The Creative Disruption of Digital Wallets and Chinese Direct-to-Consumer Marketplaces in Holiday Shopping
The concept of ‘creative destruction’, coined by economist Joseph Schumpeter, where innovative market changes lead to the downfall of older, less efficient business models, aptly describes the transformative impact of technology on holiday shopping.
While shopping habits during the rest of the year guided the market trends, consumers’ habits during the holiday seasons significantly influenced consumer behavior later.
The internet was a harbinger of the digital age and ushered in a retail apocalypse in the early 2000s due to online shopping. Black Friday was complemented by Cyber Monday. The pandemic further eviscerated in-person shopping. Empty malls are becoming increasingly common across America as digital storefronts become more prevalent.
While the convenience of buying gifts from home in a bathrobe is a clear example of culture shock, emerging technology is subtly reducing barriers in consumer goods by increasing efficiency and innovation. Here are just two:
Frictionless Digital Wallets and Currency: Our phones have become our wallets and our watches, our checkbooks. Just as online shopping transformed our shopping habits, wireless payment methods are similarly transforming.
Paying through Apple or Android Pay by simply pointing at your phone or watch at a register is more convenient. It provides a sense of novelty, making customers feel at the forefront of technology. Businesses favor this payment method as it is quicker, less prone to errors, and simpler than cash at checkout.
The more people that have access to this technology, the more they use it. According to the Pew Research Institute, 80% of people who have used digital wallets did so in the last month. The widespread adoption of digital payment methods was ushered in by a Point-of-Sale technology that offered consumers the ability to pay in new ways.
A Forbes survey found that consumers are just as likely to use digital wallets as cash. According to the report by Strawhecker Group, an Omaha-based consulting company and an industry trade group, Apple Pay is leading the pack with 56% of the total digital payments belonging to them, with a 10% growth rate year after year. As Visa noted in 2016 when digital wallets and tap-to-pay were introduced, it is quickly becoming that “Cash is the ghost of Christmas past.”
Federal regulators are saying “bah, humbug”. Potentially limiting the innovation that digital wallets could bring to the average consumer, the Consumer Financial Protection Bureau is aiming for new oversight for companies providing digital wallets, which could slow the progress of creative disruption.
Made In China 2.0 and International Shopping: Due to openness to international free trade and the modernization of China’s manufacturing sector and economy, US consumers gained access to goods made in China starting more than two decades ago. The influence of these imported goods cannot be overstated. According to one study, prices of consumer goods fell 17% percent due to China’s low-cost manufacturing. The influx of goods was part of an overall free market policy focusing on removing trade barriers that helped usher in two decades of relatively high well-being.
Consumers in the United States, dealing with the highest inflation in years, are motivated to purchase overseas goods as a cheaper alternative to Amazon and big box stores, with Chinese companies such as AliExpress and Alibaba. One recent poll showed that two-thirds of people with a household income below $50,000 plan to cut back on Christmas shopping because inflation is eating their purchasing power. The National Retail Federation expects that holiday shopping will only rise three to four percent. This increase is projected to be at a five-year low, with inflation being one of the culprits. It is not all coal. Deloitte anticipates that Holiday shopping will return to pre-pandemic levels.
Consumers want more bang for their Christmas buck. We are witnessing a second wave of Chinese goods imported to the US. Innovation in supply chain management aided by artificial intelligence creates a growing trend of individual consumers purchasing directly from China, like AliExpress and Tumu, bypassing American intermediaries like Amazon. This will add further strain on physical retail spaces.
These purchases are often tax-free, adding to their cost-conscious appeal. The US excise tax does not apply to orders under $800 de minimus exception. According to one interim U.S. House Select Committee interim Report, “Temu and Shein [two of the largest Chinese marketplaces] alone are likely responsible for more than 30% of all packages shipped to the United States daily under the de minimis provision, and likely nearly half of all de minimis shipments to the U.S. originate from China.” As Amazon once disrupted early digital commerce, creativity has been disrupted.
The same committee report had substantial evidence that Temu and other Chinese-based companies were using forced labor of ethnic minorities and using the import tax exemption to hide that fact.
Creative Disruption through technology might be the best gift for the American consumer.