New Packaged Facts Report Finds Private Label Credit Card Issuers and Partners Uncertain as Strategic Paths Diverge as Digital Retail Solidify Gains and Fee Caps Loom

ROCKVILLE MD, August 23, 2024 – Consumers use retail private label credit cards (PLCC) to access a roster of benefits from the merchants they value most. Far more than free loyalty programs, store cardholder loyalty programs offer more rewards, exclusive discounts, private shopping days and “spontaneous” bonuses. Card purchases in programs featuring buying tiers, retailers’ heaviest spenders receive ever greater discounts and bonuses.

The rewards built into PLCC programs build both shopper loyalty and revenue for the retailer. Retailer Target finds its PLCC users spend five times more than its other customers. At Kohl’s, a discount retailer, 30 million Kohl’s Rewards members spend two times more than its 35 million non-member shoppers. Kohl’s Rewards members who are also cardholders spent six times more than non-member shoppers.

The PLCC sector has been growing steadily. Between 2021 and year end 2023, PLCC purchase volume grew 32.8% to reach $352.54 billion. However, pressure on that purchase volume is intense.

Although consumers spend at the retailers associated with their PLCCs, the frequency of their card use is declining. The Packaged Facts National Online Consumer Survey shows that 3.07% of consumers reported using a PLCC in the past 30 days in (Spring) 2022, The percentage of shoppers using a PLCC increased to 3.31% in (Spring) 2023 and rose again to 3.22% in (Spring) 2024. This was an increase of 4.9% between 2022 and 2024 in shoppers using a PLCC.

While usage penetration is positive, the frequency of PLCC use is declining. In 2022, 1.81% of consumers had used their cards between 1 and 4 times in the past 30 days. That percentage dropped to 1.69% in 2023 and fell further to 1.47% in 2024. Between 2022 and 2024, the percentage of PLCC most frequent, loyal users declined by almost 20%.

The increase in occasional PLCC use v. frequent use may have multiple causalities. Inflation has proved stubborn, with total food prices rising almost 10% in 2022 and remaining unchanged as a percentage of disposable income in 2023. High food prices constrain the availability of funds for discretionary shopping. Also, loyalty program rebranding (at Target and Best Buy) and big mergers in the retail sector have introduced consumer uncertainty with shoppers asking if their RedCard still works with Target’s rebranded Circle cards or if Neiman Marcus’s PLCC is accepted at Saks Fifth Avenue.

The potential revenue downside to the Consumer Federal Protection Bureau’s looming late fee cap has left both issuers and retailers scrambling to hike interest rates on their PLCCs to offset income lost if current late fees of $41 are capped at $8. PLCC interest rates on revolving balances at some retailers are approaching 40%. Retailers with large numbers of lower credit score consumers (e.g. Kohl’s) are rapidly migrating their PLCC holders to their cobranded credit cards. These retailers are willing to forego the power of PLCC customer insight and one-on-one loyalty communication to gain co-branded cards’ higher transaction revenue stream.

Gen Z should be the perfect target demographic for PLCC. They are young and decorating their first homes. They are having parties and need housewares and fashion. And they are not using PLCCs to buy these items. Indeed, Gen Z is 41% less likely to own a PLCC than Millennials were at the same age.

Where is the Industry Going?

Challenges facing PLCCs as drivers of loyal and profitable consumer engagement must be situated in the context of the macroeconomic landscape. The high federal prime interest rate will likely be cut by the Federal Reserve in Q3 2024 and there will be at least three more rate cuts in 2025. Groceries remain a huge drag on consumers’ budgets, but lower interest rates will diminish their overweighted clout.

With declining rates of inflation, real economic growth and declining interest rates, consumers will regain not only their actual purchasing power but also the psychological confidence that is synchronous with declining interest rates.

However, the industry will struggle with the CFPB action on late fees, portfolio conversion to co-branded credit cards and a lack of enthusiasm to tackle Gen Z’s ennui for the PLCC product. These threats will be somewhat offset by the financing options issuers are building into their PLCC products, principally BNPL-type offers of fixed-term, lower interest rate financing (see: Best Buy) and more widely available deferred-interest products.

Reflecting the crosswinds of challenges facing the industry, Packaged Facts forecasts the PLCC industry will reach $377.8 billion in purchase volume and $163.9 billion in receivables by 2027.

Private Label Credit Cards in the US, 14th Edition provides a comprehensive assessment of private label credit card issuers and retailers and emerging trends, strategies and challenges facing each category of industry participants as well as emerging hybrid products such as healthcare PLCCs and PLCCs blended with BNPL financing.

Packaged Facts, a division of The Freedonia Group, publishes market intelligence on a wide range of consumer market topics, including consumer demographics and shopper insights, consumer financial products and services, consumer goods and retailing, and pet products and services. Packaged Facts also offers a full range of custom research services. Reports can be purchased through our website https://www.freedoniagroup.com/packaged-facts.

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