**Amid Strained Spending, Delinquencies Rise at US Department Stores**.
According to the latest report from the American Bankers Association (ABA), credit delinquencies at US department stores have increased in recent months, reflecting the strain on consumer spending amid rising inflation and economic uncertainty..
**Key Findings:**.
* The delinquency rate for department store credit cards rose to 3.43% in the second quarter of 2023, up from 3.22% in the first quarter..
* This marks the highest delinquency rate for department stores since the third quarter of 2020, when the COVID-19 pandemic disrupted consumer spending patterns..
* The increase in delinquencies is particularly notable given that overall consumer credit delinquency rates have remained relatively stable in recent months..
**Factors Contributing to Delinquencies:**.
* **Rising Inflation:** Inflation has eroded consumers’ purchasing power, making it more difficult for them to make ends meet and repay their debts..
* **Increased Interest Rates:** The Federal Reserve has raised interest rates aggressively in an effort to combat inflation. Higher interest rates make it more expensive for consumers to carry debt, potentially leading to increased delinquencies..
* **Economic Uncertainty:** The ongoing war in Ukraine, supply chain disruptions, and fears of a recession have created economic uncertainty, making consumers more hesitant to make large purchases or take on additional debt..
**Impact on Department Stores:**.
* **Reduced Sales:** Increased delinquencies can lead to a decline in sales for department stores as consumers become more cautious about using their credit cards..
* **Increased Credit Costs:** Department stores may have to increase their provisions for credit losses, which can eat into their profits..
* **Damaged Reputation:** High delinquency rates can damage the reputation of department stores and make it more difficult for them to attract new customers..
**Industry Response:**.
* **Increased Scrutiny of Credit Applications:** Department stores are expected to tighten their credit standards and become more selective in approving new credit card applications..
* **Enhanced Collections Efforts:** Department stores may step up their efforts to collect outstanding debts from delinquent customers..
* **Promotions and Discounts:** Department stores may offer promotions and discounts to attract customers and encourage them to use their credit cards..
**Outlook:**.
The outlook for department store credit delinquencies remains uncertain. If inflation continues to rise and economic uncertainty persists, delinquencies could continue to increase. However, if the economy recovers and consumer confidence improves, delinquencies may stabilize or even decline..
Department stores will need to monitor the situation closely and adjust their strategies accordingly to mitigate the impact of rising delinquencies and protect their financial health..
