Revenge Spending in the era of COVID-19

Yugyeong Jeong

People who were constrained in their daily life due to COVID-19 are slowly going out and consuming. The impact of the reduction in consumption due to COVID-19 was significant. Last year, real domestic consumption fell 4.9%, and real gross domestic product (GDP) fell 1% compared to the previous year. However, this year, people’s consumption has resumed due to the relaxation of social distancing and vaccinations, and department store sales have increased by the largest margin in 16 years. In particular, department store sales rose 62.7% year-on-year last month, recording the highest level since 2005. “Revenge Spending” plays an important role in leading the economic downturn to recovery, but it is not clear whether this pent-up demand will continue.

           According to the Bank of Korea, one of the characteristics of this revenge spending is that there are many purchases of durable goods such as cars and furniture. As traveling and face-to-face activities declined, consumption related to the space increased. However, since durable goods are expensive and are used for a long period of time, the increase in revenge spending may slow. Another characteristic is the sharp rise in luxury brand consumption. Sales of luxury brands fell in Japan, France, and the UK, including the US, which is the number one luxury goods market, but Korea surpassed Germany and rose to the 7th place. Recently, it is common to wait for luxury brand stores to open and then buy goods immediately, or line up in front of stores. The boom in the domestic luxury goods market was supported by the consumption of the 20s and 30s. However, if luxury goods are excessively utilized as financial means, there are also concerns about various credit issues such as selling counterfeit products and defective products.