Millennials with student loans to lose 6.5% of spending power as repayments resume. That’s the headline PYMNTS reported this week and it’s a headline that’s going to be detrimental to the retail landscape.
The development has raised concerns about the negative impact on the retail industry, with major players such as Amazon, Target, Walmart and Ulta Beauty among those likely to be affected. As these retailers rely heavily on millennial consumers, the anticipated reduction in spending capacity may present significant challenges for their profitability and growth.
According to data from PYMNTS, student loan repayments, whether for federal or private loans, will reduce disposable income across all age groups. Government statistics indicate that 45.9 million individuals in the United States, accounting for 17.6% of the population, hold student loans, a collective debt of $1.7 trillion.
Baby boomers and seniors shoulder the highest debt burden, with an average of $44,000 per borrower, accounting for over 11% of their disposable income. On the other hand, millennials and Generation X have relatively higher disposable incomes, resulting in debt obligations ranging from 6.5% to 8.8% of their disposable income.
Read more: Millennials With Student Loans to Lose 6.5% of Spending Power as Repayments Resume
PYMNTS data reveals that the cost of essentials, relative to disposable income (gross income minus taxes), amounts to 22.4%.
In the coming months, about 30% or more of consumers’ disposable income will be allocated towards meeting daily expenses and repaying student loans. The financial burden will extend into the fourth quarter, which coincides with the holiday shopping season. Consequently, there will be a reduced amount of money available for both in-store and online purchases.
Retailers most poised to experience negative impacts (and what they’re doing in the meantime to prevent a lag in consumer spend):
The eCommerce behemoth has been looking for ways to get consumers spending. One way is Amazon’s team-up with Six Flags, which will become the first theme park offering Amazon’s Just Walk Out checkout technology.
The upcoming pilot program, scheduled to commence next month at the amusement park operator’s New Jersey venue, reflects a growing consumer demand for seamless and hassle-free checkout experiences.
Amazon also revealed it would begin letting consumers buy real-world products from inside virtual spaces. On May 9, Amazon unveiled Amazon Anywhere, an “immersive shopping experience” that enables users to explore and buy physical products offered by the retail giant within virtual worlds, including video games, augmented reality (AR) platforms, and mobile applications.
Then there was Amazon’s launch of age verification to reduce alcohol sales friction. The feature can be found at its Just Walk Out locations which will be integrated into its Amazon One palm payment technology.
And most recently Amazon expanded its partnership with Victoria’s Secret to not only provide customers with access to a range of products, such as bras, underwear, sleepwear, swimwear and loungewear but also gain exposure to the lingerie customer base.
Read more: Victoria’s Secret’s Relevancy Bid Leads to Expanded Partnership With Amazon
Target has found itself in a challenging position with news about student loans coming at an inopportune moment. The company’s decision to remove certain LGBTQ-themed merchandise to protect employee safety has now sparked a global backlash, further complicating the situation.
Target is grappling with yet another quarter of sales challenges, as inflationary pressures have led shoppers to reduce their discretionary spending on items like apparel and home goods. These product categories have traditionally been strong revenue generators and profit margin boosters for Target.
According to execs during the retailer’s latest earnings call, organized theft at Target stores is also weighing on results.
Read more: Rising Organized Retail Theft Puts Pressure on Profits for Major Retailers
Earlier this week, Walmart revealed its commitment to a five-year $200 billion global sales goal, despite the International Monetary Fund’s downward revision of global economic growth forecasts for 2023 and 2024, attributed to ongoing inflationary pressures.
Read more: Walmart Commits to 5-Year $200 Billion Global Sales Goal
In a bid to hit that goal, one of its initiatives is generative artificial intelligence (AI) to enhance self-service options within its stores.
“We’ve long talked about the need for self-service,” Walmart Executive Vice President and Chief People Officer Donna Morris told investors in a Q&A session Friday (June 2). “Most individuals just want to find things on their own. They don’t want to call someone. They want to find it. And so, in a world of gen AI, it’s opening up the opportunity for individuals to self-serve.”
Read more: Walmart Looks to Generative AI as Grocers Tap Self-Service
In a recent interview with PYMNTS, Nicole Bernhardt, head of Ultamate Rewards at Ulta Beauty, emphasized the significance of data in designing compelling offers and rewards that position Ultamate as a prime example of successful loyalty programs. Bernhardt highlighted how data-driven insights play a pivotal role in crafting a compelling loyalty experience at Ulta Beauty.
According to Bernhardt’s remarks to PYMNTS, the Ultamate program not only monitors “the pulse of what consumer shifts are happening,” but it allows the retailer to engage with the consumer that provides value. Furthermore, the program empowers personalized experiences tailored to customers’ preferences, spanning from product discovery and checkout to promotional offerings.
Bernhardt highlighted that a remarkable 95% of the company’s sales are associated with the program.
Following that sentiment, Ulta Beauty reported strong sales growth despite dealing with retail theft.
Read more: PYMNTS Summer Loyalty Series: 95% of Ulta Beauty Sales Driven by Loyalty Members
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