Many retailers have sold off their credit card portfolios to partner banks in recent years as a hedge against the downside of late payments and customer defaults. One of the exceptions to this trend has been Nordstrom, which has chosen to keep its program in-house and the chain may reap a greater upside as card holders get their financial houses in order with a recovering economy.
"Very few retailers in this challenging economic environment want to worry about running their main business -- which is challenging enough -- as well as managing the credit risk," Patricia Edwards, a retail analyst with Storehouse Partners, told the Puget Sound Business Journal (PSBJ).
"They (Nordstrom) felt very firmly that they wanted to control their customers' experience," she added.
"Most retailers lack control of their private label or in-store card business. That's not a good position to be in when you're scrambling for sales," David Robertson, publisher of The Nilson Report, told PSBJ.
Looking ahead, Mr. Robertson added, "very large retailers with healthy balance sheets might consider doing it (taking over their credit card programs) again."
Back in February, Nordstrom CFO Mike Koppel, described the card program as being "strategically important to us because of its focus on building customer loyalty."
According to the PSBJ report, Nordstrom saw the delinquency rate on its cards rise from 3.7 percent in 2008 to 5.3 percent last year. Net write-offs increased from 5.6 percent to 9.5 percent over the same period. The company added $20 million to its reserve for bad debt in part because of "continued weakness" in California. The chain operates 30 department stores and 23 Rack locations in the state.
Discussion Questions: Will chains that keep their credit card businesses in-house have a strategic advantage over the long haul or is managing debt risk too much for most retailers to deal with? What are your thoughts on Nordstrom and its credit card program?