New Credit Card Legislation Hurting Target, Other Retailers
The new Credit CARD Act is having a large effect on the credit card industry. One particular area where the effect of the new law is being felt at the moment is at the retail industry.
America’s Research Group consumer polling chairman, Britt Beemer says that sales for retailers for the months of November and December are expected to drop by 1.2 percent, about $436.7 billion compared to the same period during the previous year, 2008. In an interview he did on December 21, Beemer says that a sales gain of around 0.8 percent, about 445.5 billion would have been realized if credit card companies were not severely limiting credit limits for consumers and rejecting a larger number of credit card applications.
Target Corporation, one of the major retailers in the U.S. and a number of other U.S. retailers may see a sum total $9 billion loss in sales this holiday due to the cutbacks credit card companies are implementing. The new credit card legislation is making things worse as well, says Douglas Scovanner, the Chief financial Officer of Target. The new credit card legislation is making credit card companies much more stingy with credit just when consumers are beginning to warm up to making discretionary purchases where they would traditionally use credit cards to pay for. During the recession, items where retailers saw the most of their profitable sales such as jewelry, home goods and clothing saw a sharp decline, hurting retailers.
Scovanner says that the new law is going to “mute the impact” that the spending rebound among consumers would have brought. He adds that the lessened availability of credit ultimately ends up diminishing the amount of spending among consumers. In an interview in Minneapolis on November 17, Scovanner said that the reduced lending spurred by the Credit CARD Act may end up shaving off half a percentage point at the minimum from store sales for at least one year after February of 2010, the month where a majority of the Act becomes active. Already, Minneapolis based Target saw a decline of 1.5 in comparable-store sales in November.
The new credit card legislation is also bringing another change that retailers have to contend with. Already, the Federal Reserve has proposed guidelines that would make it a requirement for retailers to ask for income and other asset information from customers before they are granted store branded credit cards. Store branded credit cards represents another major profit source for most retailers. This new measure may ultimately limit the ability of retailers to issue store branded credit cards or, at least raise borrowing limits.
