Eh. Just got back from their Deli section. A half mile from me.
Costco Says Split With AmEx Related to Cost
Warehouse Chain Reportedly in Talks to Form Similar Relationship With New Partner
Shoppers buy goods at a Costco store in New York. Photo: Bloomberg News
Drew FitzGerald
Updated Feb. 13, 2015 5:27 p.m. ET
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Costco Wholesale Corp. said Friday that its breakup with American Express Co. came down to dollars and cents.
AmEx on Thursday announced the end of the 16-year partnership in which Costco only accepted AmEx cards and no other credit cards.
“Everything comes down to cost and saving money for our members, and that’s what it’s all about,” said Bob Nelson, vice president of investor relations for the company. “In general, things come down to economics.”
Costco, whose membership-only warehouse chain generates over $100 billion of annual sales, is currently in discussions to formulate a similar relationship with a new partner, people familiar with the matter have said. Among the card-issuing banks in contention are J.P. Morgan Chase & Co. and Citigroup Inc., according to those people.
Mr. Nelson declined to comment on the talks.
The move came as a blow to AmEx, sending its shares tumbling and leading the chief executive to say the end of the partnership will hurt revenue and earnings per share in 2015 and 2016.
Shares of AmEx fell 3% to $78.08.
The unusual partnership, in which Costco exclusively accepted AmEx cards, had driven a significant chunk of business to the New York card company. In addition, AmEx and Costco issued a credit card together that also could be used at other merchants. When the arrangement ends next year, millions of customers will be forced to use a different credit card when shopping at the wholesale store.
AmEx approached Costco several months ago to renew the relationship, prompting the wholesale club to open up the process to other potential partners, according to a person familiar with the discussions. Costco had sought more favorable terms from AmEx, the person said. AmEx said it had been unable to reach a new agreement with Costco on terms that “would have made economic sense” for the company.
Costco’s push for better terms highlights the firm’s increasing clout. The company, which started its membership-only warehouse business in Seattle in 1983, has expanded to 671 locations around the world and is now the second-largest retailer in the U.S., behind Wal-Mart Stores Inc.
Costco’s formula of selling bulk-sized containers of everything from artichoke hearts to multipacks of chicken thighs drew shoppers even as many other retailers faced slumping sales and slowing traffic.
In the past decade, Costco has more than doubled its annual revenue to $112.6 billion for the fiscal year ended Aug. 31 and nearly doubled profits to $2.06 billion. Throughout that time, customers couldn’t make purchases with credit cards branded by Visa Inc., MasterCard Inc. and Discover Financial Services. Costco, however, does accept debit cards from Visa and MasterCard.
ENLARGE
That exclusive arrangement is rare. One of the other exceptions to broad-based acceptance is Sam’s Club, a unit of Wal-Mart that doesn’t accept Visa or AmEx credit cards in its stores.
AmEx said its pact with Costco would end on March 31, 2016. AmEx will discontinue its TrueEarnings cards that are branded with the Costco logo and offer new types of cards to those customers.
The dissolution of the partnership comes just a few months after AmEx and Costco ended a similar arrangement in Canada. Costco now has a partnership in Canada with MasterCard and Capital One Financial Corp.
The Costco deal wasn’t the only recent loss to AmEx. The credit-card company and JetBlue Airways Corp. aren’t renewing their co-brand card arrangement, according to people familiar with the situation. Unlike the Costco partnership, however, JetBlue accepted all types of credit cards and wasn’t exclusive to AmEx. As a result, the JetBlue-AmEx card portfolio is far smaller than the Costco-AmEx card arrangement, these people said.
JetBlue had previously hinted it was on the verge of a new arrangement and is expected to announce a new card deal soon, these people said.
—Robin Sidel contributed to this article.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
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