Department stores like Macy’s, Kohl’s, and Gap are facing financial pressure due to declining store credit card revenue. A new rule from the Consumer Financial Protection Bureau will cap late fees for customers at $8, significantly reducing the revenue that retailers make from credit card swipes and the interest or late fees associated with unpaid balances.
While the new rule benefits customers with overdue balances, it poses a significant challenge for department stores, which are already experiencing declining revenue. According to Jane Hali, CEO and retail analyst at equity research firm Jane Hali & Associates, department stores will be the most affected since their revenue is already under pressure.
For example, in fiscal year 2023, credit card revenue totaled $619 million for Macy’s, approximately $475 million for Nordstrom, and $924 million for Kohl’s. While these figures indicate the importance of store-branded credit cards for retailers, they only account for a small portion of their net sales.
Store-branded credit cards are beneficial for retailers as they encourage purchases and come with minimal overhead costs. These cards provide insights into customer behavior and serve as a perpetual advertisement in customers’ wallets. However, retailers are facing challenges as customers adopt new payment methods like buy now, pay later and opt for credit cards that offer experience-based perks.
Additionally, in a higher interest rate environment, getting customers to sign up for store cards or use them becomes more challenging. The average interest rates for retailer-issued credit cards are higher than the average for all U.S. credit cards. All these factors contribute to dwindling credit card revenue for retailers.
To offset the losses from the new late fee cap, retailers are implementing strategies such as increasing annual percentage rates (APRs) or focusing on co-branded cards. Kohl’s, in particular, is working on converting private label cardholders to co-branded Capital One cards that can be used for other purchases as well. The company expects incremental credit revenue from the co-branded card to reach $250 million to $300 million annually by 2025.
Overall, department stores are grappling with declining store credit card revenue, which adds to the financial pressure they are already facing. The new rule from the Consumer Financial Protection Bureau will further impact their profitability, forcing them to find alternative strategies to maintain revenue and customer loyalty.
