Buy Now, Pay Later (BNPL) solutions have, without a doubt seen a surge in popularity this past year, with many small and medium-sized businesses (SMBs) embracing digital channels and extending flexible payment options to drive sales, and engage new and returning customers.
These flexible payment offerings are particularly appealing to Gen Z and millennials, who represent a rising portion of retail spend.
But as more and more brands and retailers look to include buy now, pay later solutions, including those within luxury retail, does an increase in sales come at a cost? Better yet, can offering such a solution taint the appeal behind luxury consumer goods?
These questions came to mind as I was shopping on Gucci’s site. As I found myself going back and forth on what size I should get on a pair of Gucci platforms that caught my eye, I noticed a little line of text letting me know I could pay for my purchase in monthly installments.
I questioned when the partnership came about since Gucci is one of the very few fashion houses I have personally seen add a flexible payment offering.
As it turns out, after Gucci witnessed its revenue plummet 10.3 percent in the fourth quarter, following the 8.3 percent decline in the third quarter, Kering chairman and chief executive François-Henri Pinault put a turnaround plan into action in February 2021. Pinault directed the brand to put more focus on handbags and offering a bigger assortment of higher-end products to local customers. The effort helped Gucci boost its Q1 sales by 24.6 percent compared to the same quarter the year before.
Another key but less talked about initiative was the company’s partnership with buy now, pay later platform Affirm, which enables customers to enjoy their favorite Gucci styles while paying on their preferred schedule. Following its collaboration, Kering reported being “particularly pleased with Gucci’s momentum.”
All that said, does Affirm now make Gucci much more attainable? And what does flexible payments do for Gucci’s overall image?
You see… buying luxury goods is not a common purchase for most consumers. It is a treat, a well-deserved reward. Buying luxury products is not the same as making purchases at your local Target. People purchase luxury for various reasons, including the fact that not everyone can obtain such items.
So, if consumers see that they can pay for their $600 pair of shoes or their $2,000 bag over 4+ interest-free installments, does Gucci become more commonplace? Does it lose its sense of status amongst consumers?
Yes, it’s true that BNPL solutions, like Afterpay and Klarna, were made to appeal to Gen Z and millennials (the average Afterpay customer’s age is 33), as these demographics tend to be more budget-conscious and debt-averse than older generations. But it is also true that buy now, pay later offerings have become particularly popular among older consumers, especially among those with higher incomes.
In June 2021, Retail Bum reported the paradigm shift toward online shopping, with millennials and Gen Z as well as older generations such as baby boomers (those between the ages of 56 and 74) embracing digital ways to shop and pay. And to serve those consumers, BNPL services are becoming far more enticing for retailers to offer.
According to a study by consumer spending data firm, Cardify.ai, more than 49 percent of people are spending more when using a BNPL service than they would spend on a credit card. Furthermore, the growth in the use of BNPL solutions is coming from higher income groups: 75 percent of customers choosing to use BNPL for payment have the funds to cover the full cost. In essence, BNPL solutions are being used as a matter of choice, not desperation.
What does this mean? While there will always be those who fail to make the best financial decisions and find themselves in a sea of debt, the bulk of BNPL users are those who are financially equipped and are more than likely to make better financial decisions.
That being said, luxury brands do not have to necessarily worry about their brand image being tarnished. Because even while average order value (AOV) size may increase, the budget-conscious and debt-averse generations aren’t using BNPL solutions to step beyond their means. But that does not mean you can expect luxury houses like Cartier and Hermès to hop on board the buy now, pay later train anytime soon. Or maybe they will. What do you think?