February 12, 2015
Costco and American Express will end their exclusive merchant agreement, the credit card issuer announced Thursday morning.
A customer packs groceries into his car outside of a Costco store on March 6, 2014, in Richmond, Calif.
February 12, 2015
Costco and American Express will end their exclusive merchant agreement, the credit card issuer announced Thursday morning.
A customer packs groceries into his car outside of a Costco store on March 6, 2014, in Richmond, Calif.
The move comes less than six months after Costco’s Canadian arm made a similar decision, dropping its Amex partnership in favor of one with Mastercard and Capital One, and rumors have been swirling ever since that Costco would make a similar decision in the U.S. And now that it is official that the partnership will indeed end, shares of Amex are sinking more than 5% on the news.
American Express, which has long been the only credit card accepted in Costco’s stores, announced Thursday morning that it and Costco failed to reach an agreement that would have continued their partnership beyond March 31, 2016, the end-date of their current co-brand and merchant acceptance agreement.
“Taking a very disciplined approach, we began discussions on a possible renewal with Costco well in advance of the contract expiration. However, we were unable to reach terms that would have made economic sense for our company and shareholders,” American Express CEO Kenneth Chenault said in a statement Thursday morning. “Instead, we will focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”
For consumers, the news means that all Amex credit cards and co-branded Amex/Costco credit cards can be used in Costco’s warehouse stores in the U.S. until March 31, 2016. Whether or not there’s any wiggle room to this date — i.e., whether the cards will be accepted beyond March 31, 2016 – depends on what happens between the two companies in the coming weeks and months.
“Here’s what I can say: technically, the contract is terminated in March of 2016,” Chenault explained in a conference call with investors. He noted that in Canada, Amex cards were accepted at Costco beyond the date the exclusivity agreement expired, but a similar occurrence in the U.S. will hinge on what happens in the transition. “I cannot tell you at this point in time if that’s what will happen in 2016. The only thing I can tell you with certainty is that the contract is terminated, we won’t be accepted in the us after termination is over, but the question is what’s the date of this termination.”
Chenault and Amex CFO Jeffrey Campbell told investors Thursday morning that this development shouldn’t impact Amex’s revenue in 2015, but 2016 is “the year that revenue will be challenging because of the termination of the Costco agreement.” While Costco brought in $113 billion in full-year 2014 revenue — and Amex was the only credit card issuer that had access to that — Chenault and Campell also said that their bigger focus will be on replacing the profits that were associated with the partnership, not the revenues.
Shares of Amex sank more than 7% in Thursday’s pre-market trading session following the release of this news; shares are currently down 5.7%. Costco, too, is dipping on the news: shares of the discount retailer are down 0.2% in early Thursday trading. Year-over-year, Costco has been the stronger stock performer, posting a 26.9% gain compared to Amex’s 8.8% decline.
Courtesy: Forbes
