November 20, 2008
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News: Christmas Credit Crunch.
It's not long away. Traditionally, the busiest shopping day of the year is less than a week away. What kind of holiday season will the retailers have without a lavish supply of customers with credit cards? Maybe they'll beat most of the strain, as most of the radical credit card changes won't go into effect until after November and hopefully, after December. Credit card spending has a profound effect on sales.
Larger-ticket items are almost always purchased on credit and impulse buying also runs higher with credit cards. The balanced symbiosis is for the stores to aggressively promote a lender's card for higher sales, while the lender is happy to oblige by providing credit cards for higher sales. But his year, the symbiosis is troubled. The large issuing banks are already in financial trouble and risks are mounting that things may get a lot worse, soon.
As a result, large restrictions and cutbacks are mounting in the credit card industry as they struggle to protect themselves from a well-meaning public that, through no fault of their own, have become a liability to the industry. Retailers, on the other hand, are already bracing themselves against a long hard freeze, as practically every aspect of the economy seems to falling through space. Losing credit paying customers must feel like one more nail in the coffin to some retailers. Our nation's second-largest electronics retailer, Circuit City, has already taken the dive this month by filing for Chapter 11. Who will be next?
Many experts predict this year "to be the worst shopping season in nearly two decades," according to the analysis of Alexandria Sage in writing for Reuters. One big rub is when a retailer aggressively promotes a lender's card to customers. When the applications are flat-out denied by the lender it leaves the customers with a very bad disposition. After that, even cash sales are lost from angry customers. So to avoid these unhappy moments, many retailers are promoting ‘private label' cards that are tied to their own company (Sears, GE, etc.) Of course, the cards are backed by lenders (like GE Money) but the closer affiliation provides for less risk and further promotes more shopping at that retailer's stores.