Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].
Context: How much consumers spend and how they pay for what they buy are critical topics for members of NeuGroup for Retail Treasury trying to manage risk and run forecasts amid fears of recession and abundant economic uncertainty.
- Retailers are closely tracking data showing a slowdown in spending while at the same time parsing info on purchases made with credit cards as the Fed continues to raise interest rates to curb inflation. And not all the signs point in the same direction. So they’re also comparing notes and sharing what they know with other NeuGroup members to get a ground-level view—one that we’re sharing with other members and our readers.
Member question: “Has anyone else here seen a large uptick of credit card usage among your customers this year so far? We’ve seen historically high levels of credit card use at our stores and I was wondering if others are experiencing the same and what they’re attributing to this trend.
- “We’ve heard that inflation might be a key factor but wanted to sense check with this group.”
Peer answer 1: “Overall card usage is stable for us this year, but there is a shift from debit to credit as stimulus has dried up and consumer finances generally tighten.
- “When you start seeing articles like the one on Bloomberg about consumers using buy now/pay later for groceries, you can be pretty sure the squeeze is on. Between inflation, lower tax refunds, job losses, it doesn’t seem too surprising that credit usage is up.”
Peer answer 2: “We are heavy on debit acceptance and since Covid we did experience a shift to credit. Our credit penetration grew 3% to 4% from pre-pandemic levels. The rate of increase has stabilized over the last few months.
- “The shift to credit has been most noticeable in the rewards categories, which as you know, increases your cost of acceptance.”
Member response: “It sounds like for most our peers, credit usage has rebounded to pre-pandemic levels but for the off-price and discount segments, there has been a larger increase in credit usage that can be attributable to inflation, exhaustion of government stimulus, and job losses in certain regions/sectors.
- “It’ll be interesting to see how long our customers can sustain this until they reach their credit limits. We’ll also keep talking to our card issuing banks and card brands on this topic.”