Macy's Invests in Payment Company Klarna

Written by Jennifer Clark
Posted October 7, 2020

Department store Macy’s (NYSE: M) has signed a deal to invest in a Swedish payment group, Klarna. Klarna’s platform allows customers at certain stores to be able to buy now but pay later. Essentially, it lets its users purchase the items that they’ve been eyeing without the worry of a big price tag. Klarna breaks it down to a lower and more affordable payment. This type of platform is helpful for those big purchases that you’ve been putting off because while they might fit into your budget, it can still be hard to feel OK about such a large purchase — like buying a new couch, computer, laptop, etc. 

Macy’s is one of the largest U.S. department stores and the deal includes a five-year partnership with Klarna. It will allow for Macy’s customers to choose to make payments in four equal and interest-free installments when they buy online. This would make Macy’s one of the first department stores to offer this type of payment option to its customers, which could increase sales for the department store. Klarna has a similar partnership with the world’s second-biggest fashion retailer, H&M. 

Klarna’s CEO, Sebastian Siemiatkowski, mentioned in a recent interview:

We at Klarna take a very long-term approach, and this investment demonstrates a shared commitment and vision to the continual development of retail over the next years to meet customers' changing expectations and preferences. 

For some people, seeing that grand total can make a person second-guess herself when she's about to check out. I know I’ve done it. I start putting items into my online shopping cart and when I’m ready to check out and see the total with the additional taxes and shipping fee, I reconsider if I really need the items I’ve spent the last 30 minutes browsing through and selecting. And I’ve been doing a lot more online shopping in the past six months since I’ve been stuck at home. 

There are a lot of other companies out there that offer similar services to Klarna. The U.S. is one of the largest markets for the "buy now, pay later" market. Some of the major competitors include PayPal, Afterpay, and Affirm. It’s going to be tough out there, but partnerships with more large retailers like Macy’s and H&M puts Klarna in a unique position. In the first half of the year, Klarna reported 550% growth in the U.S. market. It had also reported over 1 million new U.S. customers between May and August of this year.

Last month, the company was able to raise $650 million, which has put the company’s valuation near $10.6 billion. So it doesn’t come as a surprise that the company has been rumored to be having an upcoming initial public offering (IPO). Some of Klarna’s other investors include Sequoia Capital, H&M, and rapper Snoop Dogg. 

Technology investment firm Silver Lake's co-CEO and managing partner Egon Durban and managing director Jonathan Durham had this to say about Klarna:

Klarna is one of the most disruptive and promising fintech companies in the world, redefining the e-commerce experience for millions of consumers and global retailers, just as e-commerce growth is accelerating worldwide and rapidly shifting to mobile. Klarna’s retail partners benefit from incremental traffic and dramatically improved customer conversion. Consumers love Klarna for its differentiated app-based shopping experience and for [its] flexible and transparent payment options. We are excited to invest in the company and partner with Sebastian and his talented team at this dynamic time to help accelerate Klarna’s remarkable growth and success worldwide. 

It has managed to acquire over 200,000 retail partners, including Nike, Peloton, IKEA, H&M, Expedia, The North Face, Sephora, Ralph Lauren, and Samsung. This type of service appears to be beneficial to both customers and merchants. Customers aren’t going broke buying the things they need, and retailers are able to receive more sales.

Klarna’s app has grown tremendously. It has more than 12 million monthly active users worldwide with 55,000 daily downloads. The app is very user-friendly and the company has started the very first "buy now, pay later" shopper loyalty program called Vibe. Vibe rewards consumers who pay on time so that it encourages responsible spending that, in the end, benefits Klarna’s financials. 

The world of e-commerce continues to grow rapidly, and Klarna is offering a service that makes it even easier to buy online. If and when this company goes public, it’s going to be massive.

Until next time, 

Jennifer Clark
Pro Trader Today
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