Fashion…. Can It Pay The Price?

Is the only way to keep up with fashion trends with limited money is to “buy now pay later.”

By Michaela Morton

1st August 2021

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Buy now pay later schemes can be a means for a consumer to purchase products with payments being broken down into equal instalments that suit the customer for example weekly or monthly. This method means the purchaser can budget their disposable income and need ensure they meet the deadline for the next payment.

Fashion retailers are continuously promoting payment plans to encourage customers to make more purchases, however the fashion industry needs to consider the negative impact this is having on individuals financially and the long term impact this may have on them mentally. Due to external influences in keeping up to date with fashion trends it’s becoming more acceptable by millennials to buy items without having the means.

Headlines

Based on App download data between the period January – July 2020 there are four key providers in the market place with Klarna being the main provider with 986,000 downloads, second – Clearpay 298,000, Laybuy 162,000 and Openpay 44,000. (Johnson, 2021)

By way of background on the most popular BNPL provider is Klarna. The firm is located in Sweden and has been growing at a significant rate, in March 2020 they announced a 100% increase in UK users and reached 7 million users. In the previous 18 months there has been an uplift of 3,143% active users. As these BNPL companies continue to grow at these rates the UK regulator (FCA) are likely to pay close attention to their practices in providing credit to customers. (Johnson, 2021)

Consumer Behaviours

Buy now pay later schemes have become an increasing method for consumers and data shows 45% of consumers aged 18-34 years old have used this payment option when purchasing fashion pieces in the past 12 months. This is an aged group that are starting their careers and earning a full time salary for the first time and likely to purchase their first property, with data showing such a high percentage the industry needs to be mindful that we do not create a generation that rely’s on having debt to have want they want now. (Stevens, 2021)

Due to the influence of social media consumers demands are increasing and this has lead to the fast fashion industry developing and expanding at a fast peace. Fast fashion retailers offer their customers the option of purchasing items and paying for them in installments. This means they will receive the garments instantly without a thought of the long term implications.

As lockdown rules begin to ease and normality returns we will see a rapid increase in consumer behaviours towards brands as people will require something new to wear as it will be their first time going out since the pandemic began. The pandemic will have a long lasting effect on some individuals due to not having a steady income, losing their jobs and how to deal with being in crowded spaces since we have been told up until now to avoid. This has lead to 19.4 million buy now pay later users in 2021, this amounts to 37% of the United Kingdom population. A report has forecasted that these schemes will rise by a staggering 175% in the next three years, this could have a bearing on the future of fashion retail. (Johnson, 2021)

Why Do Consumer Use Buy Now Pay Later Scheme?

44% of consumer use buy now pay later schemes as its easy and convenient, 39% use this payment option as its interest free and 30% would not be able to purchase an item without splitting the payment. (figure 5)

Your Not A Shopaholic Your Helping The Economy

Digital and mobile wallets have now taken over the traditional way of paying for items, this recent new way of paying equates to 32% of transactions. Buy now pay later transactions are reportable worth £9.8bn (In percentage terms this is 5% of all transactions), this is expected to rapidly grow in the next few years and double to 10% by 2024 and valued at £26.4bn. This shows that the fashion industry is wanting to be at the forefront of this growth particularly as they have been with internet fashion shopping, for some brands this has reduced costs for the customer. (Iddenden, 2021)

With monthly payment plans making fashion being easily accessible it is easier to upgrade your wardrobe without having the money. This is one step that has led to the fashion industry in 2020 being worth £26bn in United Kingdom and with a workforce of circa 800,000. A report predicts that the fashion industry will continue growing at a fast pace and in 2026 the fashion industry will be worth £67bn. (Shahbandeh, 2021)

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Globally in 2021 the fashion industry was worth $759.5bn apparel, accessories, and footwear industry is the number one e-commerce sector in the world and is expected to grow to more than $1 trillion by 2025. (Orendorff, 2021)

Consumer demands have increased due to technology and the impacts social media has i.e. influencers.

Consumers need to be mindful that the more they purchase there outgoings will only increase and should they default on a monthly payment this will impact their credit rating. As part of the industry’s social responsibility they need to ensure customers are aware of this and the long term impact this will have, the target audience may not be aware of the consequences.

Are Brands More Interested In The Money Than Our Well-being

From a retailers prospective introducing a buy now pay later arrangement will help them mange the companies cash flow as they will have a guaranteed and regular amount of money being paid. With the brand knowing money is coming in they will be able to developer their product ranges at a faster pace and will also be an advantage when demonstrating the firms cash position to it’s creditors. Other brands will see if t

his will be an opportunity for them to introduce monthly installment plans to costumers, it is possible that we will see this becoming the new norm in the fashion industry.

The cost to produce garments is one key item to a firms success, with the cost of fast fashion driving down costs the industry needs to consider the well being of the individual’s making the clothes at various factories around the world. The cheaper we buy clothes the greater the impact this has on the producer and the seamstress who is likely to be supporting a family in challenging conditions.

For some consumers to keep up to date with fashion trends they find themselves spending more than they earn. This problem stems down to feeling that the only way they can fit in with others is to always look fashionable and you could argue this has come from the impact of social media and influencers. This feeling can have a long term impact on individuals mentally and financially. A study from Psychiatrists reported“half of all adults with a debt problem are also living with mental ill-health."

This ranges from a consistent feeling of anxiety and low mood due to concerns about how they are going to repay their debts. (Debt and mental health, 2021)

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A high percentage of brands offer this payment method and in their main advertising campaigns they include market leaders of buy now pay later firms. This enables them to engage with a wider audience and convince customers to purchase the latest collections even though they may not need them or have the money to do so but this type of facility allows them to follow fashion trends.

Fashion is takingover the world

The retail fashion industry is always growing with new designs frequently being launched. The impact of marketing and social media has created a consumer demand that changes at a rapid pace, the United Kingdom purchases the most clothing in Europe with two tonnes of clothing being bought every minute, this is the benefit of online shopping being available to consumers 24/7.

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Globally, around 56 million tonnes of clothing are bought each year, and this is expected to rise to 93 million tonnes by 2030 and 160 million tonnes by 2050.  (Planeteer, 2021)

Due to changes in consumer behavior the fast fashion industry has evolved. For brands of this nature to compete in a competitive market they find themselves continuously needing to drop new collections to keep their audience engaged. From a consumer point of view they need to have something from the new release  however, their wardrobe is already bursting with outfits so they find themselves returning products or throwing away outfits. 

Globally it’s estimated  92 million tonnes of textiles waste is created each year and the equivalent to a rubbish truck full of clothes ends up on landfill sites every second. By 2030, we are expected as a whole to be discarding more than 134 million tonnes of textiles a year.  (Planeteer, 2021)

As buy now pay later schemes become more readily available I would have thought the amount of items of clothing being bought will only increase, this will only add to the extremely high levels of clothing being sent to landfill and textile waste exceeding the estimated 134 million tones, what further damage will this do to the planet. (Beall, 2020)

Technology help us function

Your outfits will always fit perfectly now without trying them on and this is through virtual reality. (figure 7)

Due to technology advancing by now pay later scheme are accessible in minutes and your application to use this payment plan is immediately accepted if you meet the requirements. This has lead to the increase in users and some find this is a more convenient payment method compared to typing in your bank details and approving the transaction.

Technology is continuously developing and there are new inventions that are being explored and frequently realest. As the fashion industry evolves buy now pay later firms will amplify and may become the leading source of payment method. Long term these companies may decide to use technology to their advantage and form a payment card that can be used in any fashion retailer in store and online.

Brands Can’t Survive Without an E-commerce site

Millennials and Generation Y consumers are particularly engaging with online fashion retailers. One reason for the interest is the result of influencers on social media who publicise items of clothing to their followers, these posts create an interest that then creates a demand for the product. These fashion brands offer monthly instalment payment plans, also known as buy now pay later, neither generation tend to have a credit card and opt for alternative options to pay. A report shows that 60% of purchases (totalling $600bn) are made online coming from e-commerce brands this is up from 47% from two years earlier. As technology evolves this figure is likely to increase especially as it is expected 35% of a persons daily expenditure will be on line.  (Guidance, 2020).

Farfetch provide a BNPL scheme that includes luxury brands. For example if you would like to purchase a Christian Dior bag this is available via Farfetch on terms suitable for the customer, if you were to buy the bag directly from Dior the only option is to buy the item outright. It could be argued that as more customers could buy luxury brands this could devalue the brand as they become more popular and mainstream.

Pay and Take it away

An example of financing a product outside the fashion retail sector is something we see and possibly use in our ever day lives, cars. There’s multiple ways to purchase a car the most popular way being the personal contract purchase, otherwise known as a PCP. This revolution means a customer can afford a car which was once way out their price range, thus making it affordable. This is done by owning the whole car but only paying for part of it, as your monthly payments on the financed amount does not include the Optional Final Payment. With that a customer has the option to part exchange for a new vehicle, buy outright or simply return to the finance company.

Now for a clothing item such as a jumper this would not make sense but would do for accessory items such as watches.

Some watches are expensive, for example a Rolex Datejust is approximately £7,500, these watches increase in value. What if there was a way to make this affordable on a lease hire type agreement, wouldn’t that revolutionise this industry and be good for the company’s sales.

In conclusion though buy now pay later scheme help the fashion industry grow in my opinion there are to many negative drawbacks in terms of the environment, individuals well-being and financial implications for those making and buying the garments.