What do Store Closings mean for Store Cards?

Ten years ago, more than 2 in 5 open cards in the US was a Private Label Card (a.k.a retail or store card). Today, it’s 1 in 3. According to the CFPB Credit Card Market Report 2017, the leading reason for this is the significantly slower growth of PLCC cards compared to general-purpose portfolios. In fact, the total open PLCC accounts have barely recovered from the recession levels. Leading explanations for the lack of growth range from a stronger GPCC product set to proliferation of innovative retail financing alternatives, like Affirm. One of the largest contributing factors, however, is the decline of the brick and store footprint, and the overwhelming dependence on cross-selling to in-store prospects for new accounts.

Traditionally, the retail point of sale/ checkout has been the largest acquisition channel for private label cards. In fact, retail stores remain a leading outlet for card sales: physical locations generated 70%+ percent of account acquisitions, according to Auriemma Consulting Group’s Brand Partner Roundtable Benchmark Study, and tend to have healthy approval rates.

Retailers are re-thinking the physical POS and investing in tech and human capital to maximize the channel output. “Many brand partners still view store associates as the most effective means for communicating the value proposition associated with card products and delivering relevant information and offers to customers” according to ACG.

While these may have worked in the past, serious doubts over the viability of the approach have gathered strength over the past few years. Here are a few (of the many) reasons why:

Amazon Effect:

As store fight the “Retail Apocalypse” (a.k.a. Amazon Effect), they are closing under-performing stores shrinking the top of the sales funnel. Fewer stores means fewer footsteps, which in turn means fewer prospects, apps and accounts. In addition, with the migration of the average American consumer towards online shopping, a greater portion of the customers who do come into a retailer with a shrinking footprint is likely to be a loyal existing cardholder. See the compounding effect there?

Misaligned/ insufficient incentives:

The responsibility for card sales performance typically falls on the store management, who are also responsible for a myriad of other key metrics, not the least of which is top line sales. With the declining YOY same store sales most retailers are experiencing, it is not a surprise the store management does not pay the card program its due attention. Research shows that store management actively manage card acquisition only when the store performance is relatively healthy. Otherwise, the management is limited to a set of static and lightly enforced guidelines for front line staff.

The logic in dependence on store associates to cross sell cards varies from barely acceptable to wholly unreasonable depending on the type of retailer and time of the year. Good luck if you expect your cashier to cross-sell credit cards to customers trying to get Christmas shopping done with 2 kids in tow! The fact that the cashier "incentive" does not exceed a couple bucks for every app does not help either.

Shifting customer preferences:

Millenials and the subsequent generations are generally wary of banks and credit cards. Even if they are not, they hate to have their shopping experience encroached upon. So, it will be increasingly critical for issues and retailers to "draw" the younger customers in to their credit products, versus using traditional cashier-driven sales approach.

While there are product features that can be added to the PLCC offerings making them more compelling, part of the answer to driving robust growth of PLCC lies to re-thinking the marketing of the product - getting away from cumbersome, friction fraught in-store x-selling to organic and seamless contextual "pull" marketing.