Pain on Main Street: A First-Ever Drop in Card-Based Same-Store Sales

As the recession continues to batter merchants of all sizes, small and medium-size retailers are getting hit especially hard, and as a result so are the acquirers that process their card transactions. Indeed, in a development apparently never seen before, same-store sales on Visa and MasterCard for these Main Street merchants fell fully 4.9% in the January through May period, according to research released this week by First Annapolis Consulting. By contrast, same-store sales for these same merchants had climbed modestly, by 1.5%, last year. To get a picture of the current state of merchant acquiring, First Annapolis surveyed 17 acquirers?nine bank acquirers and eight non-bank processors–that account for more than half of all U.S. card-based payments. Besides the overall decline it discovered, the firm said 17 acquirers reported same-store sales plummeting by more than 10%. Overall, bank acquirers reported a steeper drop in sale-store sales than did the non-banks. “To put this into perspective, card-based payments have never registered same-store growth declines overall, even in past recessions,” the Linthicum, Md.-based consulting and research firm said in a statement announcing its results. Same-store sales are widely seen as a key metric for merchant health, as they indicate business activity for established locations. In previous downturns, the ongoing migration of sales to credit and debit cards and from cash and checks generally offset business declines, allowing for at least modest upturns in card-based same-store sales, First Annapolis says. While First Annapolis's research did not measure the impact on acquirers' revenues or profits, acquirers are already taking steps to protect margins, says Nicole Schrader, a senior consultant at the firm who supervised the research. “We can safely say that acquirers are taking remedial actions to cushion earnings, primarily through pricing actions,” she tells Digital Transactions News via e-mail. That's all the more likely given that acquirers reported a near doubling in their loss rates stemming from the business failure of small and medium-size merchants, according to the research. These rates soared from 0.92 basis points (measured against card-based dollar volume) at year-end 2008 to 1.73 basis points at the end of May, though the increase was less severe for the banks than for the non-bank acquirers. “These research outcomes are signs of great performance pressure on acquirers, but also are highly symptomatic of tough times for small and mid-sized merchants,” Schrader said in a statement announcing First Annapolis's research. It doesn't look like this pressure will lift any time soon. “The declining same-store sales are an indicator that things were pretty awful, at least through May,” Schrader tells Digital Transactions News. “The loss levels are probably a sign of worse things to come.” The 17 companies surveyed, all of which were promised anonymity in return for their participation, included five top-10 acquirers and nine that rank in the top 20.