Pretty Soon, It's Real Money

The Federal Reserve released Consumer Credit numbers yesterday indicating that Americans now hold $943.5 Billion in revolving credit facilities. The old adage goes, " a billion here, a billion there; pretty soon it's real money." My contention would be that when outstanding debt hits $1 TRILLION, we're talking about real money.

Consumer Pinch

There is ample evidence, as we've discussed before, that the retail market is tightening. It follows modest weakness in the jobs market, but most closely is related to the fact that the American public added more than $140 billion in debt over the last three years. Combine that with the fact that housing prices are no longer a tireless engine of wealth creation, but is starting to fall. In fact, home foreclosures are on the rise, and American consumers are beginning to walk away from their fledgling mortgages.

The way that the mortgage boom was fed, with at best tacit complicity among mortgage originators, collateralized debt obligation salespeople, real estate brokers and homebuilders that led to very low down payments if any at all being made on hundreds of thousands of new homes. Homeowners are beginning to just forfeit the very low levels of equity they were forced to put into the mortgages out of the gate. Those walkaways will cause a hit against the collective credit rating of the American consumer.

Tightening Credit

The massive debt levels that Americans have assumed is increasing the anxiety level among credit card issuers. In December, 7.6% of that $943 Billion was at least 60 days delinquent, or already in default, up from 6.4% year over year. There is evidence that credit card companies are both increasing their lending standards, and increasing the rates of cardholders, even those in good standing. Further, many of them have already taken charges to build up reserves against bad credit losses.

Even more frustrating for both the credit cards and retailers is the evidence that the consumer is cleaning up its act. While it is unlikely to have the means to collectively wean itself off debt in the near term, many are cutting discretionary spending. Wal Mart, which grew year over year sales only 0.5% vs. the 2% it expected to is frustrated by low gift card redemptions as most expenditures are moving more toward essentials and away from things like electronics.

Mpayy's Value Proposition

Mpayy is not going to drive more customers into stores, or even to the websites of online retailers. Mpayy's offer to internet retailers with an online presence is two-fold: i) Mpayy will be 40-50% cheaper than the other payment options; and ii) Mpayy takes all the fraud risk. It is an interesting market to be entering in, because the highest profile alternative payments company that has been having big wins in the retail space is Bill Me Later, which is in itself a revolving credit facility. For the reasons discussed above, it will be interesting to see what happens to them.

Margin-Starved Retailers to Need More

The Federal Reserve put out its "Beige Book" for the January 29-30 Fed meeting in which it pointed to slowing economic growth, though it showed no sign that a recession was already in effect. However, economists, the Bush Administration, and industry leaders/watchers perceive that recession has already taken hold. Those sentiments are the impetus for the $180 billion fiscal stimulus bill being proposed to give Americans an $800 tax rebate.

Boosting this scenario is a recent CBO report that argued, "So to boost the economy by about a percentage point for half a year, the stimulus would have to be about a percentage point of a half-year's gross domestic product, or about $70 billion," according to a a CBS Marketwatch report. Multiply that 2x to get to the $140 billion the Bush Administration is advocating in an attempt that is likely seeking 1% GDP boost, or at least to buttress the retail market. The same CBO report revealed that consumers spent 20-40% of their tax rebates on retail, which is where the growth comes from. The stimulus is likely to sail through (you heard it here first) because no one runs away from giving money to the electorate in an election year.

However, retail deserves a closer look...

While online retail growth was almost 20% over the holiday season as discussed here, overall retail growth was a disappointment over the same period. Retail sales did grow year over year, although it came in at 3% instead of 4%.

Wal Mart announced earlier this year that it would slow the rate of new store openings in spite of their better than expected growth. Some analysts argue that the company's success is a contrarian indicator as many consumers traded down to bargain basement Wal Mart.

The Wall Street Journal notes some recent hard times among

"Zale Corp. said it would close 60 stores in the next 90 days. Talbots plans to pare store openings and use more frequent markdowns to entice shoppers. Chico's FAS Inc., another clothing retailer, is cutting $100 million of capital spending, including scaling back a distribution center expansion and delaying a new computer project until 2009."

Retail has been surging the last several years possibly started by the tax cuts several years ago, but certainly driven forward by skyrocketing home prices, and falling interest rates. Home-owners were able to continually refinance their homes at lower rates, taking out equity in the process, which they tended to pour back into the retail economy. Home prices have stalled in many places and begun falling precipitously elsewhere in the country. It is questionable how much tax rebates will be able to pull consumers out of the hole, especially in light of the buying binge they've been on and the negative savings rate Americans have presently.

A Win for Mpayy

Mpayy, Inc., which launches in less than 48 hours will provide a solution to many of the problems facing the retail industry. As sales decline, this margin-starved industry will be groping for a few percentage points here and there. One place they can find that is by CUTTING TRANSACTION COSTS, through Mpayy, which will also get them out of the pretty pickle JC Penny currently finds itself in with the recent revelation of 650,000 lost identities.

Financial Times Cites Online Sales Growth #'s

As we work to deliver our online and mobile payment processing system we take heart in numbers like those cited by the Financial Times in a recent article.

According to the article:

"Raul Vazquez, chief executive of Walmart.com, said the retailer had seen sales on the Friday after Thanksgiving holiday “exceed our expectations” of 40-60 per cent annual growth.

Ron LaPierre, president of PriceGrabber, a comparison shopping site, said sales through its site had been running “at or above expectations” so far."

The article goes on to state that WalMart is expecting 30 million visitors this week, and the top ecommerce sites are running similar promotions to the "door busters" run in brick and mortar stores. They are adding, this season, free delivery offers to drive more online sales.

More to come...

Holiday Shopping Paves the Way for Mpayy

Mpayy headquarters remains very focused on putting the finishing touches on the application and web and mobile sites for launch in late January. So, we will sit through the period in which traditional retailers generate up to 80% of their annual sales - the timeframe between Thanksgiving and New Year's. Today we review holiday spending predictions and a new retailer effort that is ahead of the curve.

Predictions for Holiday Spending

Internet Retailer just reviewed a recent Forrester Research article entitled “Outlook for U.S. Online Retail: Holiday 2007.”

In it, Forrester's predicts that ONLINE spending will grow $6 billion to $33 billion this holiday season. IR goes on to cite Burst Media arguing that more than half (50.7%) of consumers will do some holiday shopping online, up from the mid-30%'s last year.

The Internet Retailer closes with some interesting customer sentiments that pave the way for Mpayy.

— 70.7% of online shoppers cite credit card security as the biggest impediment to buying online. Other concerns are the privacy of personal information online, cited by 60.8%; shipping costs

Mpayy will be PCI Compliant and utilize 128-bit TDES encryption technology to protect customer data vs. the retailers doing it themselves.

Mobile Touchpoints

Both the Internet Retailer and the Wall Street Journal point to concerns about the economy, housing market and gas prices as influences that will constrain consumer spending this holiday season. In order to combat those factors, the Wall Street Journal (subscription required) notes several high-flying retailers are taking specific steps:

"Shoppers who sign up with Nordstrom or Wal-Mart, for example, will receive text messages with information on discounted merchandise and special sales. Best Buy is offering gift suggestions on its mobile Web site. J.C. Penney is going further, offering to make wake-up calls to early-bird shoppers eager to get a head start on Black Friday, the traditional kickoff to the frenzied holiday retail season. (This year, many J.C. Penney stores will open at 4 a.m. on the day after Thanksgiving.)"

These retailers are looking to open up the mobile marketing channel. Currently, most efforts are just informative, or include a coupon system that can be redeemed for discounts in the store. However, little to no mobile action is, well... actionable. Mpayy will drive mobile commerce through actionable text messaging. We look forward to rolling out pilots with close friends of the company at Interactive Mediums.