Credit cards have long been a powerful tool for retailers, like Macy’s and Kohl’s, to drive purchases and take a cut of the profits.
Starting this spring, these cards will be less lucrative for retailers and more beneficial for consumers. The Consumer Financial Protection Bureau has capped late fees at $8, below the industry average of about $32, which will hurt retailers’ highly profitable business of making money on interest or fees. for late payments that are added to customers’ unpaid credit card balances.
This regulatory change, which is expected to take effect on May 14, faces legal challenges but could transform the way retailers make money through credit cards. For specialty retailers like Gap, this change could have a significant impact as their revenue is already under pressure. According to Jane Hali, CEO and retail analyst at equity research firm Jane Hali & Associates, any revenue cut will be more significant for department stores than other areas of retail due to their current weakness.
In terms of numbers, for fiscal year 2023, credit card revenue amounted to $619 million for Macy’s and approximately $475 million for Nordstrom.
Kohl’s reported $924 million in “other” revenue in 2023, a category that includes unused gift cards and third-party advertising on its website, with a significant portion of this revenue category coming from credit cards, according to estimates from Fitch Ratings.
To offset losses, retailers are looking for ways to increase customer participation in shared credit card programs or find compensation through other programs. Although private label credit cards remain a valuable tool for retailers, the industry faces ongoing challenges due to changes in consumer spending patterns and general economic conditions.
2024-04-14 00:42:33
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