The Wall Street Journal has a story about how “consumers are shifting away from store credit cards as brand loyalty wanes and interest rates rise.
“The cards, which typically can only be used at a particular chain, have been a lucrative source of revenue for retailers as merchandise sales have slowed. But the stream is drying up as Americans carry fewer cards and increasingly finance purchases with buy now, pay later providers. Interest rates surpassing 30% on some retailers’ credit cards aren’t helping, according to analysts.
“The payment shifts add to the challenges many retailers face this holiday shopping season as they look to clear out inventory and preserve profits.”
Not only are people spending less on those store credit cards, but they’re also getting fewer of them: “Offered by retailers from Neiman Marcus to
Target, store-branded, or private-label credit cards as they are sometimes called, have suffered from the yearslong shift to e-commerce and the temporary store closures during the Covid-19 pandemic. That is because most customers open such accounts at cash registers inside bricks-and-mortar stores.
“Private-label card originations fell 37% last year compared with 2015, according to the Consumer Financial Protection Bureau. Over that period, originations of general purpose credit cards grew 33%.”
KC’s View:
This isn’t something that affects food retailers, but I do think there is a broader lesson here. The retailers that have been depending on the revenue from these cards essentially have become hooked on ancillary revenue streams that had nothing to do with the value of what they were selling. There’s nothing wrong with that as long as the revenue stream indeed is ancillary.
But when any retailer becomes dependent on funds generated by something other than the actual sale, it does set up a scenario that could complicate their lives in the long term.
in other words, sellers beware.
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