Fintech Innovation to Drive Retail Stocks Higher During the Holiday Season

As we approach the festive season, fintech innovation appears set to deliver a timely boost to retail stocks as Wall Street prepares for a softer outlook for consumers. 

The impact of lingering high inflation rates and historically higher interest rates have compounded to create a series of spending shortfalls for consumers who would usually be getting into gear ahead of Thanksgiving and Christmas during this time of year. 

However, following a steady flow in fintech investments throughout the first half of 2024, leading retailers could find themselves performing better despite the impact on consumer spending power. 

Despite a series of economic challenges, the United States secured $7.3 billion in fintech investment across 599 deals over the first half of 2024. The market share of the fintech industry that the US holds is 54.6%, and this is helping to drive innovation throughout the retail landscape for domestic firms. 

Beating Expectations

The end of Q3 also brought some good tidings to retail stocks, with US retail sales growing by an expectation-beating 0.4% in September. Surpassing forecasts of 0.3%, it appears that we may be heading for something of a Santa Claus rally after all. 

Retail innovation has helped to play a significant role in attracting more consumers, with advances in online shopping, sustainability initiatives, omnichannel engagement, and values-driven purchases helping to overcome some of the challenges retailers are facing in difficult market conditions. 

The ever-increasingly sophisticated fintech landscape is helping retailers bring transformative change to their products and services in a way that can attract consumer interest on an unprecedented scale. 

Crucially, signs that personal income rose by 0.2% to $50.5 billion in August 2024 are another indication that fintech innovation in retail can deliver greater levels of success during the upcoming holiday season. 

We can also see signs of leading retailers beating expectations in recent quarters. Internationally renowned apparel and accessories retailer, The Gap (NYSE:GAP), outperformed expectations by 2.6% to report Q2 2024 revenues of $3.72 billion. 

The revenue boost was 4.8% higher year-on-year and illustrated how some retailers have been thriving in spite of the impact of high inflation and interest rates. 

Fintech Drives Retail Optimism

Emerging fintech trends like real-time payments are helping more retailers to operate with zero-cost, instant transactions to enhance the customer experience (CX) in stores. 

In nations like the United Kingdom, Australia, and Singapore, real-time payments through wallet apps have largely eliminated the need for checks and cash.

With cash now estimated to account for just 16% of all transactions in the US, we’re seeing the fintech revolution continue to sweep through the nation’s retailers. 

Enhancements in point-of-sale (POS) technology are also helping retail stores in the US access far more incisive analytical insights to shape future sales strategies. With POS innovations helping to drive unprecedented insights into consumer behavior, we’re seeing more examples of retailers discovering more operational efficiency in 2024. 

This appears to be the case for Target (NYSE:TGT), which has grown 40% in the year between the beginning of Q4 2023 and the end of Q3 2024. 

Prioritizing innovation and operational efficiency, Target enhanced its market presence with the integration of a seamless digital and physical experience. Using big data to its advantage, Target has developed a proactive pricing strategy and a more focused loyalty program, both of which are designed to drive customer engagement and retention. 

In addition to this, Target has moved quickly to embrace generative AI by implementing 2,000 specialist chatbots in US stores to further bolster its CX models. 

With a Zacks Consensus Estimate for Target’s current financial-year earnings per share (EPS) suggesting growth of 6.7%, it’s clear that turbulent market conditions can be successfully countered by innovative retailers. 

Unlocking Global Fintech Potential

The global outlook for fintech innovation could also uncover some investment opportunities among those seeking to add retail stocks to their portfolios. 

Innovations like Adyen’s announcement that its Tap to Pay function now extends to five new countries, Austria, Czech Republic, Ireland, Romania, and Sweden, show that fintech is opening new doors to retail stores on the world stage. 

The functionality allows retailers to accept contactless payments on an iPhone, with no need for additional hardware. This could help more businesses to open brick-and-mortar stores or popup locations with relative ease while boosting the CX leveraged with a frictionless payments system. 

Santa Claus Rally? 

Although whether Wall Street experiences a Santa Claus rally is down to consumer confidence predominantly, fintech’s key role in driving retailer innovation is helping to improve the outlook for stores moving into the pivotal build-up before the festive season. 

With retail stores readily embracing change, we may see more confounding consumer spending patterns emerge in the coming weeks, pointing to a more exciting Christmas approach for all concerned. 

As for investors, it’s worth monitoring consumer spending closely. Retailers are becoming increasingly fintech-savvy, and the industry’s most ambitious players may reap the rewards on Wall Street.