It was a no-brainer that eCommerce sales would spike during the COVID onset, but the big question was would the increase continue at a rapid pace or temper when “normal” returned. The metric is essential for retailer traffic and the credit industry that supports consumer purchasing.
One school of thought was that eCommerce would create muscle memory and keep transaction volume in a card-not-present world. The other opinion was that it is nice to get out shopping, and how else can you find a good-fitting pair of skinny jeans?
Walmart, the top U.S. retailer, showed a 6% increase in sales during 1Q21, as the WSJ reported, though the CEO indicates: “In the U.S., customers want to get out and shop.” And while that sounds inspirational, the Journal also reports that: ”The company’s e-commerce sales increased 37 percent in the first quarter.”
The Economist covered Target sales and noted, “digital sales rose by 50% in the latest quarter. That is a blistering pace-but not nearly as blistering as earlier in the pandemic.”
The Department of Commerce indicated: “Total e-commerce sales for 2020 were estimated at $791.7 billion, an increase of 32.4 percent (±1.8%) from 2019. Total retail sales in 2020 increased 3.4 percent (±0.4%) from 2019. E-commerce sales in 2020 accounted for 14.0 percent of total sales. E-commerce sales in 2019 accounted for 11.0 percent of total sales.”
For credit managers, there are three trends to consider as the economy gets back to order.
- Now is an excellent time to reconsider Private Label Credit Card strategies and Co-branded cards. Buy Now Pay Later (BNPL) gained traction as consumer-driven online sales made BNPL borrowing an easy option. The BNPL model still works at the point of sale, but it is not as smooth as the online version. Consumers (and retailers) do not want to clog up the checkout point, and a payment card is still the fastest way out the door. At just about the same time a BNPL can make a $100 POS loan, retailers can use their instant approval process and book a new PLCC card with a $3,000 revolving limit.
- Worry less about mitigating risk from incremental online sales to those card issuers that increased their fraud management capabilities during COVID. Adding layers of fraud tools never hurts. Expect to see the pace of online sales slow, but the investment is not wasted. The long view of eCommerce is that more than 20% of sales will come from that channel. Continue to take fraud seriously.
- Revolving debt in the U.S. is slowly returning to normal. Following a peak of $1.082 trillion in 2019, volumes slipped to $974.6 billion in 2020, then slid to $966.4 billion in January 2021, with slight increases to $974 billion in February, and up to $980.4 billion in the latest report by the Federal Reserve for March 2021. As consumers gain confidence in their situations, revolving debt will get back into the growth mode.
Top card issuers react with confidence. Falling eCommerce will not hurt credit sales because there is a pent-up need to shop again. Yesterday, I did an Amazon return at Kohl’s in Tampa, Florida. At the entry point, a sign said, “No Masks Required if You are Vaccinated and Have No Symptoms.” This allowed me to take off my proverbial-COVID mask and buzz through the store as if nothing happened.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
