No doubt about it, consumers are out shopping on Black Friday, but they’re leaving their credit cards at home.
A new study says credit card usage during the holiday season will be down at least 10%. What are shoppers doing instead? And what does the trend away from plastic mean to the credit card industry? Let’s take a look.
Prudent shoppers these days are hardly a surprise. With unemployment over 10%, and with “underemployment” – people who have either quit looking or who are working as freelancers or part-time – at 15%, consumers are in survival mode. Gone are the days of using our homes as ATMs, or breezily running up a tab on our credit card bills.
Now it’s all about debt reduction and bank savings – even on the cusp of a big shopping holiday like Black Friday. According to a new study by BIG Research, for the National Retail Federation, consumer credit card usage this holiday season will be down 10%. The study reports that only 28.3% of shoppers expect to use a credit card to buy holiday gifts during the next few weeks – that’s down from 31.5% in 2008.
The alternative method of payments? This holiday season it’s cash. In a nice piece of symmetry, the number of BIG Research’s survey audience who expect to use cash (9.1%) is pretty much the same number, percentage-wise, who’ll be reducing their credit card usage. Debit cards will also see more of the light of day, as 42.5% of shoppers plan to pay primarily with debit or check cards, a 2.5% increase from 2008.
That’s bad news for credit card issuers who will no doubt see less revenue from what usually is the most profitable period of the year. Retailers will suffer, too, as consumers tamp down spending on pricey goods like computers and jewelry, in favor of more practical gifts. According to the BIG study, holiday shoppers will buy more clothing (58.4% vs. 57.4%) and more toys (42.2% vs. 41.6%) than last year.
That’s one big reason why consumers can expect to see more discounts on lower-priced items. The BIG Research study points out that we’ve already seen Black Friday promotions such as “50% off of outerwear, $25 designer apparel and $10 toys.”
Altogether, the National Retail Federation expects retails sales to fall in 2009, although not by as much as 2008, however. Total sales should decline by 1%, to $437 billion this year (compared to a decline of 3.4% in 2008.)
It’s make-or-break time for card carriers and retailers, but consumers aren’t cooperating. Normally, the holidays generate between 20%-40% of total annual revenue for retailers. Credit card companies profits are up anywhere from 17% to 22% during the holiday rush, according to CardTrack.com.
But with card usage down, both markets will see bigger declines than expected, putting yet another proverbial coal in the stocking of the U.S. economy.