A recent report from Moody’s Investors Service noted that credit card income has outpaced sales performance for many department stores.
Retail analysts from Moody’s Investors Service, in their report “Growth Will Remain Difficult in 2019 Following Lackluster Holiday,” said they believe growth will be difficult for the department store group in 2019. The report, headed by Christina Boni, vice president and senior credit officer, flagged one key point: “Although we recognize that retail operating income and credit income are interdependent, it is still important to note that as retail margins remain under pressure, credit card income is becoming a greater portion of operating income.”
The Moody’s report noted that credit card income will continue to grow faster than net sales for many department stores, particularly as proprietary credit cards continue to rise. It noted as an example that Macy’s Inc. generates 48 percent of its net sales on its proprietary credit card. The report acknowledged that there can be some benefits to growth through credit card revenues that are based on more loyal customer engagement. But it also pointed out that there are inherent “risks to the increasing reliance on credit exposure to drive sales.”
The report cited other reasons for why growth is expected to be difficult for the sector in 2019.
Boni noted the slowdown in momentum from the start of the Thanksgiving weekend on through December, which led to a mixed holiday sales season for most department stores. According to Boni, while department stores made progress in stabilizing profitability last year, “operating margins became pressured as sales fell off in the fourth quarter.”
And there’s also no expectation of growth via increasing store count to help the department store group. Retailers in the sector are expected to continue to take a “critical look at their store bases.” Boni also expects square footage in the sector to decline by 4 percent in 2019 after dropping a much sharper 13 percent in 2018. That higher percentage was mostly attributed to the large number of stores shuttered by Sears Holdings Corp.