How Bad Will It Get for American Express?
This is a surprisingly interesting article about the Amex-Costco relationship and the history of Amex.
Every year, they got together. Sometimes Costco’s top executives would fly to New York to meet with Kenneth Chenault, the chairman and chief executive officer of American Express, and his team. From the card company’s perch on the 50th floor of its tower in lower Manhattan, the Costco guys peered at the views of Wall Street and the Statue of Liberty. They were used to looking over a less inspiring sea of parking lots from the windows of Costco’s three-story headquarters in suburban Issaquah, Wash., decorated with Van Gogh reproductions purchased from Art.com.
When Chenault made the reverse trip to Issaquah, the Costco guys were tickled by how meticulously Amex choreographed his movements. “Ken Chenault would have an advance team come to our office before he visited,” says Paul Latham, Costco’s vice president for membership and marketing. “They planned everything—where he would enter the building, the route to the boardroom, where he’d sit at the table.” After breakfast, Chenault would often give an elaborate presentation about the performance of Amex’s Costco affinity card, using PowerPoint decks that looked like they took weeks, maybe months, to prepare. Costco just jotted down some notes for their CEO, Craig Jelinek, to talk about.
The Amex people, most of whom had MBAs, sometimes found it amusing to deal with Costco veterans who spoke about starting out stocking warehouse shelves. Less endearing was the habit Costco executives had of referring to Amex as a “vendor.” That made the Amex people seethe. After all, they represented one of America’s oldest corporations. But they smiled and said nothing, and the corporate marriage endured for 16 years.
Costco had a similar co-branded affinity card with Amex in Canada. As its contract neared expiration in 2014, Costco solicited bids from other financial institutions to see if it could get a better deal. It did, and chose Capital One and MasterCard. Chenault went all out to hold on to the discounter in the U.S. Costco’s costs to accept credit cards as part of its deal with Amex was about 0.6 percent of every purchase, people familiar with the arrangements say, which was pretty cheap for any retailer, but Chenault offered to cut them further. Still, Jelinek insisted on putting the U.S. business up for grabs, too.
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http://www.bloomberg.com/features/2015-how-amex-lost-costco
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