This past Thanksgiving shopping season, American consumers once again showed strong purchasing power.
According to Adobe Analytics, U.S. consumer sales reached $9.8 billion on Black Friday, up 7 percent from a year earlier5%；Cyber Monday saw $12.4 billion in online sales, up 9% year-over-year6%。
While both sets of sales figures outperformed** and hit record highs, some of the structural changes behind the data suggest that apparently strong purchasing power is in fact being eroded by inflation and the Federal Reserve's successive interest rate hikes. Among them, the rise of BNPL (buy now pay later) tools and the sharp rise in the number of mobile transactions represented by Temu are the most obvious, which reflects the advanced consumption and trading down based on debt. Consumption downgrade
The National Retail Federation estimates that the per capita consumer spending of this year's Black Friday shopping season, both online and offline, will be 321$41, which is slightly lower than last year's $325$44 and not adjusted for inflation.
McKinsey partner Tamara Charm, as well as Bank of America senior economist Aditya BH**e, both believe that consumers are looking for cheaper alternatives and are postponing non-holiday purchases of non-essential items. This is directly related to "inflation fatigue" based on stable inflation expectations.
The consumerwise report released in October by consulting firm McKinsey showed that consumers' spending Xi are changing. For example, 79% of consumers will make a price reduction to save money when shopping, including 50% saying they would buy a product in a smaller package, 38% choosing a cheaper retailer, 25% choosing a cheaper product, and 79% considering trade-in. This trend, known as consumption downgrade, is also the main factor that has driven the overseas version of Pinduoduo Temu to emerge in the United States and once sent Pinduoduo's ** value to the top of Chinese concept stocks. While Temu's slogan has always been "shop like a millionaire", the brand's acronym for Team Up Price Down already reflects its positioning as a cheap one.
SimilarWeb's web traffic analysis shows that Temu visits surged 74 times year-on-year during Black Friday, far outperforming e-commerce giant Amazon's slightly 1% year-on-year drop in visits and Temu's other cross-border Chinese e-commerce company Shein, which attracted a large number of customers, which fell 22% year-on-year.
During last year's Black Friday, temu topped the Apple** and Google Play stores just five months after its launch through a 30% discount on the first order of newly registered users. This year, TEMU spent $14 million on advertising marketing at the Super Bowl.
According to a report by TechReport, Temu has had 2 applications** as of October this year3.5 billion times, surpassing Amazon shopping, becoming the world's most popular e-commerce app, and occupying the top spot in the Apple** and Google Play Store** in the United States, Britain, France, Germany and Europe. Temu currently has 90.5 million monthly unique visitors, making it the 85th most popular in the world and the 74th most popular in the United States**. As of September this year, Temu had 82.4 million monthly active users in the United States, a significant increase from the 4.6 million monthly active users in the same period last year, and the second most popular Android mobile app in the United States after TikTok. And as early as May this year, Temu's monthly sales surpassed SHEIN, which has been working overseas for nearly 15 years.
Temu's wild growth has also made it already a challenge for the Amazon. Although compared to Amazon 1There is still a distance of 4.2 billion monthly active users, but Temu has surpassed the two old e-commerce platforms of Target and eBay, and the average total browsing time of Temu daily users has been on par with Amazon, with 44.8 billion minutes and 53.4 billion minutes. According to data from Global Wireless Solutions (GWS), a U.S. consulting firm, Temu users' average 22-minute browsing time per visit has surpassed Amazon's 11 minutes and SHEIN's 12 minutes. According to a survey by GWS, consumers' satisfaction with Temu delivery is only 30%, far lower than Amazon's 52%, and 19% satisfaction with after-sales services such as Temu refunds is also significantly lower than Amazon's 32%. SimilarWeb's data also shows that temu and shein are only 45% and 4The 1% conversion rate is much lower than Amazon's 56%. But at the same time, more than 65% of consumers also said that Temu's low price is particularly prominent. Temu's inexpensive positioning is also reflected in the average order size**. According to Wired magazine's previous data, Temu averaged just $25 per order, and Temu hopes to bring that number up to $37. Amazon's average price per order is $47. Cheap or discounted routes similar to temu are also a common trend in Black Friday this year. According to Adobe Analytics, retailers are responding to a decline in consumer intent to buy by offering deeper discounts, with data showing that the average discount on clothing sold online has risen from 19% to 25%, while the price reduction of electronic products has risen from 10% to 24%. Spend ahead of time
In addition to actively downgrading consumption and actively participating in discounts and cheap goods purchases, another driving factor that can unleash huge purchasing power on Black Friday this year is the popularity of BNPL tools.
Data from Adobe Analytics shows that BNPL purchases on Cyber Monday hit an all-time high, up 43% from a year agoTotal spend on BNPL transactions in November is expected to reach $9.3 billion, up 17% year-over-year and a record high. According to the Atlanta Fed, purchases through BNPL instruments accounted for about 10% of sales on Black Friday last year.
A survey by data analytics firm Pymnts Intelligence also showed that consumers who used BNPL services made an average purchase of $598 on Black Friday, more than the average purchase of $452 for consumers who did not use the service. As a short-term financing method, BNPL platforms such as Klarna, Affirm, and Afterpay allow consumers to choose to pay in installments when purchasing goods, and often do not pay interest.
Unlike traditional credit cards, BNPL doesn't have an annual fee and doesn't charge interest on any balance carried forward to the next billing cycle, but there is a fixed repayment plan for the upfront amount, and consumers need to link their BNPL account to a debit, bank account, or credit card to make a scheduled charge.
The biggest attraction of BNPL for sensitive groups is the low threshold for application. According to the Consumer Financial Protection Bureau's CFPB, 73% of BNPL applicants were approved in 2021, and the approval process was quick and largely automated. In practice, BNPL usually does not conduct a credit check, i.e., there is no minimum US credit score requirement, and even if it is required under certain conditions, it is a soft credit check (i.e., soft credit check). In contrast, hard credit checks are not only more stringent and require a deduction of 5 U.S. credit scores per review, while credit card applications usually require applicants to have a credit score of 710 or higher. Even before 2021, BNPL repayment defaults were not included in the US credit score system, and even now, BNPL defaults are not reflected in the credit score system until 18 months later.
What is certain is that the advent of BNPL instruments has provided credit and freed up some of their purchasing power for some Americans who would otherwise not qualify for credit. Data from Adobe Analytics shows that about one-third of BNPL users have a credit score below 620, have had their credit card applications declined or defaulted within the past year. A September study by the Federal Reserve Bank of New York also showed that people facing financial difficulties appear to be disproportionately using BNPL instruments. The study argues that while the findings suggest that BNPL services appear to fill a gap in the credit market and expand credit access and financial inclusion, more data and analysis are needed to demonstrate the extent to which BNPL lending can contribute to greater growth. Because financial stress will affect the overall financial situation. The fact that BNPL users are already financially fragile raises questions about the resilience of BNPL loans and their performance in the wake of adverse economic shocks.
Terri R., Federal Reserve Bank of Kansas CityAccording to Bradford, the major drawback of BNPL is that it is easy to unknowingly fall into debt. In fact, the Federal Reserve's 2022 Household Economics and Decision-Making Survey found that 17% of BNPL users were unable to pay off their debts on time. Afterpay, the largest BNPL provider, for example, will have interest rates of up to 36% in the event of a default, although it can offer long-term loans of up to $25,000. Mark Luschini, chief investment strategist at financial advisory firm Janney Montgomery Scott, said: "The increased use of BNPL could be a sign that consumers are starting to collapse, suggesting that some consumers are starting to succumb to the pressures of the US economy. ”
According to an article by SSRN, the use of BNPL for some consumers is simply a short-term zero interest rate in exchange for the highest interest rate in the 80s, and that debt that is difficult to repay in time or transfer debt to a credit card will drive snowballing debt. However, the Social Science Research Network also pointed out that people tend to spend more money when using BNPL, which is about 20%.
This is the main reason why BNPL is generally popular with retailers. Even if the BNPL platform will charge the merchant for the transaction in order to hedge the risk of default**15% to 7% fee. Research by RBC Capital Markets in Canada shows that BNPL can generate an additional 30% to 50% of sales for retailers.
The current trading volume of major BNPL instruments is currently estimated at at least $100 billion per year, a figure that could soar to $1 trillion to $4 trillion within a few years. By way of comparison, the total amount owed on the credit card of U.S. consumers is 1$40,000.
Michael Landsberg, chief executive of private wealth management firm Landsberg Bennett Private Wealth Management, believes that this could lead to bigger problems in the spring when these bills start to come due. In general, the repayment cycle for BNPL is four months.
"Low-end consumers are really exhausted, with 40 to 50 percent of the country struggling to make ends meet," Landsberg said. That doesn't mean they won't spend at Christmas, but I think January, February, March, will see a real slowdown in retail. ”