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Although inflation has fallen for eight months in a row, February retail sales still fell on a year over year basis.
Consumers, whose wallets are clearly still being squeezed, are relying on buy now, pay later (BNPL) to purchase everyday items like groceries and home goods, as opposed to using it for discretionary spending. It’s a function of inflation forcing consumers to find ways to circumvent higher prices.
- In 2022, the share of online purchases using BNPL grew 14% YoY, with revenue from BNPL increasing 27% YoY, according to an Adobe report.
- “In the first two months of 2023, BNPL order share was up by 10% YoY, though revenue fell by 19% YoY, indicating that consumers are using this payment method for smaller purchases,” Adobe said in the report.
Its usage is also widespread across several categories.
- In the first two months of 2023, groceries’ share of BNPL orders grew 40% and home furnishings grew by 38%. In contrast, apparel grew by 8%, and electronics fell by 14%..
- In February 2023, the home furnishings category grew 12.9% YoY, driving $9.4 billion in spending for the month. Groceries grew even more substantially, at 26.7% YoY, driving $8.4 billion in spending. Demand for electronics slowed following a record holiday shopping season, falling 5.4% YoY to $13.6 billion, while apparel fell 0.6% YoY, driving $11.3 billion in February spending.
“What’s interesting is we see [buy now, pay later] really over indexing in the major categories that are seeing the growth…[in] grocery and home and furniture,” Vivek Pandya, lead insights analyst at Adobe, told Retail Brew. “Inflation is something that consumers are contending with by having them go through this sort of installment payment process…You’re seeing a cohort of audiences that are very much ready to leverage more and more online commerce, convenient online commerce, and ensure that they can get into these spaces of convenience and continue to benefit from it.”
Zoom out: Consumers have embraced BNPL in part because there are no interest charges, but that doesn’t mean its users aren’t struggling with debt. In fact, BNPL users are 11% more likely to have a delinquency of at least 30 days on their credit records, according to a report from the Consumer Financial Protection Bureau. Plus, around 6% of BNPL users have balances on all credit cards exceeding the sum of their limits, as opposed to 3% of non-users with credit cards.