Nordstrom Takes DIY Approach to Credit Card Program
Many retailers have sold off their credit card portfolios to partner banks
in recent years as a hedge against the downside of late payments and customer
defaults. One of the exceptions to this trend has been Nordstrom, which has
chosen to keep its program in-house and the chain may reap
a greater upside as card holders get their financial houses in order with a
"Very few retailers in this challenging economic environment want to
worry about running their main business — which is challenging enough — as
well as managing the credit risk," Patricia Edwards, a retail analyst
with Storehouse Partners, told the Puget Sound Business Journal (PSBJ).
"They (Nordstrom) felt very firmly that they wanted to control their
customers’ experience," she added.
"Most retailers lack control of their private label or in-store card
business. That’s not a good position to be in when you’re scrambling
for sales," David
Robertson, publisher of The Nilson Report, told PSBJ.
ahead, Mr. Robertson added, "very large retailers with healthy
balance sheets might consider doing it (taking over their credit card programs)
Back in February, Nordstrom CFO Mike Koppel, described the card program as
important to us because of its focus on building customer loyalty."
According to the PSBJ report, Nordstrom saw the delinquency rate on
its cards rise from 3.7 percent in 2008 to 5.3 percent last year. Net write-offs
increased from 5.6 percent to 9.5 percent over the same period. The company
added $20 million to its reserve for bad debt in part because of "continued
California. The chain operates 30 department stores and 23 Rack locations in
Discussion Questions: Will chains that keep their credit card
businesses in-house have a strategic advantage over the long haul or is managing
debt risk too much for most retailers to deal with? What are your thoughts
on Nordstrom and its credit card program?
- Why Nordstrom runs its own credit-card program: it gains sales and loyalty
– Puget Sound Business Journal