A month ago, clothing retail company Abercrombie & Fitch launched a ‘Buy Now, Pay Later’ (BNPL) program that allows shoppers to make interest-free payments in installments over the course of two months. The company joined the likes of Garmentory, Urban Outfitters, Walmart, and numerous other e-commerce and retail giants investing in alternative payment plans to attract cash-strapped Gen Z shoppers.
These programs are becoming increasingly popular for clothing and cosmetics retailers. Indeed, a recent NewtonX survey of executives at American retail companies that offer alternative payment plans found that, on average, buy-now-pay-later programs increase conversion rates by 5% and incremental sales by 7.5%. NewtonX investigated how younger buyers are influencing point-of-sale and payment processes in retail through this survey, and the data and insights in this article are derived from the NewtonX survey.
Alternative Payment Plans Are The New Credit Card
Younger shoppers tend to have less cash at their immediate disposal, but also have greater access to retail than previous generations because of e-commerce. Millennials remain the key demographic for online shopping, but Gen Z’ers also comprise a strong cohort (stronger than people under the age of 18 have in previous generations).
However, both millennials and Gen Z’ers have less disposable income than previous generations did at their ages. This is largely due to the prevalence of hefty student debt and declining marriage rates among the generations. Wages are rising and the economy is strong, but without combined household incomes and with burdensome loans, younger generations are less likely to splurge on clothing and beauty.
On the flip side, both buying cohorts are also less likely to sign up for store credit cards, which are generally declining in popularity. Because of these demographic factors, many brands that target millennials and Gen Z’ers are investing in alternative payment methods that don’t require physical card sign-up, and that can be easily integrated into e-commerce PoS systems.
For instance, Walmart, Warby Parker, General Assembly, and David Yurman have all partnered with Affirm, a microloan provider which offers repayment plans based on soft credit checks that take under 60 seconds. The service is popular with younger generations who don’t want to make a large purchase all at once, but also don’t want to deal with the hassle of applying for a personal loan (which often comes with hidden fees and a fixed repayment plan). Affirm prolongs the checkout process by a marginal amount, and helps reduce buyer’s guilt associated with large purchases.
Other companies such as Urban Outfitters, have opted for interest-free installment options for their BNPL programs. Urban outfitters uses Afterpay, which unlike Affirm is does not charge interest and assumes the risk of default. The company makes its money through late payment fees, and by charging the companies who partner with it. Klarma, a competitor used by Michael Kors, Acne Studios, and Dr. Martens, similarly offers interest-free options, as well as an option to pay in full 30 days post-purchase, thereby allowing customers to buy items in advance of a paycheck or other financial windfall.
Flexibility is Key: Younger Shoppers Want Options for Everything, Including How They Pay
Retail executives say that shoppers are not necessarily using BNPL programs instead of traditional payment methods. Rather, they are using them to finance purchases on top of their regular spending that they may otherwise have had to save up for. As one executive of an international e-commerce platform put it, “Young buyers are accustomed to options in everything, especially on the web. BNPLs are just another option, one that many young buyers will choose to use at some point, but not one which is likely to become a primary payment method.”