American Express Shares Tumble After Costco Deal Ends

by Mercator Advisory Group 0

Ina call with investorsThursday, American Express executives explained why the co-branding agreementwas not renewed.

Chenault saidAmerican Express had started early discussions on contract renewals withseveral of the companies that put their branding on the credit cards. Thecontracts typically include rewards programs and some publicity for bothcompanies. Airliners Delta and Cathay Pacific were two of the companies thatrenewed the contracts.

But with Costco, itjust didn’t make economic sense, Chenault said. That’s partly because even thedeal with Delta for example was less lucrative than they had anticipated. Thecompany also lost its agreement with Costco in Canada last year.

The Costco program is notable for several reasons,including the upscale customer base, the credit card exclusivity of the brandin Costco stores, the fact that the card also acts as a Costco member ID card,and the reportedly high off-us spending rate of members. It is clear thatthe competition for cobranded card programs is ramping up, especially among thelimited universe of top retail brands with the most desirable customerbases. For interested issuers, it is nearly a zero-sum game as the mostlogical commercial brands already have programs, and contract renewals bringheated competition. Contracts coming up for renewal in the mid-termlikely have a better than average chance of switching issuers and/or networkbrands as commercial brands seek the optimal resource combinations and dealterms.


Overview by Ken Paterson, VP Research Operations for Mercator Advisory Group

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