With the arrival of a new special sales season, many brands — at least 50 major retailers like Macy’s — have raised interest rates on their private-label credit cards to record highs, even as inflation continues to weigh on shoppers across the country.
November is known as the “shopping season,” a period when brands aim to boost profits through various offers.
According to data from the II Relational Marketing Study by the Spanish Marketing Association, 80% of consumers want to enjoy more promotions at physical points of sale and seek activities where they can interact, with explanations provided by a salesperson. Consumers prefer promotions that allow for interaction — for example, trying out products (22%), being assisted by a promoter who explains or demonstrates the product (21%), and engaging with factors especially valued by buyers aged 55 and over (26%).
Macy’s Strategy
A recent study reveals that major chains, including Macy’s, Gap, TJ Maxx, and Petco, increased the annual percentage rates (APR) of their store-issued credit cards before the Federal Reserve began reducing rates in September.
Retailers are raising rates to 30% or higher, marking a historic record and breaking a tacit APR ceiling of 29.99% for the first time in years. This comes despite economists forecasting further relief in government interest rates over the coming months.
It’s worth noting that while there are no federal limits on interest rates, companies are legally required to clearly disclose and notify customers about any changes. Experts advise shoppers to think twice before signing up for new cards during the holiday season.
“If you’re offered one of these during the holiday season, take a deep breath. I’d say no if you plan on carrying a balance,” said Ted Rossman, a Bankrate analyst. “We often hear people sign up for these cards without even realizing what they’re doing,” he added.
For instance, discount retailer Big Lots, which filed for bankruptcy in September, raised its APR by 6 percentage points from 29.99% to 35.99% — the highest increase among the 100 retailers analyzed by Bankrate.
Similarly, Gap implemented the second-highest increase, raising the rates on its Banana Republic, Athleta, and Old Navy cards by 5 percentage points to 34.99%. Petco followed in third place, increasing its APR by 4.5 percentage points to 35.99%.
According to analysts, these measures appear to be attempts by major retailers to maximize profits as the crucial holiday season approaches.
In May, Macy’s raised its full-year forecast for credit card revenue “due to better-than-expected profit sharing as a result of higher balances within the portfolio,” said CFO Adrian Mitchell on a call.
By August, Mitchell noted that the company’s revenue was benefiting from consumers holding onto credit card balances longer than anticipated.
Luxury retailer Bloomingdale’s, a Macy’s brand, raised its APR by 2.5 percentage points to 34.49%. TJX, owner of TJ Maxx, Marshalls, and HomeGoods, increased its APR by 2.75 percentage points to 34.99%.
Some companies, such as Macy’s, Nordstrom, and TJX, have reduced their rates to align with the Federal Reserve’s half-point cut. However, their APRs remain between 2 and 2.5 percentage points higher than a year ago.
All this comes as store credit card subscriptions have declined in popularity, with younger shoppers favoring “buy now, pay later” options like Klarna and Afterpay. As a result, retailers are trying to extract more from a smaller group of customers, leading to higher interest rates and staggering late payment fees.
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