NEW YORK–What’s propping up many of the big name department stores and retailers? Credit cards, according to one new report.
Promises by stores to cardholders of deep discounts on clothing, furniture and electronics “are tough for shoppers to resist,” but also an “essential way to bolster their struggling businesses — a trend that has worrisome implications for the industry and its customers,” according to the New York Times.
The Times reported that the store cards, with steep interest rates that are often twice that of the average credit card, “generate a rich profit stream for retailers at a time when many of America’s traditional retailers are losing the battle for sales against Amazon and other e-commerce rivals. Those profits on plastic are helping obscure the true extent of the industry’s pain…”
The Times reported that at Macy’s, the money from branded credit cards accounted for 39% of the company’s total profit of $1.9 billion last year, up from 26% in 2013, according to an analysis by Morgan Stanley. Bloomingdale’s, which is owned by Macy’s, has pushed to increase the number of credit card customers that workers are expected to sign up each month, according to the store workers’ union, the Times reported.
At Kohl’s, the profit from plastic totaled 35%, up from 23%, over that same period. At Target, it made up 13% of total earnings, up from 11% in 2013, according to the Times.
The report further noted, however, that there are some signs of “customer distress,” and that Synchrony Financial, which handles the credit cards for stores like Sam’s Club, Gap and Toys “R” Us, is now setting aside more money for bad loans.