What is it that keeps IKEA ahead of its competition? It’s hard to think of a more commoditised industry than low cost furniture yet year after year IKEA beat their competition despite many trying to emulate their success. Success that is due, in part, to the famously frugal nature of founder Ingvar Kamprad. The eighth richest man in the world would travel economy class wherever he went and famously stated: “the most dangerous poison is the feeling of achievement. The antidote is every evening to think of what can be done better tomorrow.”
History is littered with examples of where cataclysmic events – The Great Depression and the Spanish Flu being just two examples – have resulted in frugality borne out of necessity. Circumstances have once again intervened and thanks to COVID-19 people are spending less, given the various restrictions and impacts on employment. My beloved Nan, Irene Murphy, was one of the most frugal people I knew. In 1939, she was only seventeen years old when war broke out in Europe and was soon put to work at John Ismay and Sons, Ilford, an electrical factory in London’s east-end making military supplies under the cover of darkness. She was lucky to escape with her life when the factory was bombed in September 1940.
This is relevant today because when it comes to a crisis and society’s wheels fall off – be it a war or pandemic – the lasting impacts are the behavioural changes people make to get through.
In the case of that generation of Britons – the lasting impact was the rationing of food and other household items. Great Britain retained rationing until 1954 and an entire generation maintained personal austerity for the rest of their lives. Their refusal to spend too much or waste anything defined the global economy well into 1960s.
What now will be the lasting effects of COVID-19 on how we view, use and purchase material goods? Before COVID-19, we were moving at a pace that consumerism appeared unstoppable. Driven by technology and connectivity and lower prices, our consumption appetite for the newest handbag, phone or smart device seemed insatiable.
If we now cast forward to 2025, to a time hopefully beyond fighting this pandemic, when our behaviour is reshaping the global economy, will we – like the generation before us – foster austerity and financial caution? Will we curtail waste and spend more on locally-made quality items, rather than constantly upgrading less-expensive products from other countries? Will we rethink the food we buy and spend more on domestic tomatoes or oranges rather than be at the mercy of low-cost global supply chains?
Changing consumer demand
Since the 1960s, our desire for cheaper products saw Western economies offshoring their own domestic manufacturing industries to lower cost centres. The result was over-consumption of goods simply because we could afford them and leaving us vulnerable to supply chain disruption. If the economic fallout of COVID-19 drags on, by 2025 we may have developed a more frugal culture with our consumer behaviour leaning towards more saving and less waste.
Unreliable global supply chains will help define the future. When China first commenced lockdown, 94 per cent of Fortune 1000 companies experienced supply chain disruption. Manufacturers may begin to operate in a similar fashion to military supply chains where resources are spread in order to reduce risk of loss, paving the way for South American and African suppliers to rise and balance Asia. Also expect, in 2025, a reinvigoration of local manufacturing in order to counter-balance the reliance on critical imports.
The influence of the internet
One of the differences between our situation and that of our grandparents is the existence of the internet. While globalisation has been with us for several decades, the internet has accelerated the phenomenon. Previously, a visit to your local shopping centre to purchase something meant usually spending 10-20% more to support the community.
But having endured one pandemic, will consumers – or their governments – continue to be so laissez faire about global ecommerce? No doubt, the sector has benefited from COVID-19 with businesses like Amazon and Walmart boosting their sales significantly well into the second quarter of the year. But, as we move into a phase of learning to live with COVID-19, will we still buy as many consumer goods from anonymous vendors and accept longer than usual delivery times from overseas suppliers?
If you buy something physically, you can see its physical details. Internet sales are a trade-off of trust and quality for lower prices and greater convenience . As global supply chains are reduced to minimise risk of loss, consumers might reduce ecommerce transactions with low-quality vendors for certain critical goods.
Impact of freight
If the lasting impact of social distancing means less people visiting physical shops than pre-pandemic, then by 2025, we can look forward to a big increase in ‘last mile’ infrastructure.
Globalised consumerism driving down prices and enabling us to buy more means additional activity, yet the one thing that hasn’t been linked to consumerism is freight. Not just the trains and trucks and courier vans, and the warehouses, shops and distribution centres, but the roads and railways and the emissions.
More consumerism means more freight infrastructure. But a more frugal society, with even a small drop in inbound containers and a growing taste for locally-sourced goods and food, along with sustained ecommerce activity, could have a ripple effect on the type of transport infrastructure we may have to build.
Contemplating and anticipating the ripple effects, together with the unintended consequences of COVID-19, will be the difference between the organisations that get ahead of the next wave, and those that are left wondering what happened to their well-established business models.
In 2025, if we source more food and manufactured goods domestically, we’ll have a stronger ‘access’ and equity argument for regional transport upgrades, resulting in better regional access for B-double trucks, safer roads and an accelerated Inland Rail project in Australia.
Looking at the movement of people and goods, current estimates of growth will probably need to be reassessed and challenged by 2025 as we see a shift in human behaviour. Some projects will become less important in favour of a refocus on better quality and safer services to get people back on public transport.
There are numerous positives that have emerged from the largest social experiment in our generation, including personal reflection and adjustments and environmental benefits, but the one thing that 2020 has taught us is that we humans can change our behaviour and our habits pretty quickly.
The biggest lesson for many people so far has been that we don’t need more stuff, we need a safe environment where meeting our friends at a restaurant won’t kill us. It’s ironic that one of the most successful businessmen of all time – Ingvar Kamprad – was in the business of creating more stuff, but I daresay that his approach and attitude towards frugality will serve many of us well in the years to come.