By Beth Phillips, Co-op Director of Strategic Portfolio Growth and John Patton, Co-op Senior Payments Advisor
Holiday shopping season is upon us, and it’s shaping up to be a bumpy ride.
To counteract challenging economic headwinds, major retailers like Amazon, Target and Walmart have tried to jumpstart the season with well-promoted early sales days. So far, the results have been mixed, at best.
According to The Wall Street Journal, Amazon’s “Prime Early Access Sale,” held October 11-12, did not meet the high bar set by the company’s normal Prime Day events. Data from Klover showed household spending was down 40% from July’s Prime Day, and research firm Numerator reported that average order size declined by more 22%.
Considering that consumers have been dealing with high inflation and supply shortages throughout 2022, perhaps it’s no surprise they are taking a cautious approach to this year’s holiday shopping season, preferring to wait and see.
Just when you thought this holiday season may return to its staple of offerings - friends, family, delicious meals and more - a rare summer outbreak of bird flu has surged turkey prices up by 73% over last year, afflicting the Thanksgiving celebration staple.
Following are the Co-op SmartGrowth team’s payment trends predictions for the upcoming holiday shopping season, along with some recommendations for how credit unions can meet their members’ payment needs during this busy and critical time of year.
3 Spending Predictions for the Holiday Shopping Season
- Retailers Push Early Shopping: As mentioned above, retailers are heavily promoting pre-season shopping days to help consumers reactivate their shopping habits. Those merchants that invested heavily on inventory over the summer are in the most precarious position, and are most likely to offer aggressive pricing discounts as December approaches.
We predict that consumers will do much of their early shopping online, whereas last-minute shopping will be primarily done in-store.
- But Consumers Are Tightening Their Purse Strings: With inflation rising another 8.2% year over year in September, there seems to be no end in sight for ballooning prices, and households are growing increasingly concerned with their ability to maintain budgets. This means that discretionary spending—including gift purchases, travel and entertainment—will likely decline as households struggle to make rent, mortgage, utility and car payments over the coming months.
We predict that fears around inflation will drive consumers to save more and spend less this holiday season, with many focusing their spending on buying gifts for immediate family members versus extended family and friends.
- Shift to Credit for Key Spending Categories: For those shoppers who plan to maintain their holiday gift spending from past years, many will be more likely to put their purchases on credit over debit.
Co-op’s proprietary spending forecasts show month-over-month increases in credit across a wide range of merchant classifications through the end of the year, including Amazon/Bookstore (34.2% forecasted increase in December), Department Stores (26.5% forecasted increase in October), and Discount Stores (forecasted increase of 14.3% in October).
Consumer spending is always unpredictable, and the traditional holiday shopping season has been upended over the past three years due to a range of unprecedented factors. Variables that may impact our predictions include changes in inflation rates, borrowing rates, unemployment figures and other economic indicators. Of course, COVID is still hanging around, and any surge in cases during the winter months may impact the public’s willingness to do in-person shopping and other outside activities. On the other hand, if economic indicators start to turn to the better, they may give a welcome boost to retailers’ fortunes.
What Credit Unions Should Do Now
Here are a few areas to focus on as your members gear up for this year’s holiday shopping season.
- Activate your Spend & Get Campaigns: Make sure you’re incenting your members to use your cards when they do their shopping this holiday season, by boosting rewards for select merchant category codes through a Spend & Get campaign. This can be done in a variety of ways, such as offering double or triple rewards points, or even by crediting dollars directly to members’ checking or savings accounts for purchases in certain category codes. And don’t forget about your local merchants!
- Offer Special Low APRs: With interest rates rising and consumers becoming more cost-conscious, special low rates for purchases are particularly attractive to your members right now. Like Spend & Get campaigns, this is a great way to incent members to keep your cards top of wallet.
- Promote Contactless and Digital Payments: If you offer contactless cards or digital wallet provisioning in your product toolset, now is the time to promote these methods, as shoppers continue to migrate toward eCommerce and using contactless payment methods in-store.
- Promote and Grow Your Brand with Member Loyalty Strategies: According to Coveo’s 2022 Holiday Shopping report, 67% of consumers are interested in product recommendations with Gen Z (21 to 28 -year-olds) at 40%. This sought-after population continues to place high regard on brand loyalty, especially if its values align and are endorsed by family and friends. What does this mean for credit unions? Use your established member relationships to build your membership through word-of-mouth recommendations; online reviews (make sure you address and respond to each and every review!) and highlight your unique, value proposition and excellent service through omni-channel marketing.
- Motivate Members to Place Your Card on File: Subscriptions continue to grow in popularity across a wide range of merchant segments, from automobiles to streaming services. Plus, they are a top gift during the holiday season. To ensure your members use your debit and credit cards as the primary payment method for these services, look for ways to educate and promote the benefits and convenience of provisioning your card on file with such services, as well as in popular shopping sites like Amazon, Target and Best Buy.
- Start Thinking About Balance Transfer Campaigns: Those consumers who do plan to spend this season will likely end up with balances to pay off come January. Why not plan a balance transfer campaign for the first quarter of 2023, when consumers will be seeking relief through low rate offers? It takes time to implement such campaigns, so get started today!
The holidays are here. Give your members something to sing about!
Get the most out of this year’s holiday shopping season by ensuring your credit and debit portfolio is gift-wrapped for the holidays. Activate your data to optimize your portfolio with Co-op. Then put a bow on it with help from Co-op SmartGrowth Consultant Services.