• by January 13, 2009

A resurgence of layaway plans, brought about by simpler lifestyles and more disciplined spending, is more likely to resuscitate the private-label credit card business than to bring about a return to what Packaged Facts Publisher Tatjana Meerman calls "lackadaisical consumerism," according to the firm's sixth edition of "Private-Label Credit Cards in the U.S.," the first issued following a two-year period of vast changes in the industry.

Packaged Facts estimates that the private-label card market fell 3.5% in 2008--to $109.7 billion in receivables, after increasing 3.3% in 2007. For 2009, the report projects another decline of 0.5% to about $109.2 billion. But it also predicts a rally starting later this year--and an increase of some 12.6% to $123 billion in 2012.

"The forecast for private label is more bleak than sunny," according to a report summary, "but online shopping, rewards programs [and] 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."

Recent retail credit card trends reported by Packaged Facts include:

• The acquisition of stores' credit card portfolios by third-party issuers. By the start of 2008, the report said, only four major retailers still managed their card programs in-house--a figure that Packaged Facts expects to soon drop down to two.

• Co-branding with Visa or MasterCard, giving customers access to large rewards programs, rather than using stores' own incentives as the primary promotional tool. But as outside card issuers start to emphasize customer relationship management over acquisitions to grow their businesses, Packaged Facts reports that "many retailers are reportedly dissatisfied by issuers' services in this arena and may even seek to reclaim their card assets."

In 2007, Packaged Facts said, only 11 private-label card issuers had receivables greater than $100 million--down from 17 in 2004 and 27 in 2001--and only three banks had receivables of more than $10 billion. Those three banks controlled roughly three-quarters of the entire market, thanks largely to a 2004-05 acquisition blitz and substantial investments in marketing, new product development and CRM during that same period.

Now, however, with the nation in a credit crunch and nothing much left to acquire, Packaged Facts notes that GE Money, after pulling ahead of Citi Retail Services into the #1 position, has put its $36-billion portfolio up for sale--with no takers. HSBC Retail Services remains in third place, but far behind the two leaders. Then comes JP Morgan Chase, which more than doubled its market share in two years, and Alliance Data.*

Packaged Facts augments its own research with analysis of consumer behavior and demographics from Simmons Market Research Bureau's Winter 2008 adult consumer survey and BIGresearch's Consumer Intentions and Actions data. Among the study's findings:

• One in three American adults--or 73 million people--owned a private-label card in 2008, but just one in four used them.

• Usage rates for all private-label cards are declining.

• Twice as many women as men use private-label cards.

• Consumers who use store cards are "exceptionally fond" of shopping.

• Users of cards from clothing specialty stores are significantly more likely than others to plan their shopping trips online.

• The older, richer and smaller a household, the more likely it is to use store cards--and consumers over 44 are 20% more likely than others to use department store cards, consumers with household incomes $75,000 and up are more likely to use clothing specialty store cards, and usage drops "precipitously" once a household reaches three people.

• While whites use store cards "significantly above the norm," Asian consumers are projected to be a "particularly profitable prospect."

• Northeasterners are "more vigorous" users of store cards, "but less so when it comes to JCPenney."

For now, according to Packaged Facts, the squeeze is on private-label cards, but some will be pinched more than others.

"In an uncertain economy, consumers may be even more reluctant to incur unnecessary debt from discretionary purchases like clothing," the researcher stated. "However, retailers (Wal-Mart, supermarkets) selling everyday items like groceries may feel the squeeze a little less."

 

* Editor's note: The article has been amended.