Consumers were already changing their retail preferences before anyone had heard of COVID-19, let alone had their life utterly upended by it.
Nick Molnar, co-founder and U.S. CEO of Afterpay, recently told Karen Webster that consumers — particularly millennials and Generation Z — were already showing distinct preferences for digital commerce and paying with debit cards rather than credit cards.
What the pandemic did, he said, was just take consumer trends that were already developing and send them into overdrive. As stores shut down, digital shopping quickly became almost all of shopping.
This vastly accelerated retail realignment presents challenges — and opportunities — for retailers of all kinds, particularly those dealing in luxury goods, Molnar said.
“Obviously, there have been different trends across different pockets of retail — and particularly in the high end, it has been quite difficult,” he said. “What we’re seeing is the retailers that have invested materially and brought a concentrated effort to their digital presence have had the ability to shift online materially [more quickly] and pick up a share of wallet that is actually increasing given that spend in hospitality and travel has nearly disappeared.”
How have luxury retailers found a way to shift alongside this trend? And what does the future look like regarding a recovery for luxury goods and retail in general?
Molnar said that depends on whether merchants understand the emerging post-pandemic customer and how consumers have and haven’t changed:
The Shifting Face of Luxury
High-end retailers bring to the market a built-in advantage thanks to some of the most consistent and loyal customers, Molnar said. For example, luxury buyers tend to be more affluent and less likely to cut their spending during economic downturns.
But Molnar said Afterpay hasn’t observed any change in buying trends for another key demographic — consumers who occasionally splurge on luxury items. Those are typically younger, more middle-class buyers who might purchase a high-end “statement piece” to anchor an otherwise non-designer wardrobe.
“We haven’t seen a huge shift in the type of product that [such shoppers] are buying as a result of COVID,” he said. “We’ve seen it be reasonably consistent in terms of [the] kind of outfit creation we saw pre-COVID — where there are definitely some ‘investment’ purchases, but then there are also some of the non-luxury purchase items that complement that investment in a ‘statement piece.’”
But that doesn’t mean luxury retailers can simply set the cruise control and wait out the pandemic. After all, Molnar said, the luxury shopping experience has historically favored physical commerce in boutiques or third-party locations like high-end department stores. However, the pandemic has pushed luxury as a segment more directly into a digital direct-to-consumer (DTC) interaction than it’s ever been.
Molnar said the pandemic has shown many luxury merchants there’s a whole host of tools and service providers out there to get them up and running with branded DTC online boutiques. That can help high-end retailers cultivate a whole host of new consumer relationships that might have otherwise never been built.
“Sometimes it can be a bit intimidating for a new consumer to walk into a luxury store and go off on a brand journey,” Molnar said. “The ability to shop online [can] remove that intimidating factor and allow them to just learn and potentially shop a higher-end and luxury product in their own space, without that pressure. I think [that] is definitely a positive, both for the retailer and consumer.”
Moreover, Molnar said that as high-end players provide nontraditional digital payment options like the installment plans Afterpay offers, the more they can attract new customers by taking some “sticker shock” out of high-end purchases without resorting to discounting. By combining omnichannel offerings with the ability to break large payments into four more manageable chunks, high-end brands can draw in an entirely new customer demographic that might have otherwise never crossed their thresholds.
The Shifting Road To Recovery
Even before COVID-19, the world was rapidly changing in ways that had nothing to do with the pandemic.
For example, millennials — who are generally the most enthusiastic about installment payments — are no longer college students. Many are entering or approaching their mid-30s and their prime spending years.
Molnar said the future of serving that generation will involve offering them payment options that speak to their desires for both flexibility and control. But he added that there are many other things that remain unknown in today’s marketplace. That means every retailer — from luxury sellers to bargain-basement discounters — must take note of what’s happening on the ground because conditions are changing so rapidly.
“I think that every retailer has gotten way more granular and daily data-focused when building their estimate and forecast for the recovery curve,” Molnar said. “And it really depends on their target demographic and where they operate.”
The new normal that will exist when the pandemic is truly over is tough to predict. But Molnar said he believes a better retail ecosystem for both consumers and merchants will ultimately emerge — although the road to get there might be both long and winding.