Why are Frasers Group and Currys banking on credit to drive growth?

Credit is emerging as a new route to growth for some of the UK’s biggest retailers, with the likes of Frasers Group, Currys and John Lewis revamping their financial services offers last year.

The appeal is clear. Adobe Analytics reported online spending using buy now, pay later schemes rose to £1.26bn in January, up 3.3% on the year before.

Frasers CFO Chris Wootton told Retail Gazette in December that the group’s growth in the UK “is really going to be predicated on Frasers Plus” – its flexible payment offer – this year, as it nears the end of its store expansion plans for its various brands.

Just this month, the retail giant announced it had extended its credit and loyalty offer to online specialist Marks Electrical as it continues to expand its third-party partnerships.

The Sports Direct owner is joined by Currys, which revamped its credit offer last Autumn as it looks to extend its involvement with customers on their post-purchase journey. John Lewis relaunched its personal loans products and partnered with Klarna to offer customers more flexible payment options.

This group of retailers join the likes of Next, M&S and Very which have been long established players in offering credit services to customers. But why have so many more retailers started jumping on the credit bandwagon and what opportunities does it offer?

A new way to pay

More and more customers are turning towards buy now, pay later options to help spread the cost of their purchases – a trend that gained pace during the recent cost-of-living crisis.

John Lewis Money director of credit and banking Andy Piggott notes that the pinch on consumer wallets “hasn’t gone away”, adding that “ Customers do still need to buy bigger ticket items like a new pram for their first baby, a student looking for a laptop to take to university, or a new fridge-freezer when an old one has come to the end of its life, for example”.

“We are seeing a real range of customers using our payment options, across a whole variety of products – but tech is where it’s really making a significant difference,” says Piggott.

The partnership-owned department store reported an uplift in spend on customers’ Partnership Credit Cards over the Black Friday period and found that over half of customers using credit over promotional weekend were purchasing tech products.

It’s a trend that rival Currys is seeing as well. The electrical giant reported that £1 in every £5 spent was via its buy now, pay later service – outpacing the use of customers using their own credit cards.

So what’s driving the surge?

Retail Economics analyst Nicholas Found says that perceptions of using credit are shifting, partly thanks to a marketing push and “The way that some of these big players, such as Klarna, have stressed the point that there’s no drama when it comes to using their payment services.”

Found says that in some cases credit schemes are viewed “as a strategic financial tool rather than this burdensome obligation”.

Retail Economics also found that consumers are more likely to pay via credit options when they are unsure about the order, with 23.9% of online shoppers choosing a different payment method if they think they might return an item, rising to nearly half amongst Gen Z and a third amongst millennials.

“If there is a risk that they return an item, the fact that payment hasn’t been taken [from their own account] is really beneficial to consumers when they’re looking at their cash flow,” explains Found, adding that people are almost “incentivised” to use buy now, pay later options “as a way to effectively manage their spending”.

Extending the customer journey

Currys’ consumer credit director Joshua Fabian-Miller notes that customers who make use of its flexible payment plan are twice as likely to buy again within 12 months, compared to non-credit shoppers.

“When we give the customer the credit line, we extend that relationship with them beyond the transaction, we give them a reason to come back again,” he explains. The credit customers also “buy more”, “build bigger baskets”, as well as “attach more linked products and services” to their purchases, Fabian-Miller notes.

Currys refreshed and rebranded its credit offer last October to be available for more product categories and provide users with better visibility of their credit balance across previous purchases.

Its Flexpay service, formerly YourPlan, is powered by BNP Paribas Personal Finance and can now be accessed for in-store purchases.

According to Fabian-Miller, the retailer’s credit customers “are our happiest customers” with NPS scores “about 20% higher” than non-credit shoppers.

The success behind most modern BNPL schemes can be attributed to the seamless payment experience, explains Nicholas Found.

The way the flexible payment providers, such as Klarna and Clearpay, have been integrated into online checkouts makes the credit process “really straightforward, simplified and fast”, he says.

Piggott sees this change happening at John Lewis: “Customers have told us for lower value, more frequently purchased products, they like to use a payments brand they’ve previously signed up to – this includes Klarna and Clearpay.”

A growth opportunity

Similarly to Very Group, Frasers is keeping its flexible payment service in-house to add another revenue stream to the group’s balance sheet.

Chief executive Michael Murray previously described Frasers Plus as a subscription-based membership programme and flexible payment solution rolled into one, offering customers rewards and in some cases, discounted pricing when they choose to spread the cost of their purchases.

“We’re giving the consumer a convenient way to pay and get rewards across our ecosystem. We’ve got sports, premium and luxury, we’ve got computer games, got bikes, we’ve got sofas,” CFO Wootton told Retail Gazette.

The retail giant launched the flexible payment scheme on the Sports Direct website in June 2023 before fully integrating it across the wider Frasers ecosystem in September.

Shoppers are able to split and defer payments or take a loan worth up to £2,000 through the group’s app, that can be spent across its retailers.

Consumer loans will be facilitated through Studio Retail, a Financial Conduct Authority regulated firm acquired out of administration by Frasers in 2022, whilst technology created by fintech startup Tymit, in which the retail group holds a 28% stake, will facilitate the BNPL payments.

Wootton explained the financial services proposition was “Going great guns, and there’s some really good early proof points”.

The group had an active customer base of 377,000 people by the end of October and was being used in 13.7% of online transactions in the half, up from 2.8% the year before.

Wootton believes the product “should go from strength to strength” as Frasers aims for two million customers and £600m in credit balances in the long-term. It accounted for £45.7m in sales in the 26 weeks to 27 October.

The retail group bagged its first third-party deal in June with THG, which saw its Frasers Plus service rolled out across the ecommerce giant’s LookFantastic, CultBeauty and MyProtein brands. It has since rolled out its BNPL services to the Hornby brands and Marks Electrical.

The Mike Ashely-controlled group is certainly tapping a lucrative market as it plots the next phase of growth, and it seems Currys and John Lewis are also both primed for the opportunity as well.

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