Stripe Sizzles, Auto Loans Fizzle

With the first full week back from Black Friday, into Cyber Monday and beyond, give thanks to the consumer, who has managed to stay buoyant and chipper, even, when it comes to opening the purse strings. The latest U.S. personal consumption data sizzled. Want tax cuts? You’ve got a Treasury secretary coming in who wants them, too, big league.

But it wasn’t all triumph and cheers last week. Wells Fargo made it back to the fizzle list with its latest round of ire from Senator Elizabeth Warren. And there are department stores where discounts are sizzling but revenue is fizzling.

Sizzle
Consumer spending:

The U.S. consumer’s resilience has proven to be nothing short of heroic, with the latest data showing month-on-month gains (on top of month-on-month gains), with levels not seen in a few years. From utilities to health care to washing machines, and, yes, most recently to presents and big-screen TVs (Black Friday and beyond), wallets have been open and may stay open.

Stripe (and fundraising):

It’s not every day, or every month, that a firm’s valuation doubles in one fell swoop. But that is exactly what happened with Stripe, when the firm got a round of funding last month that vaulted the implied valuation to $9 billion. The funding, at $150 million, was led by CapitalG, the venture arm of Google parent Alphabet. The money will go toward boosting competitive efforts against PayPal and others. Some unicorns fly higher than others. Some unicorns soar.

Business tax cuts:

The corporate world had reason to cheer this week, when Trump’s pick for incoming Treasury secretary, Steve Mnuchin, stated that the number one priority in terms of regulation is to roll back parts of Dodd-Frank. Maybe not much of a surprise there, but there also seems to be confirmation from Mnuchin, who also said the top tax rate for companies will be slashed from 35 percent to 15 percent. Not a bad boost to margins, should it come to pass.

Fizzle

Auto subprime loans:

Repo firms, start your engines? Rising delinquency rates on auto loans are enough to garner some concern from no less than the N.Y. Fed. The latest data from household debt show that as many as 6 million borrowers are at least 90 days past due on their auto loans, which hints at some struggles keeping the keys in hand down the road (pun intended).

SMEs in U.K.:

How bad is the problem of lingering unpaid invoices in the U.K.? Plenty bad. The latest data show that SMEs in the nation have been forced to write off as much as $62 billion annually in bad debt. The analysis from Amicus Commercial Finance shows that cash flow problems (stemming at least in part from non-payment of those invoices) leads to all sorts of problems, including paying staff.

Wells Fargo:

The beleaguered bank does not have many champions, and perhaps least among its fans is Massachusetts Sen. Elizabeth Warren. She took to social media this past week to state that the continued use (and pursuit) by Wells Fargo to deal with its legal issues in arbitration renders the stated goals of making things right with customers basically a moot point.

Fizzle Of The Week: Discounting At Department Stores

By most metrics Black Friday through Cyber Monday was a sizzle for commerce, as consumers spent more during the holiday weekend than they did last year, mobile made a strong showing (for digital purchases anyway) and online shopping continued to cement its status as the wave of the future.

There were weaker points — mobile payments in-store were a definite fizzle — but there was hardly any sort of shock there, since mobile payments have been doggedly underperforming expectations for the the past several years. And physical retail continued to show across-the-board weakness — net sales at brick-and-mortar stores were down 5 percent over the two days, while the number of transactions fell 7.9 percent. Data from ShopperTrak indicates that shopper visits to such stores fell a combined 1 percent during Thanksgiving and Black Friday when compared with the same days in 2015. Again a definite fizzle, though not an unexpected one. Analysts had widely predicted that outcome a few weeks in advance of the shopping extravaganza.

However, one weak point did manage to draw some mild murmurs of surprise: Consumers spent less this year per capita than they did in 2015 — 3.5 percent less, according to the National Retail Federation. Its survey of 4,330 consumers on Black Friday indicates that shoppers spent $289.19 on average over the four-day weekend through Sunday compared to $299.60 over the same period a year earlier.

More consumers shopped — hence the revenue for the day went up — but those who were shopping were spending less.

That drop is explained by discounts — deep ones — that were on offer. Some of those discounts are organic — consumer electronics, televisions in particular, have seen an extended period of price deflation. Others, however, were just something of the annual race to the bottom in pricing writ very large. With fewer customers actually stopping into the stores and the web being a less naturally sticky place to hold a customer’s interest, the best way to assure oneself a healthy pack of interested consumers is to ramp up the discounts and let them draw in the customers.

And while the hard data is rather starkly out, the last few days have drawn expert voices noting that the problem is not unique to a week ago, it’s just more noticeable.

“The Sale Has Become A Cancer.”

Such is the sentiment of Allen Questrom on CNBC earlier this week. Questrom is something of a department store retail guru who, over the course of his career, has served as the CEO of department stores including J.C. Penney, Macy’s, Neiman Marcus and Barneys New York.

Sales and the drive to slash prices to ribbons, said Questrom, are at this point destroying department stores and other physical retailers much more effectively than it is helping them. Sales have their place as a tool in a retailer’s arsenal, he noted, but at this point, they’ve become only a revenue-draining tool.

“When business gets tough, we add another sale,” Questrom noted. “Product, presentation, excitement in the stores, customer service from salespeople — these are all also areas are lacking and sorely needed.”

The retailers who are succeeding in the brick-and-mortar space — Zara and Uniqlo — maintain traffic and sales without constant promotions, he noted. Moreover, he said, data indicates that consumers like shopping in-store if the experience is set to match their expectations and that department stores across the board would be better served by working on fundamentals like customer service — and widening their base of shoppers.

Interestingly, there are a lot of physical retailers who would likely agree with him.

Playing Chicken With Your Customers

“When you start tightening up in promotion, you are playing a game of chicken with your customers,” said Gap Inc. CEO Arthur Peck earlier this year on an earnings call. “And so we’ve been playing that now for really the last quarter.”

And though the Gap has made noises about wanting to get off the discounting treadmill, that’s in many cases easier said than done. During the holiday weekend, the Gap’s shopping promotion was for 50 percent off consumers’ entire in-store purchase. Customers expect deep discounts, often won’t buy without them and have expectations that that stores will match their competitors’ lower prices — as they’ve trained to do by years of web rooming and comparison shopping on mobile in real time for the last several years.

“The competitive environment has become a lot more promotional,” said Macy’s CFO Karen Hoguet. “I think part of this is the result of the internet where every promotion happens across the country immediately. And also there’s a lot of price matching going on.”

There are no obvious solutions other than the well-known ones — improve the customer experience, reduce unprofitable space, level up eCommerce operations and, on the whole, get ready for a digital-age makeover.

What order to do those in, or which is the most important? It gets a lot less clear from there.

But what is clear is that despite being a sizzle for consumers – who with the power of their smart phones have changed the meaning of the term “full price” – the constant drum beat toward discounting has been an ongoing fizzle for merchants.  Whether it is a reversible one remains to be seen.