October Spending Trends: Learning to Expect the Unexpected

CO-OP Payments Trends Report (Spending Data from October 1-31)

RANCHO CUCAMONGA, California – With the holiday shopping season in full swing, October spending trends were largely business as usual in categories like Travel, Sports & Recreation and Retail. At the same time, a few head-scratching trends began to emerge, including a softening of Amazon spending.

A fitful economic recovery has dampened consumer spending behavior all year long, and October was no exception. Although economic indicators for the month were generally positive, growing worries about creeping inflation became an all-out alarm as the Consumer Price Index rose 6.2 percent in October, the fastest monthly increase in over 30 years.

According to CO-OP member credit union spending data, consumers spent more in the Digital Goods and Retail merchant categories in October as the holiday shopping season ramped up. Meanwhile, Education spending declined as students finally settled into their routines on campus and in the classroom.

Here are some of the key spending trends CO-OP’s SmartGrowth experts are watching closely this month:

#1: Slow Shipping Driving Consumers from Amazon To Other Merchants

Perhaps the biggest surprise in CO-OP’s credit union spending data is a recent flattening of spending within the Amazon/Bookstores merchant category. The online retail juggernaut has seemingly hit some potholes on its path of growth. Amazon’s third quarter earnings disappointed investors, and CO-OP’s data, month-over-month, showed the category as basically flat in October compared with the prior month – a shocking result considering Amazon announced early holiday deals in October this year, well ahead of Black Friday.

Meanwhile, the Digital Goods merchant category showed robust double-digit increases in both credit and debit for October versus the prior month.

Amazon’s softening trend can be chalked up to a combination of supply chain and labor shortages, which have caused noticeable shipping delays, even before the holiday shopping season gets fully underway. Coupled with the very high expectations the firm has established with its Prime members for delivering virtually any item, anywhere within two days, some shoppers are choosing to move their business elsewhere, either online or in-store, to get their products sooner.

“I wouldn’t expect the same concern with other online merchants, because nobody expects the service from others that they expect from Amazon,” said Beth Phillips, CO-OP Director of Strategic Portfolio Growth. So, if I’m going to shop at J. Crew, for example, I expect a longer delivery window, and I’m prepared for that. Amazon has set the bar so high for themselves, and it’s adversely affecting them now.”

In addition, Big Box retailers like Target and Walmart that benefit from having both large distribution networks of physical stores and a strong online presence currently have a leg up on Amazon. They are able to stock up on merchandise within certain categories preferred by their customer base.

“Target is focused on those items that people want to touch and feel and need sooner rather than later,” said John Patton, CO-OP Senior Payments Advisor. “The company is ordering those items in bulk and making sure they are available in their stores for pickup or local shipping.”

“Amazon is seeing competition that it’s probably never seen before or during the holiday season,” said Phillips. “Because if you search for something that’s popular right now on Amazon, you may be able to find it, but it may not be available with Prime shipping. This longer delivery window is driving consumers to other big box retailers, like Target and Walmart, where they can get their items sooner.”

#2: Meanwhile, Retail is Going Strong

Aside from Amazon’s struggles, the Retail sector overall is doing well. Merchants are seemingly benefitting from an early start to holiday sales, and consumers’ anxiety over whether they will be able to purchase the gifts and merchandise they most desire this season.

The Retail merchant category was up by double digits in both credit and debit in October versus the prior month, and has been on a steady growth trend since June.

#3: Expect the Unexpected

As has been the case since the start of the pandemic, the only rule surrounding spending trends is to expect the unexpected. In recent months, the still-dangerous Delta variant, rising inflation and frustrating supply chain issues have dampened economic growth.

At the same time, 2020’s high unemployment has morphed into this year’s labor shortage across many industries.

Yet, as the end of the year comes into view, the CO-OP SmartGrowth advisors are urging credit unions to take a cautious, but optimistic outlook. COVID cases are declining, and the FDA approved the Pfizer vaccine for school-aged children in early November. Hope for a return to pre-pandemic normalcy has never seemed closer.

“A lot of people are doing their holiday shopping, and even their grocery shopping earlier,” said Phillips. “Because of this, scarcity concerns are up, but at the end of the day, these worries may simply disappear.”

What Credit Unions Should Do Now

 As the traditional holiday season begins in earnest in November, credit unions should make sure their members have ready access to their preferred forms of payment, whether shopping in-store or online. Credit unions should activate their contactless and card-not-present (CNP) campaigns to ensure their credit and debit cards stay top of wallet throughout the season.

Month-Over-Month Category-Level Spending (Comparing October 2021 to September 2021)  Please note that the category spending below reflects month-over-month comparisons (rather than year-over-year), i.e., compares October 2021 with September 2021, rather than October 2021 and October 2020.

Credit Debit
Count Amount Interchange Count Amount Interchange
Category Monthly Change Monthly Change Monthly Change Monthly Change Monthly Change Monthly Change
Amazon/Bookstores 2% 4% 2% 0% 1% -1%
Digital Goods 13% 10% 12% 14% 14% 11%
Dining & Entertainment 5% 6% 6% 3% 5% 5%
Education 0% -15% -14% 2% -12% -5%
Gas 3% 6% 6% 1% 4% 2%
Grocery 5% 7% 8% 4% 6% 5%
Lodging 0% 3% 4% -5% -4% -3%
Medical 3% 3% 3% 3% 2% 2%
Retail 11% 12% 12% 9% 10% 7%
Travel 8% 17% 17% 2% 3% 2%
Computers 4% 4% 3% 6% 12% 10%
Office 7% 11% 11% 0% 3% 5%
Campers & Camping -1% -2% 1% 0% -1% 0%
Home Improvement 1% 2% 3% -2% 0% -1%
Sports & Recreation -1% 1% 1% 10% 9% 9%

More information on the CO-OP SmartGrowth Consulting Team can be found here.

 

About CO-OP Financial Services

CO-OP Financial Services is a payments and financial technology company whose mission is ensuring the success of the credit union movement. CO-OP payments solutions, engagement services and strategic counsel help credit unions optimize member experiences to consistently provide seamless, personalized multi-channel offerings, while delivering secure, sophisticated fraud mitigation service. For more information, visit www.coop.org.