period where they were forced to limit their consumption. Therefore a long-lasting period of low consumption can be the main driver for revenge spending.
How to avoid revenge spending?
One of the best ways to avoid revenge spending is to use a budget. This way you will be able to carefully prepare your expenses over the month. This also allows you to see if you are planning on spending more one month than the other. Easily identify your urge to spend more.
Another way to avoid revenge consumption is to ask yourself before you make any rash purchases if you really need what you are buying. This allows you to justify to yourself how important that purchase is, and you may find out that it is solely driven by revenge spending behavior.
How to profit as an investor from revenge spending?
Looking for companies in sectors that are bound to be affected by revenge spending is the first thing you should do. Some companies more than others will witness an increased demand for their products and services spurred by revenge spending. There are certain stocks that will most likely have great results over the next few years, namely in the travel industry.
The travel industry is a great example of how revenge consumption can affect our behavior. Most of us had to delay any travel plans that we had due to the pandemic. With the reopening, we are now finally able to travel. However, some countries still have restrictions in terms of traveling. Once all of these restrictions go away, we should witness increased traveling all throughout the world.
Image source: Bestlife
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