COVID-19 Trends in Store Credit Cards

COVID-19 Trends in Store Credit Cards

The store, retail, and private label credit card market in the U.S. has taken a serious toll as a result of the COVID-19 pandemic. Insights and trends related to such types of credit cards have indicated interesting changes in the market related to credit limits, card usage, and even payment practices. Using industry research reports and publications from experts, we were able to identify four trends related to this topic. These trends were more-so focused on how the credit card providers are interacting with the market and audience, and how this is being perceived by consumers. Each trend was defined as being a trend based on its reference across multiple sources and the availability of hard data/statistics to back the trend up. For each trend identified, we have included an addition 1-2 data points to help visualize its relevance to the store credit card industry.
In addition to this, we have located 5 data points that further depict how consumer usage of store credit cards has changed during the COVID-19 pandemic. Each insight includes a quantitative data point to help understand its relevance to the store card industry. These insights are largely focused on how usage has transformed over the course of COVID-19, and not just stagnant points of interest. As a final component to this research, we have detailed two clothing stores — Gap Inc. and Nieman Marcus — that have implemented changes to their credit card offerings during the COVID-19 pandemic. For each supplier, we made use of their respective websites, as well as press releases and news articles to understand how their offerings and rewards have changed since COVID-19 became a factor in the market, as well as how the brand is adjusting to continue to reach their market and drive sales amidst closures.

  • The origination credit limit of new private label, store credit card accounts opened on or after August 5, 2020 is expected to remain relatively stable for subprime holders and increase for prime holders, according to the Equifax U.S. National Consumer Credit Trends Report from July 5-July 14, 2020.
    • For new account holders with a VantageScore 3.0 of less than 620, the credit limit of new store credit cards opened between January 5, 2020 and July 5, 2020 has remained within the range of $500-$1,000.
    • The overall average credit limit of new store credit cards regardless of VantageScore 3.0 and FICO scores, however, has increased from an average of between $2,000-$2,500 to nearly $3,000 since the COVID-19 pandemic. This jump became noticeable between April 5, 2020 and July 5, 2020.
  • Many retail credit card companies are beginning to offer more flexible payment options to their account holders in the wake of COVID-19 to promote purchasing and display empathy for the difficult economic situation many are in.
    • In April 2020, 26% of retailers that also offer credit cards reported that they would begin to offer installment plan options at check-out to increase the likelihood of consumer purchases.
    • Airlines including JetBlue have offered a similar service, permitting trips between $750-$10,000 to be financed via a retail card with a fixed interest rate.
    • This trend is rather prominent for store-purchases including electronics (43.7%), clothing (36.9%), furniture/appliances (32.8%), and household essentials (31%).
    • Most often, consumers between the ages of 18-24 (37.7%), 25-34 (46.8%), 35-44 (50.1%), and 45-54 (42.2%) have made use of buy now, pay later programs such as these at least once.
  • Many store credit cards are offering additional cash back incentives to promote usage during the COVID-19 pandemic.
    • The Amazon Prime Rewards Visa Signature Card offers users an additional 5% back on Amazon.com and at Whole Foods, and most recently, has been promoting a $40 monthly reward for users that spend $800 or more in a month on groceries or household items at these vendors.
    • Other retail and private label cards have offered Uber and UberEats credits on a monthly basis for users that spend a certain amount to increase usage.
  • Retail credit cards are either reducing limits or completely closing non-used accounts in the wake of COVID-19 to reduce the risk of future delinquencies.
    • Deloitte estimates that credit card charge-offs could increase to approximately 8.1% by 2021 as a result of increased unemployment rates from COVID-19.
    • Distribution (%) of credit limit reductions among consumers who had a limit reduced

Consumer Usage of Store Credit Cards Since COVID-19

  • According to the Equifax U.S. National Consumer Credit Trends Report form September 7-15, 2020, the average utilization rate of private label credit cards in the U.S. has remained rather stable on a weekly basis since the COVID-19 pandemic. As of September 7, 2020, the average utilization rate based on total limit was 13.4%, which is similar to that at the beginning of the pandemic.
  • A study from Lending Tree published in October 2020 found that 44% of U.S. consumers are “somewhat likely” to apply for a store credit card to cover holiday purchases this year, which is a major increase from 2019.
  • The number of outstanding private label credit cards has experienced a steady decrease since the COVID-19 pandemic began. This trend is expected to continue, according to the Equifax U.S. National Consmer Credit Trends Report from September 7-September 15, 2020.
    • From February 2020 to September 2020, there has been a 6.7% overall decrease in outstanding private label credit card accounts in the U.S.
    • The average balance on private label credit cards has continuously decreased since the start of the COVID-19 pandemic. From June to September 2020, balances have decreased steadily by 12%-13% each week in the U.S.
  • Consumers are more likely to use a store credit card that offers digital payment options. According to a study published in September 2020 by PYMNTS.com and PayPal, 57% of consumers say that where they shop is impacted by the availability of digital payment solutions. As of August 2020, 67% of retailers offer some form of no-touch payment.
  • Although credit balances on store credit cards have remained relatively stable since the start of the COVID-19 pandemic, total sales via private label store cards have increased by 29% according to Nielsen.
    • Approximately 30% of consumers that opened a store credit card during the COVID-19 pandemic have decided to keep the account.
    • As of March 30, 2020, the category of retail stores that is experiencing the largest influx of new accounts are mass merchants/warehouses that offer products in bulk.

Gap Inc.

  • Prior to the COVID-19 pandemic, Gap Inc. believed themselves to be in a strong and flexible financial position that could bolster the difficulties associated with the pandemic.
  • Since the pandemic forced Gap to close their brick-and-mortar stores, the brand has begun offering new card holders 20% off and free shipping on their first purchase.
  • To promote consumer purchases with the Gap credit cards, the brand has begun offering donations of $5 for every mask purchased from their Janie & Jack line between May 8-September 30, 2020. Banana Republic, which is also owned by Gap, is following suite by donating $10 per mask sold between April 23-May 22, 2020.
  • The Gap brand has extended the expiration dates of rewards that were set to expire between March-May 2020 to compensate for those that may have been unable to use the rewards because of COVID-19. Any rewards that expired during that time frame were pushed back and able to be used between June-August 2020.
  • Amidst store closures due to COVID-19, Gap has placed a heavy emphasis on promoting their digital marketplace. The brand has experienced a 40% increase in both online sales and consumers interacting with the brand via multiple channels and not just in-stores, as well as a 75% brand awareness due to their deeper customer connection efforts.

Nieman Marcus

  • Nieman Marcus filed for bankruptcy in May 2020 due to major store closures and overextended credit lines as a result of COVID-19. This, however, means a number of interesting things for store credit card holders.
  • For starters, Nieman Marcus is still offering interested consumers the option to open a store card despite their bankruptcy — this is largely due to the fact that the bankruptcy is being used as a restructuring, and not for the brand to completely go out of business.
  • New card holders are being offered an additional 5,000 bonus points when they not only open an account but also make a purchase within 30 days. This is further being promoted by rewarding such consumers with a $100 point card once they reach 10,000 points, half of which are essentially free with the first purchase.
  • In October 2020, Nieman Marcus signed an agreement with Capital One to cover the brand’s private label credit card up through at least July 2027. This agreement is focused on increasing customer engagement and loyalty. Prior to this engagement, Nieman Marcus was bringing in approximately 41% of their annual revenue via store credit cards, and this value is expected to increase despite the bankruptcy because of the new partnership.

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