By Robin Sidel
In a Brooklyn courtroom last year, American Express Co. CEO
Kenneth Chenault portrayed the firm he has led for almost 15 years
as a scrappy enterprise that must scratch and claw to gain ground
on its much-bigger rivals.
"We are fighting every single day to persuade our customers to
use our card," Mr. Chenault testified.
Lately, AmEx has been suffering some defeats.
On Wednesday, Mr. Chenault will outline his strategy for the
firm for the first time since losing a key court case and a
lucrative 16-year partnership with Costco Wholesale Corp.
Those twin blows, which landed days apart, marked rare setbacks
for Mr. Chenault, 63 years old, who helped the company recover form
troubles tied to junk-bond investments just months after becoming
CEO in 2001. He then steered it through the financial crisis.
The setbacks come as the company is also falling short of its
revenue goals, expenses are rising and it is cutting 4,000 jobs,
representing 6% of its workforce.
"They are at the most significant inflection point that they
have probably faced since the 1990s," when AmEx faced pressure from
merchants angry over fees and from rival Visa Inc., says Eric
Wasserstrom, an analyst at Guggenheim Securities LLC.
Mr. Chenault meets with investors and analysts Wednesday
afternoon at AmEx's lower-Manhattan headquarters to explain how the
company plans to regain its luster.
Investors have been rattled by the recent difficulties. Shares
of AmEx are down 12% this year. Meanwhile, the stock price of J.P.
Morgan Chase & Co, which competes with AmEx in the card-issuing
business, is down about 2.7%, and Visa, which competes with AmEx on
card processing, is up about 2.2%. Both are at least twice as big
as AmEx in terms of market capitalization.
Mr. Chenault, through a spokesman, declined to comment on the
company's challenges.
While many of AmEx's past investor meetings have focused on a
particular area of business for the company, Wednesday's 3 1/2
-hour gathering is expected to be structured as a general session
about the firm's strategy. It will be led by Mr. Chenault and three
of his senior executives, including the company's chief financial
officer.
Representatives of AmEx also have reached out to investors and
analysts in recent weeks to gauge their concerns ahead of the
meeting, according to people familiar with the discussions. While
such outreach isn't uncommon at some big companies, it is unusual
for AmEx, these people said.
Analysts and investors say they will be looking for details from
Mr. Chenault about how the company plans to make up for a big loss
of spending on Costco-branded cards when the partnership ends next
year. The loss of the Costco partnership affects one out of every
10 AmEx cards in circulation.
AmEx is currently the only credit-card brand accepted at Costco,
and the two companies also issue a co-branded card that shoppers
can use outside the warehouse stores. Some 70% of the spending on
those cards takes place outside Costco, meaning Mr. Chenault will
have to persuade Costco shoppers to get one of AmEx's other cards
if he wants to keep them as customers.
That spending is a key part of what Mr. Chenault calls AmEx's
"spend-centric" business model, in which the company targets
affluent customers who are big spenders. The company both issues
cards and processes them on its own network, meaning it makes money
in multiple ways--it charges annual fees and interest to consumers
and also charges merchants for each transaction.
Days after announcing it wouldn't be renewing the Costco pact,
AmEx lost a high-profile lawsuit in which the U.S. government said
the firm's rules violate antitrust laws. The latter was a
particular blow for Mr. Chenault, a Harvard-trained lawyer, who had
opted not to settle the case.
The company, which has said it will appeal the verdict, says its
merchant rules aren't anticompetitive because it is dwarfed by its
rivals.
Those rivals, some of which are led by former AmEx executives,
are chipping away at AmEx. J.P. Morgan Chase has been going after
AmEx's affluent customer base. And Costco is replacing AmEx in a
new deal with Citigroup Inc. and Visa.
The loss of Costco comes as AmEx is already falling short of its
internal growth goals of 8%. (It isn't specific about the time
frame for achieving that.) Although the pace of AmEx's revenue
growth still exceeds growth at card-issuing rivals, analysts are
watching it closely.
"This is a very rough time for AmEx. The revenue-growth story is
broken, " says Vincent Caintic, an analyst at Macquarie Capital
Inc. who gave AmEx shares a "sell" rating this month.
Some are confident that the ship can be righted again--and that
Mr. Chenault is the one to do it.
"I don't lose sleep over the fact that [Mr. Chenault] is running
the company," says Henry Asher, president of the Northstar Group
Inc. in New York. The money manager bought his first shares of AmEx
in 1996 and has picked up additional stock since, including after
last month's bad news.
AmEx is responding to its challenges, in part, by trying to
expand its customer base beyond the well-to-do. The company is now
pitching prepaid debit cards to people without bank accounts and
last year launched a no-fee card called EveryDay that is aimed at
busy mothers.
The company is also trying to woo smaller merchants that haven't
accepted its plastic. One of the programs involves paying small
businesses $100 to upgrade their computer terminals to accept
more-secure credit and debit cards that contain a computer chip.
The effort aims to draw in more companies and combat fraud.
Write to Robin Sidel at robin.sidel@wsj.com
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