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Has AXP Been De-Moated?



October 26, 2015 – Comments (1) | RELATED TICKERS: BRK-A , AXP

Board: Berkshire Hathaway

Author: berkshireone

I am talking about branding, positioning, connotations, image.

In that case American Express’ problem is even greater than just losing their large number of Costco customers. It is misunderstanding a commercial trend and an evolving perception of what ‘quality’ and ‘upscale’ and ‘aspirational’ really have become.

The days are gone or passing fast for providers who think that they can sell customers on ambiance and prestigious looking shopping bags. Live piano music and fancy display cases only go so far in convincing people that it desirable to being seen carrying a $20 shirt that they paid $70 for, because they are carrying it in a Nordstrom shopping bag. Consumers all over are becoming too savvy for that.

I read somewhere that more than half the actual dollars spent at Costco are via business membership accounts. That is the category I have, so I can believe it. Some retailers attract divas, socialites, and the army of aspirational shoppers hoping to emulate them. The Costco brand is solidly associated with business owners. Which is better brand association for American Express?

The ‘poor’ by the way don’t shop at Costco. It is much too expensive for anyone living off a current paycheck. The running joke among customers at the check-out is that regardless of what they came for, they never get out for less than $200. Costco’s success, I think is that it is partly also a guilty pleasure of the affluent. Right next to that $500 bottle of Kirkland house brand single malt is a $23,000 bottle of Macallan 1940 Scotch. Anyone even half-seriously looking at that could or should be an American Express prospect.

I would think that the Costco brand would be exactly the kind of association that American Express wants and needs. Costco's business owner demographic might not be trying to impress with shopping bags or being seen in the right shops, but it does have its cache, and it does spend (charge!) serious amounts of money.

The Marshall Fields example is wonderful. That store could only wish to be Costco, in prestige, image or customer base. They are actually Macy’s now and carry Macy’s merchandise, for Macy’s demographic. Would American Express the brand be better off partnering with a business like today's Marshall Field? Not hardly.

I am obviously biased because Costco is my kind of store, but off hand I can’t think of one store I consider actually more prestigious. Higher priced apples-to-apples maybe, and fancier, but not more upmarket, or more aligned with the customer American Express should be aspiring to have (and until now did have).

Back to my main point though, if the regular Costco customer (like me) no longer has a reason that they need to be using their (non-Costco) American Express card any more, what will the overall impact actually be? 

1 Comments – Post Your Own

#1) On October 26, 2015 at 12:39 PM, TracyK (< 20) wrote:

I completely agree.  I see no reason to run out and get another AMEX card when my Costco AMEX card dies.  Where is the value of carrying an AMEX card?  While shopping at the experience.

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