To boost spending among affluent cardholders, American Express Co. is joining a nascent trend in e-commerce: deal sites for the elite.
To this end, the card company has formed a joint venture with the French clothing retailer vente-privee.com, a pioneer in the designer deals space.
Experts say the venture can address Amex's most pressing problem: Its message has already saturated the wealthy customer base its brand was built around serving.
"American Express doesn't need to get more people aware of them — the affluent customers know about American Express," said Gwenn Bezard, co-founder and research director at Aite Group in Boston.
"Their No. 1 problem is not getting people aware of them, but to get a higher engagement."
In January and February of this year, Amex's ad spending rose 17.9% from a year earlier, according to data from the New York research firm Kantar Media Intelligence.
Bezard said this increase may not be enough, as rival issuers have also been pouring cash into their advertising efforts for the same purpose. (In the same period, JPMorgan Chase & Co. increased its ad spending by 48.7%.)
Amex's "main challenge for them is to stay ahead of … the major issuers that have also been ramping up in the number of perks attached to their cards," Bezard said.
Vente-privee.com, like its U.S. rival Gilt Groupe, hosts a service that provides specials on designer clothing, with each offer valid for just a few days. The limited-time sales help participating designer brands shed excess inventory without shedding their reputation as being out of reach for the common shopper.
The French outfit has roughly 13 million members and more than $1 billion in European sales. It has not yet decided whether it will charge a subscription fee for access to the U.S. version of its service.
Amex said it adds value in targeting the deals to those most likely to buy, based on their past spending.
Amex is trying to "displace traditional ideas about commerce" through its investments, said Dan Schulman, Amex's head of enterprise growth. "There is a strategy here about how we can provide incremental value between buyers and sellers … the focus is not only digital payments, but digital platforms."
Though Amex may have saturated the affluent market, it is also trying to boost spending by reaching downstream with its recently launched prepaid product, Serve. Since Serve purchases can be funded through any connected payment account, it is an option for consumers who may not qualify for a traditional Amex card or may not want to make purchases on credit.
However, despite Amex's enthusiasm for Serve and its other initiatives, analysts were vocal on its most recent earnings call about their concerns that these investments would not pay off.
Amex has been hoarding cash for acquisitions since the beginning of the downturn as part of a plan to fund growth, industry watchers have said.
Spending that money now is a move to spur growth as cardholders begin to move toward digital payments.
Serve, which stemmed from its $300 million acquisition of Revolution Money in 2009, is just one example of that spending. Amex also bought the security technology provider Accertify Inc. for roughly $150 million in November 2010.
The fashion venture with vente-privee.com has yet to be named. It will be based in New York and will start with 40 to 50 employees, including a new chief executive, and the venture is expected to launch either right before Christmas, or early next year, said ventee-privee.com's CEO, Jacques-Antoine Granjon.
The site will be open to anyone who wishes to join, and members will not be required to fund their fashion purchases with an Amex card.
Designer deals sites are a growing trend in the U.S.
The footwear-themed ShoeDazzle.com Inc. was co-founded by the reality television star Kim Kardashian, who is famous to the financial services world for her short-lived prepaid card that charged up to a year's worth of fees up front.
Amex and vente-privee.com each invested about $20 million in their new venture, according to an Agence France-Presse report.
Granjon said the venture would not be possible without Amex's involvement.
"We are here only because they are here," he said.
"We think, we are both companies that have [affluent] members."
The companies had been in discussion for about 18 months before the announcement, Granjon said, and in later iterations the venture could expand its offerings beyond clothing.
"There is ample opportunity to grow over product lines" such as travel, Schulman said. "But you start off with what your strengths are."
