A Bright Spot in Retail: Store-Branded Credit Cards

Things have not been going well for brick-and-mortar retailers lately. With businesses throughout the spectrum noting that profits are down, and some businesses looking at bankruptcies and closures, it’s easy to see that retailers would do just about anything for a little taste of hope in their operations.

The good news is that they may have found it, at least in the short term, in store-branded credit cards.

The cards—which commonly carry interest rates around 30 percent—are delivering profitability, there’s no doubt of that. The branded cards at Macy’s represented about 39 percent of total profits for 2016, reports note, pulling in $1.9 billion.

That’s a hefty increased over the figures from 2012, where the cards accounted for 26 percent of profits. Kohl’s did likewise well with cards, with 35 percent of net income in 2016 against 23 percent in 2012.

There’s no doubt that’s great news for the companies in question—profitability is profitability, and these companies who have already seen sales on a rapid decline could stand a little extra profitability—but there are some potential problems ahead.

Synchrony Financial, regarded as a major lender in credit card operations, noted that it needed to “provision for more losses,” according to reports, and even the New York Times reportedly referred to the practice of store-branded credit cards as “a shaky foundation.”

It’s rational to be concerned here; while there’s no doubt Kohl’s, Macy’s and the like are seeing impressive profits on branded cards, the end result is the same: if those cardholders fail to make payments in any substantial quantity, the last major prop to brick-and-mortar retail goes with it.

Worse, if credit card fees are a growing percentage of profit, that means sales are down, and eventually, as those credit cards are paid off, that means less revenue coming in from card operations. It’s not a good place to be in, when there’s only one prop between a business and disaster.

Still, if the stores can take advantage of this last great saving grace to diversify into more profitable operations using these revenues, then it could be a good thing in the end. With credit cards the only real bright spot in the field, though, it could be that brick-and-mortar is closer to the end than anyone thought.