Meanwhile, Amazon and Costco continue to offer more modest in-store credit cards
To shore up their profit margins, at least 50 major U.S. retailers, including Macy’s and T.J. Maxx owner TJX (TJX), hiked interest rates on their store credit cards ahead of the Federal Reserve’s anticipated rate cuts, according to a Bankrate survey that analyzed data from 100 of the nation’s largest retailers.
Retailers have long relied on these high-interest store cards to boost profits, ultimately benefitting businesses while putting consumers at a disadvantage.
Some retailers, such as Big Lots (BIG), Petco (WOOF), and Macy’s, are charging rates as high as 35.99%. On average, retail credit cards, which are notorious for their steep interest rates, now charge a drastic 30.45% annual percentage rate (APR). That’s up from 28.93% last year, and 24.35% in 2021. The average credit card APR for general cards hovers around 20%, according to the personal finance website.
So, what’s driving these steep hikes? Retail cards typically charge higher rates because they’re easier to qualify for than traditional credit cards, making them more accessible to consumers with less-than-perfect credit scores, according to Bankrate. While these cards are a riskier bet for issuers, they also present a lucrative profit opportunity. Retailers profit not only from interest but also from fees and commissions tied to the cards, which can create a significant revenue stream. Macy’s, for example, relies so heavily on store credit cards that they account for nearly half of the company’s operating profits.
Academy Sports + Outdoors (ASO), Big Lots, Michaels, and Burlington (BURL), which charge 35.99% APR on their store cards, are leading the pack in high interest rates. By comparison, some retailers offer more competitive rates, with Amazon $AMZN’s (AMZN) Secured card starting at 10% APR and Costco $COST’s (COST) Visa $V Card offering 20.49%.
Notably, retail credit cards can offer perks like discounts, rewards, and special financing on purchases, especially for frequent shoppers. However, these benefits are most effective when the card is used responsibly, Bankrate notes. But as retailers keep rates high, consumers with outstanding balances are likely to feel the squeeze. And the lure of easy credit from these store cards may no longer be worth the steep price.
With the Fed poised to cut rates again, retailers may reconsider their strategies. But for now, as the holiday season ramps up, store credit cards remain big business for retailers – and a costly expense for consumers.
Join 500,000+ readers who start their day with Quartz.
By subscribing, you agree to our Terms of Service and Privacy Policy.
