April 07, 2010
-
News: Citi Ends Relationship With Zale Canada
Experts say America has pulled out of a recession, however retailer and consumers alike continued to experience difficult times in regard to credit card concerns. Recently, Zale jewelers announced that it was considering whether or not to pay a large penalty from Citi bank in regard to the number or lack thereof new credit card accounts. Disharmony between Zale and Citi continues to grow as Citi Cards Canada; a division of Citigroup Inc. announced that it will end its relationship with Zale Corp in Canada. Approximately 25 percent of Zale Corp's Canadian credit card accounts for their chain of Peoples Jewelers have been issued through Citi. As of June 30th, the relationship between the two companies will be severed.
Although no surprise for the ailing jeweler, Zale will need to focus on finding another bank that will be interested in issuing the jeweler's co-branded credit cards. A spokesperson for Zale said that the company has already begun talks with several potential replacements. Zale will also soon be looking to replace Citi as its co-branded card provider in the United States (U.S.). It is estimated that Citi funds over 40 percent of the jeweler's credit card accounts in the U.S. The problem stems from a $6 million penalty that Citi had imposed on Zale for the lack of sales associated with a low rate of account openings. According to their agreement, if Zale did not pay the penalty, it would risk a default penalty that would terminate their contract with Zale. Losing Citi as its partner in the U.S. could bring about significant hardship for Zale. The company also anticipated the action taken by Citi Cards Canada.
Zale Group is based out of Dallas, Texas with operations throughout the U.S. and Canada. The Canadian sales represent nearly 14 percent of the jeweler's total revenue. As with the entire retail industry, the recession has negatively impacted Zale's sales which in turn has impacted the number of credit card accounts that the company has initiated for Citi. It's no secret either that the banks have suffered large card losses which has motivated Citi to end non-profitable relationships.