Good news from AFR (Finally): Retailers face Afterpay hangover, says UBS

https://www.copyright link/business/retail/retailers-face-afterpay-hangover-says-ubs-20181220-h19bfg

Retailers arefacing a "buy now, pay later" hangover in 2019 as they cycle a salesboost underpinned by new forms of consumer credit.

UBS analyst BenGilbert estimates Afterpay Touch and Zip Money accounted for at least 15 percent of sales growth for listed discretionary retailers such asSuper Retail Group, Premier Investments, Adairs, Kogan.com, Myer, Kathmandu andWesfarmers in 2018.

This sales boost will be difficult for retailers tocycle in 2019, Mr Gilbert says, unless thousands of new customers start usingshort-term credit to fund purchases they would not have otherwise have made.

 

According toUBS, Afterpay and Zip generated about $2.7 billion of gross transaction value(mostly retail sales) in 2018, up from $770 million in 2017, equivalent toabout 60 per cent of the growth in non-food or discretionary spending in 2018.

While some of this growth was due to short-term credittaking market share from other forms of payment, particularly cash, Afterpayhas estimated that about 23 per cent of its customers would not have madepurchases if not for the service.

 

This spend wasequivalent to about 15 per cent of year-on-year non-food sales growth lastyear, UBS said.

"We believe these models may have fuelled salesthat otherwise may not have occurred in a part of the market that previouslydid not have access to credit," Mr Gilbert said, noting that abouttwo-thirds of Millennials do not have a credit card.

Afterpay and Zip have achieved high customerpenetration in a relatively short period of time, with more than 10 per cent ofAustralians estimated to be using their services.

Growing concern 

Afterpay nowhas about 2.5 million customers and about 15,000 retailers on its books inAustralia and New Zealand, while Zip has about1.5 million local customers and more than 10,000 retailers.

Related

Based on recenttrading updates, Afterpay and Zip are on track to generate about $4 billion ofgross transaction value in fiscal 2019.

Consumeradvocates and regulators are becoming increasingly concerned aboutthegrowingpopularity of new short-term credit services amid soaring consumer debt.

Sources claimed last week that even payday lenders hadstarted knocking back loan applications from long-term customers "up totheir necks" in short-term debt.

However, "buy now, pay later" players dodged a bulletthis month when a report from the Australian Securities and Investments Commissionsaid the National Credit Code would not be extended to the sector.

 

Afterpay says it promotes responsible spending andoffers customers a fundamentally different proposition to traditional creditproducts.

Customers pay for goods in four instalments and arenot charged interest, but the company charges retailers a transaction fee(equivalent to about 4 per cent to 6 per cent of transactions) and customerswho are behind on their payments also pay steep late fees.

UBS said"buy now, pay later" schemes were margin dilutive for retailers buthelped boost comparable store sales.