By Roy Urrico
Rancho Cucamonga, Calif.-based Co-op Solutions’ Ryan Prentice, director, consulting services, and John Patton, senior payments advisor, prepared a 2023 holiday sales forecast. Despite an uncertain economic climate, they foresee, retailers preparing for an active holiday season highlighted by shoppers’ continuing migration from in-store to online.
For the second year in a row, major retailers like Amazon, Target and Walmart promoted early sales days to distribute holiday sales, which accounts for roughly 19% of total annual retail sales traffic. Co-op Solutions’ noted Amazon reported that its 48-hour “Prime Big Deal Days” outpaced last year’s event with more than 150 million items ordered from third-party sellers during the second Prime Day event of the year, held October 10-11, 2023. This represented a significant increase over the 100 million items ordered during 2022’s event.
Nevertheless, Prentice and Patton found households remaining concerned with high prices and ballooning debt loads. This may lead many families to prioritize obtaining everyday “essentials” over big-ticket purchases.
The following are payment trends the Co-op Solutions’ team predict for the upcoming holiday shopping season, along with recommendations for how credit unions can meet their members’ payment needs during this crucial time of year.
Three Spending Predictions
1. Consumers shift more shopping online. Consumers are growing increasingly comfortable with shopping online. Co-op Solutions cited research from Celigo, which said three out of four consumers plan shopping mostly online this holiday season, and 65% using the channel for all their gift-buying; and Adobe, which expects an increase in online spending of 4.8% this season over last year.
In anticipation of the higher demand, Amazon is reportedly hiring 250,000 temporary workers this holiday season — 67% more than in 2022. In contrast, department stores and other in-store retailers are more cautious. Co-op Solutions said those stores are planning to hire just 410,000 seasonal positions this year, a level not seen since 2008, during the Great Recession.
2. Essentials win out over big-ticket items. Although inflation rates slowed in recent months, prices are still 3.7% higher this year than last holiday season, leaving many households strapped for cash this holiday season. “The combination of price increases and a return to post-COVID normalcy led to a gradual increase in household expenses, which is particularly damaging to individuals living paycheck to paycheck,” said the report.
Two out of 10 paycheck-to-paycheck consumers cited “non-essential spending” as a cause of their predicament. This is causing many consumers — especially those in younger generations — to consider reducing their spending on non-essential expenditures, including holiday gifts. This trend is already taking shape, pointed out Co-op, as market research firm Numerator reported that 60% of the items ordered during Amazon’s Prime Days priced at less than $20.
3. Installment plans rise. Among younger generations, buy now, pay later (BNPL) and other deferred payment options are gaining traction and rapidly becoming a normal way to purchase goods and services. Whereas traditional retailers have offered classic layaway plans to their customers for decades, such programs are evolving to become part of the broader BNPL landscape.
For example, some major retailers are allowing shoppers to stretch out payments on eligible items for a set period with a minimum down payment of 10 or 20%. Other merchants offer customers the option of placing items on hold for up to 30 or 60 days, and then taking delivery once the item is paid off in full. Some big box retailers no longer offer a traditional layaway plan, but allow their proprietary credit card holders the option of deferring payments interest-free for up to 18 months.
“BNPL is here to stay! A new dynamic this year is many retailers are doing away with layaway and replacing it with BNPL,” Patton told Finopotamus. He added, “Examples include BestBuy, Walmart, Target and Amazon. I do expect BNPL to continue to be a great way for consumers to afford the more ‘pricey presents’ in 2023. BNPL will enjoy higher card volumes, average ticket amount and balances than last year. With many major banks’ interest rates now up to 30% APR, BNPL is a logical alternative to spread out Christmas spending over time at a lower rate. Credit unions that offer BNPL will enjoy higher average BNPL’s due to their lower APRs.”
What Credit Unions Should Do Now
“There are several activities credit unions can do to get their members engaged with the credit union’s card offerings,” suggested Patton. “These include debit. Offer a deposit in the member’s checking account for a set amount of spend during the holiday purchase season (i.e., spend $100 on your debit card account and get a $15 deposit to your checking account on X date). The deposit is usually posted after the holiday (after December 25) in hopes the member will use the deposit for after holiday deals. With consumers more focused on credit and debit balances in this economy, I expect debit will have a higher average number of transactions as compared to last year. Credit volume will be lower than last year as fewer members can afford a large balance on their credit card statement.”
Co-op Solutions also suggested credit unions should focus on the following initiatives:
· Activate spend and get campaigns. It works like this: identify where members are likely to spend. Then offer them higher rewards on select merchant categories to ensure the credit union’s credit and debit cards are their first choice. (“Bonus points if you include local (as well as national) retailers in your campaign!”)
· Promote contactless and digital payments. “There’s no better time to promote these offerings than right now, as members ramp up their retail purchases both in-store and online.”
· Encourage members to place your card on file. With online shopping increasing in popularity, ensure members have your debit and credit cards on file with their favorite e-commerce sites.
· Ready your balance transfer campaigns for January. Holiday shoppers rack up big credit card bills this time of year. Help them reduce their interest payments with a low-interest balance transfer offer for the first quarter of 2023.
Merchant Category Forecasts
The Co-op data forecasters also created a model of future spending by merchant classification code, based on an analysis of past trends in its credit union client portfolios. Based on this model, most spending categories will see month-over-month volume increases in the fourth quarter of 2023 due to normal seasonality.
The biggest gains are expected in courier/delivery services; digital goods; sport/recreation; travel; airline; discount stores; and furniture. Exceptions include computers; real estate; auto dealers, services or parts; auto rental; and subscription services, all of which are projected to show declines over the next three months.