Forget Wall Street — consumers have their own credit crunch to worry about with store-branded charge cards and it’s about to get worse, according to a new report from Fitch Ratings.
“Rising delinquencies will pressure card issuers and their retail partners during the coming year as Fitch expects a scenario akin to nearly one in eight cardholders defaulting on their store cards,” said Mike Dean, managing director.
The ratio of cards that were more than 60 days delinquent in November rose to 4.8 percent, up substantially from 3.9 percent in August and 3.7 percent in November 2007, according to Fitch’s Credit Card Index. Most of the cards in the index can only be used at the store that issued them.
Many retailers have branded credit cards and use them for targeted marketing programs and research, but few chains outside of Target Corp. or Nordstrom Inc. continue to handle the financial end of the business.
The rising delinquencies among store credit cards mean some retailers’ most loyal shoppers are having trouble meeting their financial obligations and could be paying off other, more widely used credit cards first, said Cynthia Ullrich, senior director at Fitch.
“In the current economic situation, [consumers] might have less utility for a retailer-specific credit card,” Ullrich said. “At some point, if you don’t have enough money, you’re not going to go to Ann Taylor to get a sweater.”
Since most retailers don’t own the back end of the business, they aren’t going to get caught with the bad debt on their balance sheets when consumers don’t pay.
Retailers might end up paying, though, in the form of lower sales as shoppers find they have one less place to turn should they lose their card privileges.
“That’s a source of liquidity for the consumers that they’re not going to have anymore,” Ullrich said.
For card issuers, charge-offs for bad debt are expected to surpass 12 percent in the first half next year, rising from 9.1 percent last month and 6.5 percent in November 2007.
This is one crunch, however, that shouldn’t immediately worry investors, at least those primarily concerned with asset-backed securities tied to credit card receivables. The credit ratings on such securities are not expected to be hurt in the near term, the rating agency said.
Fitch tracks more than $72 billion in principal receivables backing about $40 billion of retail or private label credit card-backed securities. Among the largest issuers in Fitch’s Credit Card Index are Citibank Omni Master Trust and GE Private Label Master Trust. The retailers include Wal-Mart Stores Inc., Sears Holdings Corp., Macy’s Inc., J.C. Penney Co. Inc. and Limited Brands Inc.
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty