Brick-and-mortar store closings are taking down more than just their merchandise displays. Private label store credit cards are also feeling the pain. As the following article reports, store card issuers such as Synchrony are looking to diversify their product offerings.
When Macy’s Inc. reported results that missed analysts’ estimates, Synchrony Financial investors felt the pain. The largest issuer of private-label credit cards in the U.S. saw its shares drop to their lowest in about seven months on May 11, the day of Macy’s disappointing first-quarter earnings. There’s just one problem: “Macy’s announced and we went down, and we don’t even have Macy’s,” Synchrony’s Chief Executive Officer Margaret Keane said in an interview at Bloomberg headquarters in New York. “We do have to think about more diversification.”
U.S. retailers have been shutting stores at a record pace as shoppers opt to make more purchases online. In the past year, companies including American Apparel and Limited Stores have begun closing retail branches, while dressmaker BCBG Max Azria, discount shoe seller Payless Inc. and department store operator Gordmans Stores Inc. have filed for bankruptcy.
“It’s surprising we haven’t seen more retailers go out,” said Keane, 57. “If you look at the U.S., we’re over-retailed, we have too many retailers. What you’re seeing is a lot of the specialty retailers, the smaller retailers, go under.”
Amid the carnage, Stamford, Connecticut-based Synchrony has increased reserves to help cover loan losses. That’s crimped earnings and created pressure on the company’s stock, which has dropped 19 percent this year, the worst performance in the 66-company S&P 500 Financials Index. Among the Synchrony programs most at risk are its partnerships with Gap Inc., JC Penney Co. and Men’s Wearhouse Inc., according to Moody’s Investors Service.
Store closings are not going away anytime soon, and some big retail names are still struggling, creating sleepless nights for store card issuers. Firms like Synchrony that have the resources and expertise are wise to look for other financial market opportunities. Whether they find the right deal and fit will be another story, and they will not be alone in looking for possible acquisitions.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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