Coupa Business Spend Index Reveals that Business Spend Sentiment is Improving, but Remains Below Trend

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We all know that, thanks to the global pandemic, business travel spend has dropped to close to nothing. But to see that represented visually is quite impactful.

According to Coupa, there’s been a 97% drop in travel spend since this time last year, but overall spend confidence is beginning to return to pre-Covid levels, so where is that money being spent? Based on billions of dollars of actual business spend decisions (aggregated and anonymised) from around the globe and across the Coupa platform, we can help to explain.

And because business spend can be a leading indicator of consumer spend, and together both impact business spend sentiment, our economists have been able to prepare Coupa’s quarterly  Business Spend Index (BSI) and provide a Q4 2020 Outlook to show where spend confidence is headed in the next three to six months.

Every dollar counts

As procurement professionals know, in order to focus on resilience  and survival, businesses have had to ask themselves, “What do we not need to spend on?”. Data from the Coupa platform tells us companies are spending less nice-to-haves like business consultants with advice about how to make the business run better, and office supplies that might not be as necessary with many companies asking employees to work from home. Though still cautious about the global economic outlook, companies are focused on liquidity and cash flow so they are spending money on contingent workers so they don’t have to put people on the books.

Additionally, the pandemic has forced organisations to face the fact that digitising and modernising their business cannot be put off any longer. There can be no more “oh we’ll only accept wet signatures”, or holding onto that fax machine. They are spending more in support of remote work and digital processes, which is reflected in the consistency of spend in the technology and telco sectors. And they are spending on shipping and freight.

Coupa platform data from the past quarter shows the following year-over-year changes in business spending:

  • 97 percent decrease in business spending on air travel
  • 22 percent decrease in business spending on office supplies
  • 5 percent increase in business spending on technology, including hardware, software, and services
  • 41 percent increase in contingent workforce spend
  • 29 percent increase in business spending for shipping and freight

What to Expect in the Coming Months

Shipping delays could present challenges for Australian and New Zealand businesses in the near term.

In “normal times”, business supply chains are balanced so carefully across the globe, but Covid-19 has caused delays and disruptions and what we’ll see next are the repercussions of these delays. There aren’t enough shipping containers in China at the moment for all the backlog of stock and goods that have been ordered along all the supply chains. 

Suppliers are trying to ramp up and they’re trying to work out which supply chains are still viable because some of them have been put on hold by governments and border shut downs, and there won’t be enough containers to deal with correcting for the latency all at once. If I was in the market for a whitegood, I’d consider fitting it into this quarter’s budget.

Delayed decisions cause delays in spend, which will cause further delays because of extended lead times & shipping delays.

In Australia and New Zealand, despite the fact that things may feel perhaps slightly more normal than elsewhere based on how we are tracking in terms of the pandemic, that doesn’t mean our business spend will be much different than this global BSI.

There is still a great deal of uncertainty and hesitation. The easiest decision at the moment is no decision. I’m seeing a lot of organisations saying, “2020 is almost over. Let’s just hold on till after the holidays. Let’s keep the status quo until the board meeting in March and see what everything looks like then.”

Many organisations are not making decisions about what they’re going to do long term, which is impacting spend. For example, businesses in general are placing less orders for office supplies and therefore the Officeworks of the world are placing less orders. It makes sense because of all the remote work but from a purchasing perspective, if orders aren’t placed at the right time in anticipation of need due to workers returning to the office, eventually there could be a dip in organisations getting the supplies they need. In some cases that may be unavoidable.

Global outlook varies from sector to sector

Following a quarter of modest improvement in corporate spending, the BSI suggests that businesses are continuing to adjust to the new normal.

Somewhat surprisingly, the BSI indicates an expectation of modest growth in the retail sector, globally, although still below trend year over year. And despite rising default risk, the finance sector is looking set to deliver solid growth for the next three to six months following improvement over the past two quarters.

Spend sentiment for health and life sciences increased significantly since last quarter. The impact the pandemic has had on remote work has been largely beneficial for the tech sector, and as a result high tech held a steady increase in business spend sentiment quarter-over-quarter.

Spend sentiment for manufacturing continues to decline, and as a result, contribution of the sector to GDP is likely to decline over the next three to six months.

Overall, according to Coupa’s chief economist, Jeff Collins, “The Coupa BSI Q4 Outlook indicates that business spend sentiment is continuing to recover from its sharp drop in Q1 as companies grow increasingly comfortable operating in the new normal. However, despite the positive adjustments made by companies in most major sectors, our analysis shows that confidence in the economy is still low and is likely to remain below trend for at least the next three to six months.”

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Stuart O’Neill is Managing Director – APAC for Coupa Software. Coupa empowers companies around the world with the visibility and control they need to make smarter spending decisions.

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