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Retail/Wholesale, Clothing Stores

Macy’s, Gap, Neiman Marcus Will Let You Buy Now, Pay Later

Traditional retail chains that derive much of their income from shoppers who pay with a store credit card are adding new payment options to attract younger shoppers.

2/28/2021 6:34:00 PM

Some department stores are offering a modern take on old-fashioned layaway plans, allowing you to pay for purchases over time. The difference is you get the goods upfront.

Traditional retail chains that derive much of their income from shoppers who pay with a store credit card are adding new payment options to attract younger shoppers.

Retail executives say they hope the benefits of drawing in new customers outweigh the potential costs asthey try to reboundfrom the crippling effects of the pandemic. But there are risks.“It’s yet another element of the new retail economy that is working against old-school retailers,” said Stacey Widlitz, president of consulting firm SW Retail Advisors.

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Macy’s estimates that credit-card income from store and co-branded cards is expected to account for almost all of its operating income in the current fiscal year. Macy’s sold its credit-card portfolios to Citigroup Inc. in 2005, but it shares profits from the portfolios with Citibank through a joint agreement. Macy’s also owns a bank that provides collection and credit-marketing services.

In October, Macy’s agreed to take a stake in Klarna and offer its buy now, pay later option to customers.Macy’s Chief Executive Officer Jeff Gennette said in an interview that the risks are offset by the new, younger customers that buy now, pay later attracts. He said 40% of shoppers using Klarna are new to Macy’s and 45% are under 40 years old. By contrast, slightly more than a quarter of Macy’s existing customers are under 40.

“Customers, particularly younger ones, were asking for a buy now, pay later option,” Mr. Gennette said. “If we didn’t have it, they might have gone elsewhere.”Mr. Gennette said the goal is to move these shoppers over time to its store-branded cards, which offer discounts and rewards such as free shipping.

Macy’s signed up fewer new store-branded credit-card customers in 2020, while stores were temporarily closed during the pandemic. But its credit-card revenue increased, mainly from lower write-offs of bad debt.How will the pandemic affect America’s retailers? As states across the nation struggle to return to business, WSJ investigates the evolving retail landscape and how consumers might shop in a post-pandemic world.

Shoppers who pay with store-branded credit cards tend to be the most valuable to retailers, ranking ahead of those whouse regular credit cards, debit cards, cash or one of the new installment plans. Store cards can typically only be used at a particular retailer, unless they are co-branded with one of the major credit-card providers.

“Our most loyal customer” uses the Kohl’s charge card, Kohl’s finance chief Jill Timm told analysts in November. “We get the most spend from that customer.”Lillie Shipley only has one credit card, and the 24-year-old marketing executive uses it sparingly for gas and groceries. For other purchases, the Jacksonville, Fla., resident relies on her debit card.

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When Ms. Shipley was shopping online for holiday gifts last year, she noticed the Klarna option at checkout and figured it would help her spread out her spending. She paid for cologne for her boyfriend and sweaters for her mom in four biweekly installments.

“Sometimes I see things that I can’t afford, but now I can treat myself,” Ms. Shipley said.In the past, events like Macy’s Flower Show helped drum up new customers. Today, retailers are turning to Klarna, which is hosting a virtual shopping event Monday and Tuesday in partnership with Cosmopolitan magazine that will include Macy’s, Foot Locker and other chains.

Gap is among the retailers introducing buy now, pay later options.Photo:Steven Senne/Associated PressAfterpay Co-CEO Nick Molnar said the firm sent about 45 million customer referrals in December from its app to its retail partners, on par with traffic generated by social-media platforms.

Buy now, pay later providers lay out the money for consumer purchases so that retailers are paid in full upfront. They collect most of their income from merchant fees, which can run double or triple what retailers pay to credit-card processors, according to industry executives. Late fees from consumers accounted for less than 9% of Afterpay’s income in its most recent quarter.

While still fairly new in the U.S., buy now, pay later options are expected to grow to 4.5% of North American e-commerce payments by 2024 from 1.6% in 2020, according to Worldpay Group Inc., a payment-processing company. Read more: The Wall Street Journal »

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So credit than So it's takeaway? During the pandemic 'shop 'til you drop' has morphed into shop even if you can't afford to. Fine! But carefully examine the labels and avoid purchasing items made in China which sadly have, post-election reappeared everywhere. Stores: revert to shunning these items. Sooooo a credit card?

Store credit card. Before the big banks took over. Like a credit card? JCOviedo6 The first time I saw a Sezzle ad pop up to buy a shirt in 4 easy-instalments of $10 at 0% interest, I was confused. But it’s all consistent - 0% six-year payments for cars or a Peloton. Can’t wait for negative mortgage rates here in N. Am!!

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So paying on credit... Imagine that. Hello identity fraud motivation What a great idea! How do they track it? Do the customers get a “card” that keeps track of their “credit?” Wish I had thought of this! A raise in pay would be better. Like store credit cards? Not sure how new of a concept that is but okay

Borrowing from the future to cover today’s consumption. That’s why GDP can no longer be a reliable gauge of economic well-being. It’s gonna snap anytime.