David Jones has picked Latitude Financial as its new credit card and financial services partner amid economic headwinds
The department store chain and financial services group will partner to create a new store credit card, but its CEOs warn of economic headwinds from a barrage of interest rate rises.
The quickened pace of interest rate hikes since May is starting to squeeze some households, according to the bosses of department store chain David Jones and financial services player Latitude Financial, but consumer confidence remains broadly strong at the start of 2023.
David Jones boss Scott Fyfe, who is busy overseeing the company’s sale to private equity firm Anchorage Capital Partners, conceded “economic headwinds were coming” but that his core customer base were slightly more resistant to the headwinds.
Financial services veteran Ahmed Fahour said he was pleased how Latitude finished calendar 2022 with his 2.8m customers across Australia and New Zealand had shown growth, but that interest rates moves initiated by the Reserve Baml from May were starting to have an impact, and he knew there was a segment of the market that was now reining in spending.
Mr Fyfe and Mr Fahour were together in the David Jones CBD flagship store in Melbourne on Monday to unveil a new credit card and financial services partnership that will see the formation of a 10-year exclusive deal for Latitude to supply the department store with credit cards.
Under the agreement, Latitude will begin issuing two new credit cards to qualifying David Jones customers from September, with the new cards to offer customers additional benefits while also retaining most of the features of the current David Jones credit card offer.
The terms of the deal will also see the ASX-listed Latitude acquire David Jones existing cards portfolio, subject to further agreement and following the expiry of David Jones’ partnership with American Express.
David Jones first signed up American Express as its financial services and credit card partner in 2008, but that deal has recently expired. In December, South African-owned Woolworths Holdings sold David Jones to Anchorage Capital for around $100m.
Mr Fyfe said he began looking for a new credit card partner when he joined David Jones as its CEO in 2020, predating its recent sale to Anchorage.
“As part of our ‘vision 2025’ strategy, I started looking at where we currently were with our financial services proposition and where we could potentially look for new partners and where there was market opportunities.
“We have partnered with Latitude because we have a common vision to deliver a best-in-class, digital first card offering to our customers.”
In 2013, the year before David Jones was sold to Woolworths Holdings for $2.1bn, David Jones earned $49.5m in pre-tax earnings from its financial services partnership with American Express and had 160,000 cardholders. That has since grown to 190,000 customers holding its store-branded credit card.
On Monday, Mr Fyfe declined to comment on the earnings targets for the new credit card partnership with Latitude, only saying there would be a profit sharing arrangement from the various fees and charges that flow from the credit card.
Mr Fahour said the new partnership with David Jones would further cement its position as the finance partner of choice for Australia’s biggest brands.
He said Latitude had undergone a “year-long beauty parade” to be finally picked by David Jones as its partner.
“I’m really glad we have won the year-long beauty parade process, this has been a year in the making.”
Both Mr Fyfe and Mr Fahour played down concerns among some consumer rights and regulatory agencies that store-based credit cards could be improperly distributed or used, and that some consumers could be improperly targeted in the store to sign up for the card.
In December ASIC commenced proceedings in the Federal Court against American Express over two of its co-branded David Jones store cards, the David Jones Amex Card and David Jones Amex Platinum Card, alleging breaches of design and distribution obligations. The allegations revolved around the way customers were targeted with the law requiring American Express to make a target market determination describing who the credit cards would be appropriate for and how the cards should be distributed.
“The typical David Jones customer that we are servicing is a sophisticated customer, they are people who know what that are doing and understand very clearly … what the card does and what it entails,” said Mr Fahour.
Mr Fahour said Latitude would absolutely adhere to the regulatory environment, and actually provide an experience that would make it easier for the customer and significantly greater than what is expected as a minimum requirement as a financial services provider.
Meanwhile, turning to the economic outlook, Mr Fyfe said January trading had been above expectations with consumer confidence strong and foot traffic in its stores improving.
“We know economic headwinds are coming,” he added, “and we have a higher profile customer base that is slightly less resistant to headwinds, that said we are really focusing on our stock levels and managing that accordingly.”
Mr Fahour said Latitude – which will release its December-half results to the ASX in three weeks – had ended the year in a stronger position, but that he could see the impact of higher interest rates on some customer segments.
“From what we can observe, the second half of the (calendar) year was a positive half from a growth and volume point of view. My observation is that the interest rate moves are starting to have some impact, and we know there is a segment of the market where it is starting to be one where the desired effect of the Reserve Bank moves is occurring and when you combine that with some of the supply chain challenges it is evident.”
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