Store cards redundant as consumers save to buy

1st November 2011  

New figures out from the Finance & Leasing Association (FLA) indicate a positive rise in consumer lending in the year to August, but the association is quick to point out that it doesn’t believe this indicates any kind of sustainable recovery for the credit industry.

The FLA, a trade body that represents finance houses in the consumer finance sector, highlighted odd snippets of positive news in the report that accompanied the release of the data, but many of the indices point towards a general shift away from these kinds of financial products as well as a market seriously depressed by the general economic malaise.

The most telling indicator we found in the statistics is the 20% drop over the last year in store card spending. Although the numbers for loans, second mortgages and credit cards saw small falls, consumers are deserting store cards in droves.

Store cards, which were all the rage 5 years ago, have been heavily criticised for failing to deliver value for money to customers, and for excessively high interest rates. Many store cards have APR’s 10% higher than mainstream credit cards, and although they are often offered at the point-of-sale with an initial discount on goods, few can deliver the same kind of overall value as cashback credit cards which form the basis of some retail loyalty schemes.

Many top retailers including Marks and Spencer and John Lewis have ditched their store card schemes in favour of branded rewards credit cards.

The Government has been treading a fine line with its advice to the public about living within its means, and reducing debt. Whilst it wants to be seen as advocating a thrifty, even parsimonious lifestyle, it also wants consumers to keep spending money or the economy will never recover its previous balance, let alone achieve consistent growth.

But the bad news for many of these finance houses is that the way the economy works, and the dynamics of consumer spending has changed, and very probably for good. The credit crunch, the on-going anxiety over the debt in other European countries and the shift in economic power have permanently affected world markets.

Now, a large percentage of the UK population worries for their jobs, and almost everyone apart from the super-rich can feel that their spending power has diminished. Many families are having to adapt to a quite different lifestyle, with few treats and luxuries. The make-do-and-mend culture of the 50’s extends to a whole new section of society which ten years ago snapped up consumer goods on tick, and viewed even big-ticket items as disposable.

For these reasons, and because previous levels of unsecured credit are virtually unavailable to the kind of people who would want to use it, most UK households really have moved onto a save-to-buy mentality.

Most of the adult population of the UK are used to previous recessions with a few years of economic adversity followed by a return to strong growth, prosperity and gradually improving lifestyles. The sad news for all of us is that this time, we’re unlikely to see a return to those heady days of the early noughties.

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