This year, MasterCard took several big steps toward a future where “every device is a commerce device.” From boosting digital payments security with advancements in tokenization, to playing a significant role in the launch of Apple Pay and contactless payments around the world, to opening shiny new innovation labs in East Africa and New York City, to further enabling the future of commerce in a world post-Apple Pay, 2014 has proven to be a year of groundbreaking innovation for the company – and for payments as a whole.
Such innovations and developments across the industry – especially when it comes to mobile payments – have influenced consumer shopping behavior and U.S. retail spending trends this year. Over the course of several months, MPD CEO Karen Webster and MasterCard Advisors’ SVP and Group Head Sarah Quinlan (aka “The Duchess of Doom” on Wall Street) regularly sat down to unravel and dissect such trends based on MasterCard SpendingPulse report data. Here are the highlights from each season:
Spring 2014 | Consumer Spending Linked To Fair Weather
Earlier this year, as we entered spring and freed ourselves from our winter stir-craze, Quinlan noted that a key factor in what’s driving retails sales was the weather.
“It really is all weather related,” Quinlan told Webster. “The most interesting thing here is that we actually look at payments and spending on a regional level. When we looked at the Great Basin, the Midwest, the Northeast, and the mid-Atlantic, they were all negative year-over-year. However, in the West, retail spending grew at almost double-digits, and in the South and Southeast as well.”
That, she said, was due to the fact that the weather was so poor in the winter that people just couldn’t get themselves to many stores. And while online shopping had seen double-digit year-to-year growth, it was still only between 7-8 percent of total retail spending – clearly, she said, people are still used to actually getting out to the stores.
Elsewhere, restaurants and jewelry were also solid categories. While consumers were buying less apparel, they were accessorizing themselves more. People see jewelry as an investment, said Quinlan.
Finally, Quinlan brought up another interesting factor – the slowing down of U.S. hardware and furniture sales.
“We saw them rise in February 2012, but now we’re seeing them drop and that was the topic of a very long debate,” said Quinlan. “But I think that we are seeing that people are buying more furnishings than furniture, and when you buy furnishings, you’re accessorizing, as opposed to investing in a home by purchasing furniture.”
Summer 2014 | “Brick And Mortar Will Never Go Away”
During the summer, Quinlan told Webster that they are still seeing strong year-on-year growth in e-commerce and all categories.
“It’s a channel-friendly environment, and we’re looking for retailers to understand that e-commerce is used by consumers as an additional channel, not as a substitute channel,” she said. “It’s really a compliment to the way that they are spending their hard-earned income.”
Quinlan noted that, despite contradictory beliefs, “we will never fully transition from brick and mortar to e-commerce.” That, she said, has been highly overstated.
“When you think about it, 12 percent of total retail spending is gasoline – that we get at the gas station. Another thing that makes up for a huge percentage in double-digits are restaurants. While we can order delivery online, most people prefer that experience of dining out.”
There is also that social experience in shopping, she said, and the walking and talking with your family or friends that is appealing to consumers. Brick and mortar will therefore never go away, she said.
“I think the most important thing is that what people see in the physical store needs to be available online. Certain retailers have taken the opposite strategy, but in terms of the data that we’ve seen, it has not been as successful a strategy as making products available online and give consumers the access to goods that they so desire.”
Fall 2014 | How Apple Pay Could Impact Q4 Spending
Consumer spending continued to be very strong throughout the fall, said Quinlan, which wasn’t a surprise with the health of the U.S. economy continuing to blossom. Total retail sales grew 4.1 percent year over year, with a slight step down.
The biggest thing that was weighing on the spending was actually gasoline sales, which dropped, noted Quinlan. That, however, was actually good news – more consumers were flying to vacation spots rather than driving. It therefore made sense for gasoline sales to drop, yet increased spending happened in the No. 1 category in August: lodging.
As for the launch of Apple Pay and how it would impact retail spending in months to come, Quinlan said she’s looking across the board to understand bigger trends, but there was “no doubt” that Apple’s new products will drive sales.
“Once we get those early adopters, the key question then becomes: Will we get that second and third level of adoption?”
Winter 2014 | MasterCard’s Take On Holiday Shopping
As Black Friday 2014 approached, Quinlan said that, as we’ve seen all year, the consumer has been shopping for experiences, not necessarily for goods. What would be interesting to see, then, was what consumers would actually be shopping for during the holiday season. Would there be pent-up demand to buy apparel, electronics and more as opposed to prebooking a vacation and taking it now, or would they be buying restaurant gift certificates?
“What we’ve actually seen is a surge in that type of spending, and not necessarily on traditional goods they’d buy over the holiday season,” said Quinlan.
MasterCard’s research showed that at the first two places someone shops on Black Friday, they spend 75 percent of the money they were going to spend that day. Merchants don’t want people thinking they can get something cheaper because they don’t get that initial spend.
Quinlan said that one of the things they knew was that nearly 50 percent of electronics are now purchased online. And in terms of in-store purchases, what people look for is something unique.
“That’s the difference. Shopping for apparel is done online more now because retailers have finally got the sizing and colors right. People know they can order something without having to return it,” she said. “More retailers have spent the money on their sites to create that experience and content so people know what they’re getting when they actually purchase.”
In December, Quinlan pointed out that consumers actually did spend money on restaurants – it was the No. 1 category for spending in November. Lodging was No. 3.
“We don’t normally think of this. You might have stayed for a couple of days at your family’s home for Thanksgiving but the fact is people are traveling every day. It’s become this experiential economy with some goods thrown in,” she said.
Spending is still up year-over-year, she said, but it’s on different things.
“People aren’t shy about just putting a picture under the tree. They believe they’ll get a better deal later,” she said, adding that retailers have cut down on prices so much that people don’t know where the floor is anymore. The urgency to buy no longer exists.
The retailers who were doing better, however, were those who had created the sense of uniqueness with only so much of a given merchandise in the light.
Overall, retailers have acknowledged that the consumer is in charge and they will shop where they want and when they want, said Quinlan. But the point is that people value time more than anything, and that is huge.
“Online is either a great content provider to help shoppers focus before making a purchase in the physical store or it is the place where the transaction is executed. Shoppers need to be given the flexibility of these options.”
For Sarah Quinlan’s insights on the most recent trends in U.S. spending, listen to the December podcast here.