What Can Retailers Do About the Current Millennial Credit Crisis?

Most retailers and brands are unaware of the dire financial situation that many young consumers find themselves in today. A recent GoBankingRates survey found that most millennials had less than $1,000 in their savings accounts, while nearly half had nothing saved at all. To make matters worse, this share of millennials with no savings is on the rise, up from 31 percent in 2016 to 46 percent in 2017.

Access to credit has dried up as well. Separate studies from 2016 found that only 33 percent of millennials own a credit card, but they are applying for credit cards at a faster clip than previous generations. Many of these applicants are getting rejected and choosing not to reapply.

The biggest obstacle keeping millennials from being approved for credit cards appears to be their credit scores. 67 percent of consumers under the age of 30 have a sub- or non-prime credit score, while 33 percent do not have a score at all, due to lack of credit history. It is a bit of a chicken-and-egg situation; credit cards help people build credit, but people are having a hard time getting credit cards because their credit scores are too low. Between lack of savings and no credit cards, the millennial shopper is not the ideal consumer for retailers.

What is the impact to me as a retailer?

As of last year, millennials have surpassed baby boomers as the nation’s largest living generation, with more than 90 million people, and the number continues to grow as young immigrants bolster its ranks. Moreover, the millennial generation is expected to wield the most spending power of any generation starting this year. While they do not make or save a lot of money, their magnitude creates quite the impact.

Retailers must be aware of millennials’ buying behavior, not just from a marketing standpoint, but also from a financial standpoint. It has become common knowledge that two out of three online shopping carts are abandoned, and 72 percent of shoppers cite “an order becoming too expensive” as a top reason for cart abandonment.

So, what can retailers do to combat the issue of cost? Obviously, prices could be slashed, but that is not a sustainable strategy for most. How can shoppers be enabled to buy more, while maintaining or increasing loyalty? Private label credit cards represent one solution that retailers have been employing for some time, and with a good deal of success, too. Some retailers, such as Nordstrom and Macy’s, have made small fortunes on their card programs, which increases the frequency of store visits.

Unfortunately, millennials are not getting private-label credit cards, either. In fact, according to a recent study by TransUnion, private-label cards exhibit the biggest lag in origination rates by millennials among all credit products. Only 15 percent of millennials own a private-label credit card, 10 percent lower than Gen X origination rates at the same age. Millennials are opting instead for debit cards and alternative, card-free payment methods that do not necessarily drive increased spending or loyalty.

So, what can I do to increase spending and loyalty with credit-starved millennials?

In a survey of retail industry leaders, nearly 40 percent said the number one concern they have about millennials is their lack of loyalty. However, millennials can be very loyal customers, provided they believe they have been treated well. They demand a personalized, customer-centric shopping experience tailored to their exact wants and needs, including how they want to pay. This is backed up by PYMNTS.com’s latest Checkout Conversion Index, which shows checkout conversion rates directly correlated with the number of payment methods accepted at a store. There are certainly other factors at work here too, but payment flexibility is without a doubt a critical factor.

In addition to some of the more hyped alternative payment platforms, such as Venmo and Apple Pay, look into some of the new alternative financing options available today. According to Affirm’s most recent Holiday Shopping Report, 87 percent of consumers have expressed interest in a simple way to pay over time that is not a credit card. There are several forward-thinking tech companies out there whose mission is to provide millennials with newer, better retail financing solutions. Not only are these solutions lifting conversion rates and basket sizes at the retailers they are working with, but they are also building loyal customer bases of their own that choose to shop with their retail partners because of the customer-centric experience that is being provided.

With all the options available to consumers today, one could see how retail industry leaders are concerned about loyalty. But in fact, the opposite is true; with all the noise being generated, and the struggle to determine what to listen to and what to ignore, young consumers will turn to their favorite brands even more. An interesting survey by Elite Daily found that only 1 percent of millennials say they are influenced in any way by advertising. What a brand says about itself and its products has very little impact anymore. Instead, delivering authentic, customer-centric experiences every time the shopper interacts with your brand is the key to driving and maintaining loyalty among millennial customers. Treat them well and offer them the creative new ways to pay that they want and need – and they will undoubtedly come back for more.

Charlie Youakim is CEO of Sezzle and Corey Tollefson is senior vice president and general manager, Infor Retail