The economic headwinds faced by consumers in the United States have taken a toll on the performance of department stores, leading to a notable uptick in credit delinquencies. According to the latest figures released by the Federal Reserve, the percentage of credit card loans past due by at least 60 days climbed to 6.76% in the second quarter of 2023. This represents a significant increase compared to the delinquency rate of 5.54% recorded during the same period last year..
The rise in delinquencies is particularly concerning for department stores, which have traditionally relied on credit card sales to drive their business. As consumers grapple with rising inflation and the escalating cost of living, their ability to make timely payments on their credit card balances has been compromised..
Several department store chains have reported a notable increase in credit delinquencies in recent months. For instance, Macy’s, one of the largest department store operators in the United States, saw its delinquency rate rise by 1.2% in the second quarter of 2023 compared to the previous year. Similarly, Nordstrom, another major player in the department store industry, reported an increase of 0.9% in its delinquency rate during the same period..
The surge in delinquencies is a clear indication that consumers are facing financial hardship. Inflation has led to a sharp increase in the cost of everyday necessities, such as food, energy, and housing, leaving shoppers with less disposable income for non-essential purchases like clothing and accessories..
Furthermore, the Federal Reserve’s aggressive interest rate hikes have made it more expensive for consumers to borrow money, adding to their financial burden. As interest rates rise, monthly payments on credit cards and other forms of debt also increase, putting a further strain on consumers’ budgets..
In response to these challenges, department stores are exploring various strategies to mitigate the impact of rising delinquencies. Some retailers are offering more affordable product lines and promotions to attract cost-conscious shoppers. Others are investing in loyalty programs and personalized marketing campaigns to foster stronger relationships with their customers..
However, analysts caution that the rising delinquency trend is unlikely to subside in the near term. Inflation is expected to remain elevated for the foreseeable future, and the Federal Reserve is likely to continue raising interest rates to combat rising prices. This suggests that department stores will continue to face headwinds in managing their credit risk in the coming months..
Overall, the increase in credit delinquencies among US department stores underscores the significant financial challenges faced by consumers. As economic pressures persist, retailers will need to adapt their strategies to navigate this challenging environment and retain the loyalty of their customers..
