Gladly Pay on Tuesday….
While most end of the year competitions are televised, the end of the retail game is reported on. The last quarter of the year is make or break time for retailers and used to be nothing if not predictable, The last few years the outcome has been less predictable but surprisingly profitable. This year had retailers on the edge of their seats and biting their nails. Rising costs of materials and transportation already cutting into profits makes this year’s outcome a literal deal breaker for many businesses.
Kick Off
Traditionally Black Friday (or the superbowl of retail) kicks off the holiday retail shopping, but this year several factors including inflation concerns and inventory pile ups had retailers feeling apprehensive. This year marked the third year since covid shut downs in early 2020 and the ability to predict the future based on the past. The hurdles to profitability this year were not the shut downs but the cost of living increases consumers have been struggling with. The cost of basic necessities like rent, gas, and eggs have been a point of contention, and yet Black Friday saw 72.9 million shoppers in retail stores and 11.3 billion spent on Cyber Monday.
Let’s Make a Deal
The question is, how did the retailers lure the cautious consumers into their shops? Deep, deep discounts are what saved the day. Consumers are cautious but still have needs and wants to address so they are looking for the best deals. The percent of shoppers who bought discounted items in 2021 (38.4) rose to 56.3 in 2022. Companies like Target and Walmart started their Black Friday sales in early November. Stores like Dollar Tree and Family Dollar saw increases this year as shoppers found their way to more affordable options.
I’ll Gladly Pay You Tuesday for a Hamburger Today
Almost half (49.5) of the Black Friday purchases were made on credit cards. There was also a surge of buy now pay later options available this year and consumers took advantage. A third of Black Friday consumers used loans, credit lines, or installment payment plans and 10.2% of online shoppers used buy now pay laters. Research shows that millennials and Gen Z were the most likely to use the buy now pay later options. 48% of poll respondents in that demographic reported they used those services while only 14% of the baby boomers did.
The House Always Wins
The buy now pay later model is not a new concept. The average American holds $6004 in credit card debit already. Stores that rent to own everything from furniture to electronics are flourishing. The BNPL concept has been shown to cause more bank overdraft charges, interest charges, credit card late fees, etc. for those who use them. The negative impact to pocket books and credit certainly add up for the consumer.
Thrift Trap
The basic math looks like a win. Online sales rose by 7.4% and physical store sales increased by 6.6% almost exactly what was predicted (between 6-8%) . They were hoping for more due to the increased cost of goods and quality labor. There are new trends to contend with as they look to next year. The average American bought gifts for 6 people in 2021, for 2022 it was down to 4. That may not sound concerning but if they bought gifts for 4 people this year on a buy now pay later budget they may reduce that number down next year. Discounts are going to continue to be the way to the heart and pocket books of the cautious consumer.
