By Ray Birch
RANCHO-CUCAMONGA, Calif.—Expect consumers to spend less this holiday season, but when they do, more will be using credit, predicts Co-op Solutions, which also has some suggested strategies CUs can use to capture their share of the end-of-year dollars.
“With inflation rising another 8.2% year over year in September, there seems to be no end in sight for ballooning prices and households are growing increasingly concerned with their ability to maintain budgets,” explained Beth Phillips, director, strategic portfolio growth for Co-op. “This means that discretionary spending—including gift purchases, travel and entertainment—will likely decline as households struggle to make rent, mortgage, utility and car payments over the coming months.”
Yet that said, Phillips also pointed out what happened during the previous holiday season.
“Last year people were concerned about holiday spending, yet year-over-year spending increased,” she noted.
The Prediction
Citing Co-op SmartGrowth payment trends data, Phillips said her team is predicting that fears around inflation will drive consumers to save more and spend less this holiday season, with many focusing their spending on buying gifts for immediate family members versus extended family and friends.
And when consumers open their wallets, the ongong shift back to credit from debit will only accelerate, according to Phillips.
“For those shoppers who plan to maintain their holiday gift spending from past years, many will be more likely to put their purchases on credit over debit,” said Phillips. “Co-op’s proprietary spending forecasts show month-over-month increases in credit across a wide range of merchant classifications through the end of the year.”
Beth Phillips
Not a New Phenomenon
None of this is new. Phillips noted that consumer spending is always unpredictable, and the traditional holiday shopping season has been “upended” over the past three years due to a range of factors.
“Variables that may impact our predictions include changes in inflation rates, borrowing rates, unemployment figures and other economic indicators,” she said. “Of course, COVID is still hanging around and any surge in cases during the winter months may impact the public’s willingness to do in-person shopping and other outside activities. On the other hand, if economic indicators start to turn better, they may give a welcome boost to retailers’ fortunes.”
Another spending boost could result from heavy promotion by retailers of pre-season shopping days, which help consumers “reactivate” their shopping habits, said Phillips.
“Those merchants that invested heavily on inventory over the summer are in the most precarious position, and are most likely to offer aggressive pricing discounts as December approaches,” she said. “We predict that consumers will do much of their early shopping online, whereas last-minute shopping will be primarily done in-store.”
Making a List, Checking it Twice
What should CUs do this holiday season? Phillips offered these strategies:
- Activate spend and get campaigns. “Make sure you’re incenting your members to use your cards when they do their shopping this holiday season, by boosting rewards for select merchant category codes through a spend and get campaign. This can be done in a variety of ways, such as offering double or triple rewards points, or even by crediting dollars directly to members’ checking or savings accounts for purchases in certain category codes. And don’t forget about your local merchants,” she said.
- Offer special low APRs. “With interest rates rising and consumers becoming more cost-conscious, special low rates for purchases are particularly attractive to your members right now. Like spend and get campaigns, this is a great way to incent members to keep your cards top of wallet.”
- Promote contactless and digital payments. “If you offer contactless cards or digital wallet provisioning in your product toolset, now is the time to promote these methods, as shoppers continue to migrate toward eCommerce and using contactless payment methods in-store,” Phillips said.
- Promote and grow the CU’s brand with member loyalty strategies. “According to Coveo’s 2022 Holiday Shopping report, 67% of consumers are interested in product recommendations with Gen Z (21 to 28 -year-olds),” Phillips said. “This sought-after population continues to place high regard on brand loyalty, especially if its values align and are endorsed by family and friends. What does this mean for credit unions? Use your established member relationships to build your membership through word-of-mouth recommendations; online reviews, and highlight your unique, value proposition and excellent service through omni-channel marketing.”
- Motivate members to place the CU’s card on file. “Subscriptions continue to grow in popularity across a wide range of merchant segments, from automobiles to streaming services,” she told CUToday.info. “Plus, they are a top gift during the holiday season. To ensure your members use your debit and credit cards as the primary payment method for these services, look for ways to educate and promote the benefits and convenience of provisioning your card on file with such services, as well as in popular shopping sites like Amazon, Target and Best Buy.”
- Start thinking about balance transfer campaigns. “Those consumers who do plan to spend this season will likely end up with balances to pay off come January. Why not plan a balance transfer campaign for the first quarter of 2023, when consumers will be seeking relief through low rate offers?” she asked.
Hungry Consumers
Phillips emphasized that consumers may be even more hungry for deals this year.
“Basically, people start thinking and being mindful of the holiday season much earlier in the year now,” she said. “That definitely plays into how people are going to spend this year. They'll be hunting for deals online and they'll be looking at shipping times. I think if a credit union has not put something in place to capture top of wallet with their members they need to definitely do that.”