The future does not look promising for department stores in light of recent changes in the credit card landscape. Macy’s and Nordstrom are feeling the heat from two threats related to credit cards. The first issue stems from a proposal by the Consumer Financial Protection Bureau to decrease late fees. The second problem is a rise in delinquencies among credit card holders. Both of these factors could significantly impact the bottom line of major retailers.
Department stores depend heavily on credit card income, with credit earnings accounting for almost half of Macy’s and Nordstrom’s operating income in 2022. For Kohl’s, credit earnings actually exceeded operating income, which means the company would have suffered an operating loss without its credit card revenue. Late fees are particularly important for store-specific credit cards, making up approximately a quarter of interest and consumer fees. However, the CFPB is working to reduce the typical late fee from $30 to $8 in an effort to save consumers up to $9 billion each year. Changes in consumer behavior such as increasing credit card delinquencies, particularly among younger borrowers, are also creating challenges for department stores and their store-branded credit cards. Serious credit card delinquencies have increased across all age groups, with the highest impact on borrowers between 18 and 29 years old. These figures point to a worrying trend for the health of the American consumer, which could have far-reaching implications for the retail sector at large.