Traditional retail chains like Macy’s Inc. that derive much of their income from shoppers who pay with a store credit card are making room for a less-lucrative customer: buy now, pay later.
The emerging payment option is a modern take on old-fashioned layaway plans, allowing shoppers to pay for purchases over time. The difference is they get the goods upfront. Chains from Macy’s to Gap Inc. to Neiman Marcus Group Inc. have introduced buy now, pay later options in recent months to attract younger shoppers, who are less likely to use credit cards.
For department stores, the new payment plans risk eating into income from store-branded credit-card fees that have helped offset retail sales declines. Moreover, instead of earning a profit from customers who revolve a balance on their store cards, retailers pay fees to the financial-technology companies that offer buy now, pay later plans, including Klarna Bank AB, Affirm Holdings Inc. and Afterpay Ltd.
Retail executives say they hope the benefits of drawing in new customers outweigh the potential costs as they try to rebound from the crippling effects of the pandemic. But there are risks.
“It’s yet another element of the new retail economy that is working against old-school retailers,” said Stacey Widlitz, president of consulting firm SW Retail Advisors.