• by Thom Forbes  @tforbes, February 13, 2015

After a 16-year exclusive relationship, American Express announced yesterday that it would be splitting up with Costco when its current agreement comes to an end on March 31, 2016, sending its stock into a downward spin and setting up speculation about which company — if any — will next co-brand with the No. 2 chain after Walmart in worldwide retail sales, according to Kantar Retail data.

“We were unable to reach terms that would have made economic sense for our company and shareholders,” American Express chairman and CEO Kenneth I. Chenault said in a statement. “Instead, we will focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”

“The unusual partnership, in which Costco exclusively accepted AmEx cards, had driven a significant chunk of business to the New York card company,” points out Robin Sidel in the Wall Street Journal. “In addition, AmEx and Costco issued a credit card together that could also be used at other merchants. When the arrangement ends next year, millions of customers will be forced to use a different credit card when shopping at the wholesale store.”

And a big slice of AmEx’ business will be in the wire-mesh dumpster. 

“During a conference call on Thursday, Chenault said: ‘More than 70% of the purchase volume from cards that we issue takes place on non-co-branded products,’” reports MarketWatch’s Philip van Doorn. “That means nearly 30% of the company’s transaction volume comes from co-branded products, underscoring the severe blow from the loss of Costco.”

John Hecht, an analyst at investment banking firm Jefferies, writes in a note that “Costco cards accounted for 8% of American Express’ billed business and 10% of its cards,” reports Roger Yu in USA Today. “It represents a large loss in our opinion,” says Hecht.

Trouble has been brewing between the companies, observes Amey Stone in The Fiscal Times. “Possibly hinting at what may happen in the U.S., the AmEx co-branded cards were replaced by Capital One MasterCards” in Canada last year — and all MasterCards are now accepted there. 

“American Express said that Costco pays a significantly lower rate than the overall average it imposes on other retailers as part of the agreement,” reports the AP’s Tom Murphy in the Minneapolis Star Tribune. “That arrangement gave the credit card company exclusivity for almost two decades, though Costco also accepts debit cards and cash.”

Costco, which is based in Issaquah, Wash., and has 474 locations in the U.S. and 88 in Canada, did not return the AP’s calls seeking comment. “The expiration of the American Express deal could clear the way for rivals Visa Inc. or MasterCard Inc.,” Murphy writes. “Shares of both companies rose Thursday.” 

Bloomberg’s Noah Buhayar and Sonali Basak point out that Costco has two board members who are also on the board of Berkshire Hathaway, which owns about 150 million shares of American Express that were worth 6.43% less at close yesterday than they were in the morning. They are Berkshire vice chairman and billionaire Charles Munger and former Yahoo president Susan Decker.

Costco spokesman Bob Nelson told Buhayar and Basak in a phone interview that the customer comes first, citing its switch from Coke to Pepsi products at its food courts when it got a lower bid a few years ago. 

“At the end of the day, it’s all about saving money for our members and widening the gap between us and our competitors,” Nelson said. “If that means Pepsi over Coke, that’s what we’re going to do. If it means a different credit-card provider that’s going to be a better offering for our members, we’re going to try to do that.”

The chap at the American Express desk at my local Costco made eye contact yesterday but did not display the usual respectful-aggressive behavior I’ve come to expect from his peers. There was no pitch at all, in fact. Perhaps he read the well-practiced “already got in it” in my expression. Or perhaps he was just forlorn.