Through Klarna, Macy’s will begin offering its customers the option to pay for products with four interest-free installments, aiding both customer conversion and acquisition.
“With a strong focus on digital agility and innovation, Macy’s continually seeks strategic partnerships that enable us to provide our customers with the best possible shopping experience,” Matt Baer, Macy’s chief digital officer, said in a statement. “We’re excited to embark on a long-term relationship with Klarna that will help us reach wider audiences looking for seamless alternative payment solutions.”
By tapping the fast-growing fintech company, the apparel retailer will also have access to a younger demographic of shoppers.
“Usually alternative payments drive small, but tangible incrementality,” Sucharita Kodali, a principal analyst who covers retail at research firm Forrester, said. She added that any service that reduces friction during the shopping experience and encourages people to buy is a positive for the retailer.
When a shopper is eyeing a more expensive product that they don’t have the money upfront to purchase, but could afford it over time, offering an installment purchase removes that consideration. It is particularly key when selling luxury products, Iris Chan, a partner at digital marketing agency Digital Luxury Group, said.
Macy’s CEO Jeff Gennette has said publicly he sees market share in the luxury sector up for grabs given bankruptcies in the space.
While offering the alternative payment plan won’t be enough to turn Macy’s around, any incremental dollars “would be a win in a world where apparel sales have declined,” Kodali said. She went on to note that 1% of U.S. consumers used Klarna in the last three months, citing Forrester’s data.
Alternative payments such as buy now, pay later also don’t limit access to the credit worthy, according to Chan, and appeals to shoppers with a more digital-forward mindset, giving a retailer access to new audiences.
Paying for products in installments, a form of layaway, has been around for decades. Like rent-to-own, these alternative payment programs have proven popular during economic downturns.
Buy now, pay later began to gain traction following the Credit Card Act of 2009, passed in the aftermath of the financial crisis, which prohibited credit card companies from marketing on college campuses or allowing anyone under the age of 21 to apply for a credit card without either proof of earned income or a co-signer, according to David Sykes, president of Klarna’s U.S. operations. That resulted in younger customers such as Gen Z and millennials relying more on alternative forms of payment.
The pandemic has further accelerated growth with retailer adoption up 158% year over year. Klarna recently singed on Nautica and Aeropostale, both owned by Authentic Brands, as well as Lady Gaga’s beauty brand Haus Laboratories, Beautycounter, Missguided, Gymshark and Finish Line, among others. Gross merchandise volume during the first half of 2020 increased 44% to $22 billion, and 1 million new U.S. users joined over the summer, bringing total users to about 9 million, the company said.
As part of the partnership, Macy’s has also become an investor in Klarna, which has a valuation of $10.6 billion, according to the announcement. Additionally, the consumer-facing fintech company will provide the department store chain with a wealth of data to more clearly see the shopping behavior of its customers, Sykes said.