Retailers Readying to Prime the Credit Pump

We've learned nothing from the financial crisis and economic meltdown a few years ago. Time heals all wounds and apparently erases memories, because we're piling on consumer debt at a hot pace again, and retailers like J.C. Penney (NYSE: JCP  ) and RadioShack (NYSE: RSH  ) see hope they can tap that market to refinance their own sagging fortunes.

According to the latest data available from the Federal Reserve, consumer credit grew at a 5.4% annual pace in August, fueled by loans we're taking out for autos, tuition... and vacations! Non-revolving debt surged to an annual 8% growth rate as pent-up demand for the finer things in life keeps us on a credit high. 

You might try to find some solace in the fact that we're easing back on credit cards a bit -- revolving debt fell by 1.2% annually -- but if the retailers are right that the downward trajectory won't last long, we'll soon be maxing out our cards again in no time at all.

Both Penney and RadioShack have recently renewed their long-standing agreements with credit card issuers for their private-label store cards. Penney said last week it was renewing through February 2020 its private-label and dual-card-credit program with General Electric's Capital Retail Bank, a relationship it's had since 1999, while the Shack is extending its 28-year relationship with Citigroup's Retail Services division and will relaunch and rebrand its private-label credit card in the first quarter of 2014.

A recent survey by the industry watchers at Packaged Facts shows it just might be a good time to expand on those kinds of offerings, since the credit situation has stabilized and usage is on the rise again. According to the findings, consumers would be happy to apply for store cards if they got something in return, whether it was points for dollars spent or discounts on purchases made. Reviving 0% financing on purchases made would be a big hit too. 

It believes that outstanding private-label credit card loans, which hit an estimated $108.6 billion in 2012, will grow 6% annually through 2015. That's probably not a shabby guess, either.

While RadioShack has seen fees generated by its credit card grow 1% to 2% annually for the past couple of years after they tumbled 6% leading up to the recession, J.C. Penney saw a 41% increase in its private-label card income from 2011 to 2012, leading Packaged Facts to think the issuer business is heading into a new period of growth.

Of course, there are also those retailers like Nordstrom and sporting-goods chain Cabela's that have their own in-house program. The high-end retailer's wholly owned federally chartered savings bank has seen a steady drop in delinquent accounts over the past year, particularly those 30 days or more delinquent, dropping 26% last year to $40 million, while Cabela's World's Foremost Bank had a still respectable 11% decline in charge-offs last year.

The current weakness in credit card debt totals does suggest consumers are cautious about the health of the economy heading into the Christmas shopping season, likely the reason retailers like Wal-Mart and Target have issued wary guidance for the quarter ahead. But that doesn't mean consumers are ready to give up their plastic, and we'll undoubtedly see a whole bunch more burned hands teaching new lessons when the next crash comes.

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