Macy’s, Kohl’s, and Nordstrom’s: credit delinquency uptick

Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Reuters in an article — by reporters Katherine Masters and Ananya Mariam Rajesh, “US department stores see higher credit delinquencies amid strained spending” — regarding delays in store credit card repayments as a retail risk as we prepare to head into the holiday season of Halloween, Thanksgiving, and December/New Year celebrations.

Credit canary in the coal mine

💳An uptick in delinquency problems with private label store cards for retailers like Macy’s, Kohl’s, and Nordstrom’s may be a canary in the coal mine for more trouble ahead. Consumer delays in timely payment of store cards affect retailer receivables in the near-term and also are an indicator of poor consumer health going forward. Stressed consumers may be late or renege on store cards before regular credit cards, auto, and mortgages which they consider more important.

Differences in how department stores handled the recent declining credit wave

🏬Kohl’s may have been more on top of the consumer credit situation and more proactive as they did take early actions and “anticipate the macroeconomic environment to worsen and to people to have less cash in their bank account” according to their earnings statement. They migrated 700,000 of their credit card customers to a co-brand credit card with Capital One in the second quarter and they reduced the outstanding risk on some cards, probably by reducing available lines of credit.

💰On the other hand, although Macy’s management had expected delinquencies to rise, the rate of increase since the first quarter was quicker than planned.

Article excerpt is below:

Defaults in credit payments mean department stores are now assuming higher bad debt and write-offs for the year as spending remains pressured in the United States.

“For stressed consumers, store cards are one of the first things they may be late or renege on before regular credit cards, car payments, and mortgages which they consider more important,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

I had no credit cards. I had no checks. I was cash only until I was probably 30 years old.

Bruce Springsteen

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