Trouble May Be Brewing for Store Card Segment as Delinquencies Rise

Store credit cards — the closed-looped offerings tied to certain merchants — may signal tougher times ahead.

The rising costs of credit and the rising tide of delinquencies point to consumers’ struggles, but for the retailers themselves, the rising tide of delinquencies must be closely watched.

Bread Financial Holdings, which partners with brands to issue private-label cards, was downgraded by Goldman Sachs, which cited concerns over credit losses. As noted in the company’s latest earnings materials, delinquency rates in the most recent period stood at 5.5%, up from 4.4% in the second quarter last year and 3.3% two years ago. Net losses were 8% in the second quarter of this year and were as low as 3.9% two years ago.

There will be more details as earnings season gets fully underway beginning at the end of this week. But the Bread Financial headlines underscore the smoke signals coming out of private-label cards.

Discover Financial Services, in another example, said delinquency rates were 3% heading into the summer, higher than pre-pandemic levels. Macy’s, for its part, said in August that in reference to delinquencies, “the speed at which the increase occurred for the company and the broader credit card industry since the company’s first-quarter earnings call was faster than expected.” Credit card revenues were down 41% year over year and were tied to an increase in delinquency rates.

The Balances We Carry

Experian’s data points to store credit card balances as a pain point in the paycheck-to-paycheck economy.

The credit reporting agency said, as of June, U.S. consumers are carrying more than $125 billion in store card balances. Half of consumers have at least one store card; the average balance is more than $1,100. PYMNTS data has shown that roughly half of consumers revolve their balances. Experian has seen roughly the same trend, noting that half of consumers revolve their balances, equating to $15 billion in interest payments.

Store cards have annual percentage rates (APRs) in the high 20% range and are several percentage points higher than other cards, which means carrying this debt becomes more expensive.

An April Credit Card Tracker created in collaboration between PYMNTS Intelligence and Discover Global Network found that private-label card originations increased by more than 8% by the end of 2022, as measured year over year. And as many as a third of consumers said they would be likely to apply for a store card during the holiday season.

There’s also a growing awareness of the holiday spending pressures. In a separate PYMNTS report created with LendingClub, the data showed that financial stress accumulates over the holiday shopping season, and card spending has been a top payments choice for 36% of consumers.