- Affirm CEO Max Levchin expects consumer spending will pick back up in areas like travel and weddings.
- Consumers saved more than $2.5 trillion in 2020, according to some estimates.
- Here’s how Affirm stands to benefit from increased spending.
- See more stories on Insider’s business page.
US consumers are sitting on more than $2.5 trillion in savings after the coronavirus pandemic disrupted travel and entertainment, according to some estimates. As travel restrictions wane and restaurants and stores reopen, economists and investors are expecting that pile of sidelined cash to surge into the market.
While many consumers faced hardship in 2020 and are prioritizing saving an emergency fund, many are also eager to spend some of the excess they put away last year.
Max Levchin, CEO of Affirm, is bullish on the increase in consumer spending, too.
“I think US consumers have not been retrained to save money more aggressively,” Levchin told Insider.
“There is a lot of pent up demand, and money to meet it in the US household,” he added. “That’s generally very positive news for the economy.”
It’s also good news for Affirm, the buy now, pay later fintech whose business model predicates on consumers spending.
Affirm partners with merchants in several retail categories, from Adidas to Peloton to West Elm.
It offers consumers no-fee, interest-bearing installment plans as an alternative to credit cards. Merchants pay Affirm a percentage of the sale, which accounts for about half of Affirm’s revenue. The other half is earned through interest on loans, network fees for virtual cards, and gains from servicing and selling its loans, according to its fiscal second quarter 2021 earnings release.
When it comes to its merchant network, Levchin sees even more room to grow, especially in experiential services like travel and entertainment.
Here are the areas Levchin is expecting to grow, and the ways Affirm stands to benefit in 2021.
Travel
While Levchin doesn’t have a crystal ball, he says it would be a “sane prediction” to see travel go above its 2019 baseline, as pent-up demand leads consumers to travel more in 2021 than they would otherwise.
“The question is how long it will take before people are satiated with their need to get out of town,” Levchin said.
There may be a big spike later this year, with consumers taking one big vacation to satisfy their wanderlust. Or, there may be a more sustained peak in travel, with people leading more nomadic lifestyles, Levchin said.
Either way, any increase in travel spending is good news for Affirm. Travel and ticketing currently account for 4% of its volumes, according to its latest quarterly earnings report. It has partnerships with American Airlines, Delta, Expedia, and Priceline. More recently, it partnered with vacation rental websites Vacasa and Vrbo, owned by Expedia.
“My assumption is that the combination of Millennials and Gen Z-ers actively preferring experiences to things, plus this leashed travel for a year, may well set off an avalanche of maybe multiple years of, ‘I just have to travel.'” Levchin said.
Weddings
Like most travel plans, weddings, too, were postponed in 2020. And while some couples opted for Zoom ceremonies last year, 2021 is poised to be a massive year for the wedding industry. Even couples that are skipping the big party and eloping are spending on the traditional wedding shopping list: dresses, suits, and rings.
Affirm has partnerships with David’s Bridal and Men’s Warehouse, but Levchin also see opportunity beyond the traditional purchases.
“The knockdown effects are people trying to get in shape for weddings and people buying flowers. Make your list of services and products that are sold into the wedding economy,” Levchin said.
Apparel
The days of leggings and bike shorts paired with button-down shirts may be over, too, Levchin said.
“I did my entire Zoom roadshow wearing shorts,” Levchin said, in reference to weeks of meetings Affirm had with Wall Street investors ahead of its January IPO, usually a suit-and-tie affair.
As warmer weather approaches and vaccines roll out, people are starting to get ready to get back to their offices and attend events again. For many, that means it’s time for a wardrobe refresh. Levchin is expecting to see a boost in spending at partners like Neiman Marcus and Nordstrom.
Fashion and beauty currently account for 17% of Affirm’s sales, according to its latest earnings report.
“Consistent with Millennials’ world views, I think the re-commerce world is probably going to see growth, as well,” Levchin added. For Affirm, that will mean more sales at partners like The RealReal and ThreadUp, marketplaces for second-hand accessories and apparel.
Cooking
In 2020, baking sourdough and cooking every meal became popular ways for consumers to pass the time whilst stuck at home. And that meant Affirm saw a huge boost in sales of home goods like KitchenAid products.
Levchin says that a year later, those habits are likely to stick.
“Cooking keeps you sane,” Levchin said.
Home and lifestyle purchases at retailers like Dyson, KitchenAid, and Pottery Barn account for 17% of Affirm’s sales, according to its latest earnings report.
“If you know that something continuously gives mindless or mindful moments of sanity, I think people will continue hanging out with their bread makers and their sourdough starters.”
Home fitness
Peloton sales account for roughly 30% of Affirm’s total volume, a concentration risk called out in the fintech’s pre-IPO paperwork.
But Levchin is bullish that home fitness is here to stay, even as gyms and fitness classes reopen. There are some consumers who will want to return to the gym, especially for the social aspect. But many class-takers might not rush back to cycling studios, Levchin said.
After more than a year of at-home workouts on Pelotons, which have pre-recorded and live coaches and class leaderboards, Levchin thinks that skepticism has gone away.
“I understand the class-taking mentality because of our association with Peloton and other folks in that space,” Levchin said. “I think they’ve trained a lot of people who were skeptical, thinking, ‘How hard will I work if I’m not next to someone who’s sweating their butt off and I’m not being pumped by a coach that’s in the same room.'”
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