Sam’s Club Only Partially Solves AmEx’s Costco Woes

Always conscious of keeping prices low, warehouse membership-club stores are tough customers for merchant acquirers and payments networks because they want to shave card-acceptance costs to the bone.

So American Express Co., typically the most expensive card brand for merchants to accept, seemingly scored a coup when it announced that beginning this month its cards will be accepted inside Sam’s Club stores, the membership-club division of Wal-Mart Stores Inc.

While a plum for AmEx, the Sam’s deal still will fall short of filling the big hole that the warehouse-club sector’s biggest retailer, Costco Wholesale Corp., will leave next spring when it ends AmEx card acceptance and its AmEx cobranded card. In contrast to Costco, AmEx’s Sam’s Club pact is non-exclusive and doesn’t involve a cobranded card.

The new deal brings AmEx point-of-sale acceptance to 653 stores in the U.S. and Puerto Rico. In its stores, Sam’s already accepts its private-label credit card, its cobranded MasterCard issued by Synchrony Bank, other MasterCard cards, and Discover. Sam’s has accepted American Express on its Web site for some time, along with Visa, MasterCard, and Discover cards.

AmEx not only was the only general-purpose credit card brand Costco accepted under a 16-year partnership, but its Costco cobranded card generated $82 billion in charge volume last year, some 8% of AmEx’s worldwide card-billed business. Next April, a Citibank-Visa cobranded card will replace the AmEx cobrand, and Visa will become the only major card brand the retailer will accept in its U.S. stores.

The partial recovery represented by the Sam’s Club deal, however, was cause enough for AmEx to celebrate during a year in which, besides losing Costco, the company lost a major court battle over its anti-steering rules for merchants and its No. 2 executive, president Edward Gilligan, died unexpectedly.

“We want merchant partners that feel good about the relationship with American Express and warmly welcome our cardmembers, and Sam’s Club is prepared to do that,” says Anré Williams, president of AmEx’s Global Merchant Services unit.

A Sam’s Club spokesperson did not respond to a Digital Transactions request for comment. But in a press release, Tracey Brown, chief member officer at Sam’s Club, said, “Everything we do ties back to how we can better serve our members. The acceptance of the American Express card underscores our commitment to bring greater ease and flexibility to our members’ shopping experience.”

AmEx, a big provider of cards to small businesses, says Sam’s Club serves 500,000 small-business owners every day. In addition, the typical AmEx cardholder spends three to four times that of the average Visa/MasterCard holder, according to Williams.

“It [the Sam’s contract] is going to generate a significant amount of transactions and spending on our network, and it will generate additional [sales] for Sam’s Club,” he says. “We believe there will be an increase in the number of cardmembers using their cards, and the average ticket will go up.”

AmEx would not disclose the discount rate Sam’s Club will pay on its card transactions.

With $58 billion in sales in its last fiscal year, Sam’s Club as a standalone entity is the nation’s eighth-largest retailer, according to AmEx. (Its parent company Wal-Mart is No. 1.) Issaquah, Wash.-based Costco, which has 480 locations in the U.S. and Puerto Rico, is No. 3, according to the National Retail Federation. Costco reported net sales of $113.7 billion for the fiscal year ended Aug. 31.

—Jim Daly