The clothing industry is adopting a time-tested strategy to win over cash-strapped Gen Z and millennial shoppers
- Abercrombie & Fitch launched a buy-now, pay-later program on July 1, allowing shoppers to make interest-free payments in installments over the course of two months.
- Abercrombie is one of several brands experimenting with alternative payment options, taking a cue from electronics and furniture companies that have long offered similar programs.
- Analysts said buy-now, pay-later ultimately encourages shoppers to spend more money and is especially appealing to younger shoppers with less cash immediately at their disposal.
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Abercrombie & Fitch is joining the rapidly growing list of retailers testing out buy-now, pay-later payment options in an attempt to lure younger shoppers with less discretionary income on hand.The company - which in addition to its namesake brand also owns Abercrombie Kids and Hollister Co. - announced on July 1 it would partner with payment solution provider Klarna to enable shoppers to pay for purchases in installments. As part of the program, US consumers can opt to make up to four interest-free payments over the course of two months.
While services like Klarna and Afterpay may seem like an appealing alternative to shelling out for a pricey dress or handbag, they can ultimately lead to shoppers paying more. Since multiple payments make a hefty price tag seem more palatable, consumers are more likely to pay full-price rather than wait for sales or discounts. This is, of course, intentional - Afterpay CEO Nick Molnar has said previously that the program has been proven to increase conversion rates and incremental sales by up to 30%.Corey Pierson, CEO of customer intelligence platform Custora, told Business Insider that buy-now, pay-later is a smart way for apparel brands to reach Gen Z and millennial shoppers, taking a cue from methods long used successfully in other industry categories like electronics and homegoods.
"It helps customers that don't have a buffer in their discretionary income and budget, particularly the demographic that overlaps pretty strongly with Abercrombie, the 18-30 year old," Pierson said. "They're not sitting on a giant amount of discretionary income where they can go to a store, drop 500 bucks and have it not make a dent."Read more: Costco has become an unlikely $7 billion fast-fashion destination - and other retailers should take notePierson added that providing multiple options is especially important for younger consumers who are used to having flexibility in the way they shop and engage with brands.
"Consumers expect choice," Pierson said. "Today they have options to rent clothing from places like Rent the Runway and they have different ways to buy. They've grown up with a lot of flexbility, so seeing something like this in fashion and apparel doesn't seem unusual to them."
While these programs might lead shoppers to spend more down the road, they may prove more advantageous to consumers than longer-term buy-now, pay-later programs like Affirm. The microloan provider, which Urban Outfitters previously worked with, requires a credit-score check and charges interest that varies depending upon your score.Jonathan Treiber, CEO of offer management platform RevTrax, wrote in an email to Business Insider that he anticipates buy-now, pay-later programs will eventually take the place of store credit cards, which are declining in popularity but function similarly to Affirm in that shoppers can make payments over a longer time period.
"Solutions like [buy-now, pay-later] are really disrupting the retailers' own credit products like store credit cards, which have proven not to be as popular with younger generations," he wrote. "I would expect greater adoption of buy-now, pay-later solutions entering retailers over the next several years, largely at the expense of declining usage of store credit cards."
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