Beauty Brands Hop On The Buy-Now-Pay-Later Bandwagon

Words by Romana Hai

Beauty Brands Hop On The Buy-Now-Pay-Later Bandwagon
Beauty Brands Hop On The Buy-Now-Pay-Later Bandwagon

At the beginning of the pandemic, brands across the board saw a major drop in consumer spend. But as consumers adjusted to their new normal, at home screen time saw an all-time high and new shopping behaviors started to emerge.

In the month of May, consumer spending increased by 8.2 percent. This shift in spend not only benefitted brands that offered essential supplies, but it also helped beauty brands that pivoted their supply chain to mass-produce essential products such as hand sanitizer and self-care items.

At the same time, luxury beauty products across the U.S. saw a decline of roughly 14 percent in Q1 2020. This led many of the top luxury beauty brands to do something they had never previously thought of: offering buy-now-pay-later services.

One major beauty brand that embraced the flexible payment option was Sephora. In May, the company announced its partnership with Klarna, enabling payment flexibility to the 290+ beauty brands it stocks. Meanwhile, a host of other brands such as Aveda, Lancer Skincare, Origins and Lancome partnered with Klarna’s competitor After Pay, adding to the wave of payment alternatives.

Beauty Brands Hop On The Buy-Now-Pay-Later Bandwagon
Source: Klarna

So, can offering yet another payment solution really make a difference in sales conversions? According to e-commerce payment provider PPRO, it can. The payment provider reveals that 42 percent of U.S. shoppers will forgo their purchase if their preferred payment method is not available, whereas 18 percent of U.S. consumers will confidently use alternative payment methods like Klarna or Afterpay if they were referred to them by family and friends.

Perhaps unsurprisingly, demand for flexible payment options has significantly increased over the past few months. Afterpay, saw its base of merchant partners swell from 9,100 to 15,000, reaching more than five million active customers. Klarna, meanwhile, reported 4,200 retail partners and nearly 8 million customers. Given the growth in use and popularity, Klarna even announced the launch of its own rewards program called Vibe. The program enables customers to use Klarna with non-Klarna partners like Amazon all via a single-use, prepaid Ghost card.

 “Vibe members have the freedom to shop everywhere and will enjoy access to unique, tailored benefits from hand-picked partners in addition to exclusive offers, deals and other rewards.”

While the company’s rewards program is currently only available in the U.S., the company has plans to roll out Vibe over the next year in other key markets, which include Germany, Australia, Sweden and the U.K.

So, while buy-now-pay-later services like Afterpay and Klarna were made to appeal to Gen-Z and millennials (the average Afterpay customer age is 33), as these demographics tend to be more budget conscious and debt-averse than older generations, these services are also gaining traction among older consumers, especially those with higher incomes.

In June, Retail Bum reported the paradigm shift toward online shopping, with millennials and Gen Z as well as older generations such as baby boomers embracing digital ways to shop and pay. And to serve those with larger incomes, these services are becoming far more enticing for luxury companies to offer.

That said, when it comes to offering such flexible payment options, beauty brands need to consider the customer’s loyalty to the brand. This is especially critical when program initiatives like Vibe get thrown into the mix. Is the customer buying because they simply love the brand or is it because they love to shop the deferred payment option?

Either way, beauty brands are well aware that if they don’t offer services and payment options that their customers want, it will more than likely impact their revenue.

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