Costco switched its loyalty credit card from American Express to Visa on June 20, which caused some disruption with customers who were caught off guard. Despite providing a year notice, Costco still met some chaos last month during the switch.
Although there has been some setbacks when the switch first happened, there are new benefits customers can enjoy. Costco may not longer work with American Express, but members can now pay with any Visa-branded credit cards. If you still have your AmEx Costco card, don’t bother trying to use it as it will no longer work.
After sixteen years, the break-up between AmEx and Costco happened due to American Express being “unable to reach terms that would have made economic sense for our Company and shareholders,” according to a press release published last February.
Since the change, card holders actually receive better benefits. The Costco Visa credit card offers 4% back cash back on the first $7,000 spent at eligible gas stations per year (then 1% back), where their previous card only offered 3% back on the first $4,000 per year. It also offers 3% cash back on restaurants and some travel, 2% back on Costco and Costco.com purchases and 1% back everywhere else. The old AmEx card only offered 2% back on restaurants and travel and 1% everywhere else with no inclusion of the Costco purchases.
The transition was not as smooth as the wholesale merchandise corporation would have hoped. As a matter of fact, the company, with roughly 81 million members worldwide, reported that there was a loss of credit card sign-ups in $11 million in May. However, the Costco’s Visa card should easily help the company bounce right back, as about three times as many people use Visa than American Express. This means there are more opportunities for people to use credit at Costco.
In addition to new cardholders, the company anticipates up to $220 million in savings due to lower interchange fees.
So, what does Costco’s Visa card mean for investors?
Costco Stock After Switching to Visa
With much uncertainty at the end of June due to the switch, things are actually not looking too bad for Costco’s stock right now. Things have been a little up and down, with some worried about the company’s vulnerability at this point. As early as July 6, The Street reported that Costco was not far from a potentially damaging breakdown. In the article, Gary Morrow states that the “stock closed [Tuesday, July 5] with its third straight loss and has finished in the red during six of the of the last eight sessions.” He added that it had also been trading in a tight range for most of the year thus far.
However, by the end of last week, things were looking up for Costco’s market. On Thursday, July 7, they were one of Standard and Poor’s (S&P) 500 best performers. This is most likely due to their 3% increase of comparable-store sales (comps) in June. There were comparable sales growth across its U.S., Canadian and other respective international markets as well from the 2-7% range. A challenge to their numbers include Canada’s deflation in gasoline prices and foreign currency fluctuations.
At the end of the 44-week period on July 3, Costco announced flat comps with a 2% increase in its U.S. markets offset by a 4% decrease in its Canadian and other international locations.
The Street also wrote a follow-up piece on Costco’s advancing numbers, mentioning that its shares are 0.85% to $265.09.
So far, Costco’s Visa card seems to be positively affecting investors, but we will see what the rest of 2016 brings.
Costco’s Visa card may have initially brought on one giant headache, but the company seems to be quickly overcoming the challenge, both in and out of the warehouse stores.
What do you think of Costco’s switch? Do you support it?
For more info on Costco check out these articles.
You can check out our articles for Target as well.
Photo: Flickr: Mike Mozart