American Express facing difficult times
NEW YORK – For decades, American Express was the undisputed credit card of choice among corporate road warriors, the wealthy and the well-traveled, who lived by the company’s slogan, “Don’t leave home without it.”
But changing consumer habits, extremely aggressive competition and increased pushback from its merchants are putting heavy pressure on AmEx.
Costco, for example, is ending its 15-year relationship with AmEx and defecting to Citigroup and Visa starting next March. And airlines that used to give VIP lounge access to AmEx cardholders have been switching in recent years to other credit card companies.
Compounding its troubles, AmEx recently lost a government antitrust lawsuit.
“The competitive environment for AmEx is very challenging,” said Jason Arnold, a Wall Street analyst. “Major competitors have all directed their efforts to take chunks away from their business. They’ve got serious problems.”
As a result, American Express stock is down 12 percent this year. Analysts, on average, have cut their 2015 profit forecast from $6.2 billion to $5.6 billion. AmEx announced 4,000 layoffs. And CEO Kenneth Chenault will face a skeptical Wall Street audience today at the company’s annual investor day.
One of the biggest threats to AmEx is the slew of competing cards aimed at the well-to-do. Card issuers have energetically courted merchants who used to accept only American Express. Merchants who once coveted AmEx’s high-net-worth cardholders are discovering they can find the same customers elsewhere.
Citigroup, in particular, has been going after AmEx’s core customer. Citigroup has hired executives away from AmEx over the past few years to help it overhaul its credit cards and revamp its loyalty program.
The capture of Costco by Citigroup and Visa was the biggest blow to AmEx. “Costco was a real punch in the gut,” said David Robertson, publisher of the Nilson Report.
AmEx hasn’t sat idle. To generate revenue, it has raised annual fees and interest rates on some products. It has also added perks for its customers, such as waiving foreign transaction fees and giving a $100 credit for incidental airline expenses for Gold Card members.
AmEx isn’t going to let Citi walk away with its Costco card customers without a fight, either. It plans to spend aggressively to try to keep some of them because roughly 70 percent of spending on those cards was done outside the stores, according to AmEx.
“I don’t think there’s anything structurally wrong at AmEx,” said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods. “They’re going to get in front of the revenue they are going to lose next year when the Costco relationship ends.”