This 6th edition of Private Label Credit Cards in the U.S. continues the story told in Packaged Facts’ September 2006 analysis of this market. It examines the complex relationship between banks, which are severely restricting their consumer lending; retailers, which want to get their cards into as many hands as possible; and American consumers, who may have changed their shopping habits forever—or until the latter part of 2009, when Packaged Facts expects spending to rally.
Packaged Facts estimates growth in private-label credit cards at 3.3% in 2007, bringing the market to nearly $114 billion in receivables. The 2004-2005 period saw a rally during which the acquisition blitz was in full swing and the leading third-party issuers were making substantial investments in marketing, new product development, and customer relations management for their new retail portfolios. However, receivables for private-label credit cards are expected to decline by 3.5%, or $4 billion, for a total of $109.7 billion in 2008 receivables.
Market trends and features that continue to be, or have become, major forces in the private-label segment of the credit card market include:
But there have also been notable shifts in the market since 2006. New to this edition:
The retail industry is reeling from the bumpy economic environment, with almost 6,000 store closings predicted for 2008. GE Money put its private label business up for sale, but there have been no takers, as financial institutions are in no position to take on more risk in the form of shoppers who are increasingly unable to pay their bills.
Meanwhile, with practically no major portfolios left to acquire, issuers are trying to grow their businesses by focusing on customer relations management. In fact, this strategy is highly recommended by analysts in a recessionary environment. However, many retailers are reportedly dissatisfied by issuers’ services in this arena and may even seek to reclaim their card assets.
Exploding debit card use has hurt the credit card industry in general, and in an uncertain economy consumers may be even more reluctant to incur unnecessary debt from discretionary purchases like clothing. However, retailers (Wal-Mart, supermarkets) selling everyday items like groceries may feel the squeeze a bit less.
Credit card companies have long been under fire from consumer advocates for usurious interest rates, but many are now turning their attention to the APRs imposed by store cards. In 2008, Consumer Reports, creditcards.com, and a New York legislator have launched investigations or otherwise advised consumers to stay away from proprietary credit cards.
The forecast for private label is more bleak than sunny, but online shopping, rewards programs, improved customer service, stimulating usage by under-targeted consumer groups can all contribute to growth. Issuers willing to take on more accounts can also expand their businesses by courting smaller retailers that don’t currently offer store cards.
Read an excerpt from this report below.Report Methodology
The information contained in this report is based on primary research including interviews with financial institutions that issue private-label credit cards, retailers fielding private-label card programs, and marketing firms that administer loyalty programs for retailers, as well as comprehensive secondary research. The latter includes articles appearing in financial, marketing, and trade publications, government resources, independent financial reports, product advertising, independent blogs, and company literature, corporate websites, and consumer websites. Statistics on market revenues and marketer share are based on an evaluation of all available information on market sales and trends, including data for the top private-label retail card issuers from SEC company filings, public statements from corporate executives, and trends and figures reported by the trade press.
Packaged Facts’ analysis of consumer behavior and demographics derives from the Simmons Market Research Bureau’s (New York, NY) Winter 2008 adult consumer survey, which is based on approximately 25,000 respondents age 18 or over, and BIGresearch’s (Worthington, OH) Consumer Intentions and Actions data, which are based on online monthly surveys of over 8,000 U.S. adults.
Market Insights: A Selection From The Report
Citi and GE Money switch places
While most receivables in the private-label credit card market have been concentrated in the hands of the same few issuers for some time, some of their market shares have shifted over the past few years. Packaged Facts estimates that Citi Commerce Solutions accounted for more than $40 billion of receivables in 2005, or almost two-fifths of the total market, making it the top issuer. GE Money claimed nearly $30 billion, or more than one-fourth of receivables, in 2005, and $36 billion, approximately one-third of receivables, in 2007.
GE Money's usurpation of Citi's position as the number-one issuer is in large part a function of their portfolios of portfolios. GE's properties are smaller, more agile, and more diversified, with discount, department, specialty, home improvement, and sporting goods stores among them. In comparison, Citi's great acquisition coups, Macy's, Inc. and Sears Holdings, are mature, sprawling entities strangled by convention, bureaucracy, and, increasingly, irrelevance.
Citi took over the private-label operations of Home Depot, the number-two retailer in the nation and the world's largest home improvement chain, in 2002. But when the air started leaking out of the housing bubble, remodeling projects no longer seemed like a prudent investment for homeowners, which may also have contributed to Citi's drop in sales and share. GE Money's blue-chip account, meanwhile, is Wal-Mart, which flourishes in an economic downturn compared to other retailers, both because of its rock-bottom prices and because of its breadth of merchandise incorporating both essentials and discretionary purchases. GE's 2005 introduction of the co-branded Wal-Mart Discover card has also boosted the bank's relative position in the private-label arena.In the News
Credit Crunch of 2008 Squeezes $114 Billion Private-Label Credit Card Market
New York, January 12, 2009 - Approximately 73 million American adults, or one in three, own private-label credit cards. But tough economic times are squeezing the private-label credit card market, which in 2007 grew only 3% to nearly $114 billion in receivables, notes market research publisher Packaged Facts in the all-new report, Private-Label Credit Cards in the U.S., 6th Edition. Packaged Facts estimates that receivables for the market declined by almost 4% in 2008 for a total of $109 billion. Growth in 2009 is projected to be just one-half of one percent.
In 2007, only 11 private-label credit card issuers had receivables greater than $100 million, down from 17 in 2004 and 27 in 2001. Further, only three banks had receivables of more than $10 billion in 2007. This massive concentration at the top of the list is the result of years of ongoing acquisitions and consolidation in the industry, leaving the top three private-label credit card issuers in control of roughly three-quarters of total private-label receivables.
Resuscitating the industry seems to lay firmly with American consumers and their spending habits. “Resurgence in the private-label credit card market, and the American economy overall, will be linked to consumer optimism,” says Tatjana Meerman, Publisher of Packaged Facts. “But whether this will mean a return to simpler lifestyles and more disciplined spending, notable in the resurgence of layaway plans, or whether it will mean a return to lackadaisical consumerism is unknown. The consensus seems to be that the former is more likely.”
Private-Label Credit Cards in the U.S., 6th Edition examines the market for private-label credit cards, its vulnerabilities, its opportunities, and its future within the context of the global economic meltdown. The report also examines the complex relationship between banks, which are severely restricting their consumer lending; retailers, which want to get their cards into as many hands as possible; and American consumers, who may have changed their shopping habits forever.
About Packaged Facts - Packaged Facts, a division of Market Research Group, publishes market intelligence on a wide range of consumer industries, including consumer goods and retailing, foods and beverages, demographics, pet, and financial products. Packaged Facts also offers a full range of custom research services.