Nordstrom 2011 Annual Report Download - page 24

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24
Credit Card Revenues
Fiscal year 2011 2010 2009
Finance charge revenue $251 $266 $264
Interchange – third party 82 76 71
Late fees and other revenue 47 48 35
Total credit card revenues $380 $390 $370
Credit card revenues include finance charges, interchange fees, late fees and other revenue. Finance charges represent interest earned on unpaid
balances while late fees are assessed when cardholders pay less than their minimum balance by the payment due date. Interchange fees are earned
from the use of Nordstrom VISA credit cards at merchants outside of Nordstrom.
CREDIT CARD REVENUES — 2011 VS 2010
Credit card revenues decreased $10 in 2011 compared with 2010 primarily due to a decrease in finance charge revenue, partially offset by an increase
in interchange fees. Continued improvements in customer payment rates drove lower finance charge yields and slightly lower receivables, which
resulted in a decrease in finance charge revenue. Our average credit card receivable balance in 2011 was $2,047, a decrease of $41, or 1.9%, from
2010. These decreases were partially offset by an increase in interchange revenue due to increased use of our Nordstrom VISA credit cards at
third parties.
CREDIT CARD REVENUES — 2010 VS 2009
Credit card revenues increased $20 in 2010 compared with 2009 primarily due to higher late fees, particularly in the first half of the year. Improving
economic conditions over the year led to an increase in general consumer spending, improved payment rates, lower revolving balances and reduced
delinquencies. Our average credit card receivable balance in 2010 was $2,088, a decrease of $11, or 0.5%, from 2009.
Slightly higher average annual percentage rates, partially offset by lower revolving balances from improvements in customer payment rates,
resulted in a small increase in finance charges in 2010 compared with 2009.Increased use of our Nordstrom VISA credit cards at third parties
resulted in an increase in interchange fees in 2010 compared with 2009. Delinquencies increased during the first half of 2010 compared with the
first half of 2009. Additionally, legal and regulatory changes in 2009 and 2010 affected our pricing and billing terms. Taken together, these factors
resulted in an increase in late fees and other revenue in 2010 compared with 2009.
Credit Segment Interest Expense
Interest expense decreased to $13 in 2011 from $21 in 2010 and $41 in 2009 due to lower average interest rates applicable to the Credit segment.
Credit Segment Cost of Sales and Related Buying and Occupancy Costs
COST OF SALES AND RELATED BUYING AND OCCUPANCY COSTS — 2011 VS 2010
Cost of sales and related buying and occupancy costs, which includes the estimated cost of Nordstrom Notes that will be issued and redeemed
under our Fashion Rewards program, increased to $75 in 2011 compared with $66 in 2010. The increase was due to additional expenses related to the
Fashion Rewards program as a result of a 13.3% increase in volume on Nordstrom credit and debit cards and increased utilization of program
benefits. We provide these benefits to our customers as participation in the Fashion Rewards program generates enhanced customer loyalty and
incremental sales in our stores.
COST OF SALES AND RELATED BUYING AND OCCUPANCY COSTS — 2010 VS 2009
Cost of sales and related buying and occupancy costs increased to $66 in 2010 compared with $55 in 2009. The increase was due to a 10.9% increase
in volume on Nordstrom credit and debit cards and increased utilization of program benefits.
Credit Segment Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Credit segment (“Credit SG&A”) are made up of operational and marketing expenses, and bad
debt. These expenses are summarized in the following table:
Fiscal year
2011
2010
2009
Operational and marketing expenses $128
$124
$105
Bad debt provision 101
149
251
Total selling, general and administrative expenses $229 $273 $356
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES — 2011 VS 2010
Total Credit SG&A decreased $44 in 2011 compared with 2010, due to lower bad debt expense. The decrease in bad debt expense reflects continued
improvement in our portfolio trends, the overall performance of our credit portfolio and economic trends, which are further discussed below.
Operational and marketing expenses are incurred to support and service our credit and debit card products and the related rewards program.