The buy now, pay later industry is boosting the retail sector and perhaps staving off a retail recession.
The Australian Bureau of Statistics (ABS) reported that retail sales fell 0.1%, seasonally adjusted, in April 2019.
However what is interesting is that, according to a report in the AFR, UBS analysts estimated that in the six months to December 2018 Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) accounted for around 16% of growth in discretionary retail spending.
However, back to the April 2019 retail update from the ABS, in many of the discretionary areas of spending the retail sector looked a bit wobbly. According to the ABS, seasonally adjusted fast food and dining fell 0.7%, clothing, footwear and personal accessory retailing fell 1.2% and household goods retailing fell 0.9%.
But there were positive signs in other areas of the economy, seasonally adjusted food retailing rose by 0.2%, department store retailing rose by 1.8% and 'other retailing' rose by 0.8%.
Both Afterpay and Zip Co have built enormous networks of merchants that use one (or both) of the buy now, pay later providers. They allow consumers to bring forward spending and help smooth out the cashflow payments for the retail spending.
However, Afterpay and Zip Co take a decent clip of any retail spending so retailers might start to push back on these fees.
There are many different competitors to Afterpay and Zip Co and some large payment businesses like MasterCard and PayPal are trying to come up with ways to stem the shift to BNPL operators.
Foolish takeaway
It's clear that Afterpay and Zip Co are doing well and helping retailers boost their revenue, but even with that effect retail sales still look sluggish. Who knows what's going to happen next?
