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Delays in retail credit card repayments are being reported by major U.S. department stores like Macy’s and Nordstrom as a risk to earnings as consumers cut back on discretionary spending before the important holiday shopping season.
Rising delinquencies reduced credit card revenues to $120 million in the second quarter, down $84 million from the first quarter, Macy’s executives revealed on Tuesday.
Despite a 10% increase in credit card sales for Nordstrom in the first half of the year, business management warned on Tuesday that rising delinquencies could “result in higher credit losses in the second half and into 2024.”
In a call with investors on Wednesday, Kohl’s reported that “other revenue,” which mostly refers to its credit business, fell by 3% in the second quarter after increasing by 11% in the first. In an effort to get more clients into its credit section, the company recently unveiled a new co-branded credit card with Capital One.
In order to increase sales and revenue, American department stores have traditionally provided store credit cards, which frequently give discounts or points on purchases.
According to credit reporting specialist John Ulzheimer, those cards are often riskier than conventional credit cards, with higher interest rates and smaller credit limits.
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Late Payments Surge
According to a WalletHub analysis from August, the yearly percentage for Macy’s credit card is 31.99% whereas the national average is 22.39%.
According to Ulzheimer, these high interest rates increase the likelihood that higher-risk customers will apply for store cards due to the lower credit score requirements combined with them.
Although U.S. retail sales data show that consumer spending is still mostly resilient, investors and economists believe that mounting delinquencies may be an indication that some consumers are under increasing strain.
According to data from the Federal Reserve Bank of St. Louis, the percentage of late payers increased by 23.1% to 38.2% during the second quarters of 2022 and 2023, with customers in their 40s and 50s experiencing the highest rise.
Falling payment rates may be “an early sign that consumption is getting weaker,” according to Juan M. Sánchez, vice president and chief economist at FRED. Young customers in their 20s and 30s and those living in more economically depressed zip codes now have the highest rates of delinquency.
Department shops are now projecting more bad debt and write-offs for the year due to credit payment defaults as US consumer spending remains constrained.
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Source: Reuters
