The combination of a down economy, the pandemic and election uncertainty are causing the youngest consumers, Generations Y and Z to be pulling back on spending. That does not bode well for retailers in the run-up to the holiday season.

Bloomberg news announced in September that the U.S. unemployment rate was 7.9 percent, more than double what it was last year. But among those ages 16 to 24 that straddle Generations Y and Z, the unemployment rate is a staggering 13.5 percent, according to data from the Labor Department released last week.  

A new Piper Sandler survey suggests that teen spending hit its lowest levels in two decades. While it is hardly surprising that they spent less on food and events during the coronavirus pandemic, even apparel spending was down 11% from last fall. And there is plenty of reason to suggest things could get worse among our youngest spending cohorts. This is particularly troubling given that it was younger spenders that powered the economy out of the 2008 recession.   

Easing the Pay Pain

Retailers are working overtime to reengage the Generation Z demographic, which still wants to touch and feel the goods. Eighty-one percent of this cohort group prefer the instore experience, according to buy-now-pay-later (BNPL) leader Afterpay. As a result, retailers and the fast-growing BNPL industry are mounting a multifront, seasonal attack aimed at this valuable consumer, on and offline.

Two major announcements hit the wires on October 6th introducing new relationships between two major BNPL players with a couple retail powerhouses. First, Australian based Afterpay which claims 10 million active users globally, announced a partnership with Simon Property Group to promote in-store shopping ahead of the holiday season.

“The current economic climate has accelerated the demand for flexible shopping and payment options, especially among younger buyers who prefer to spend their own money and pay over time.” stated Melissa Davis, Afterpay’s EVP of North America, in an e-mailed response to my inquiry.

In July, Afterpay debuted its U.S. BNPL program through Apple Pay and Google Pay. The partnership with Simon now extends this offering to its malls nationwide. Afterpay, like other BNPL apps gives shoppers a safe, contactless way to buy what they want, take the items home, and pay overtime, without interest or fees. Afterpay is available through 15,000 U.S. retailers.

Klarna in lockstep with Afterpay, sort of

Simultaneous with the Afterpay announcement this week came word of a another new buy-now-pay-later initiative between Swedish player Klarna and Macy’s. Macy’s announced both a five-year partnership and an equity stake in the company. Within the department store segment, Macy is becoming one of the first companies to offer its customers Klarna’s buy now, pay later offering. Klarna will offer customers the ability to elect to pay in four equal, interest-free installments at the Macys.com online checkout as part of an “enhanced shopping experience.”

While Klarna already is offered to many in-store shoppers, Macy’s Klarna in-store offering has been solely to customers utilizing a Macy’s American Express card and not the more preferred Macy’s credit card. Given the celebratory nature of the Klarna/Macy’s announcement, and its implied ecommerce context, I reached out to representatives of Klarna’s PR company for clarification. My assumption was correct. The new program is aimed at ecommerce; instore sales retain the same restrictions.

This seems like yet another instance where a Macy’s strategy makes sense, but the tactical execution does not. Macy’s, for all its interest in building its ecommerce platform, desperately needs to boost instore traffic, now more than ever. With the highly valued Generation Z’s preference for the instore experience, to offer this benefit online, only to introduce a hurdle at the check-out, makes little sense to me. This friction at the point of sale may undermine Macy’s efforts to cultivate a key cohort.

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