Walmart Inc. WMT is suing credit-card issuer Capital One Financial Corp. COF to dissolve their long-standing credit-card partnership. Walmart alleges that Capital One violated their contractual terms by not promptly attending to customer needs, such as issuing replacement cards and posting transactions to consumer accounts. In response, Capital One maintains that the contention points are “immaterial” and says it will “vigorously protect our contractual rights in court.” Walmart’s reactive measures to leave business partners who do not meet consumer needs or safety standards underscore its competitive behavior in the ever-evolving retail landscape.
The move to dissolve their partnership is not entirely out of the ordinary for Walmart, which regularly engages in strategic shifts with its business partners to fit their objectives better. In 2020, for example, contrary to the long-term shared model that previous CEOs in the Walton family followed, Walmart entered into a substantial merchandise sourcing alliance with Rakuten, Japan’s largest e-commerce company, and formed an on-demand delivery partnership with in-home delivery and same-day service platform Postmates. Walmart has also unveiled a pilot program with electronic vehicle specialist Nuro Inc. to facilitate last-mile, automated delivery services using electric cars.
Moreover, Walmart has strong relationships with medical diagnostic services providers Quest Diagnostics Inc. and privately held Sustainability Health Enterprises (SHE). This network of partnerships – including medical providers, financial institutions, and conglomerates – exemplifies a successful retail business whose best practices facilitate partnerships across diverse areas globally. Walmart’s partnership with Capital One exemplifies the retailer’s commitment to purvey global quality services to its customers.
In its native US, Walmart has sought ways to remove itself from contentious situations that compromise its ability to provide safe consumer environments. In 2019, for instance, Walmart discontinued the sale of e-cigarettes within its stores because of the rise of vaping-related illnesses linked to modified free-trade products. In 2021, the retail giant discontinued selling ammunition for handguns and short-barrel rifles, stating that instances of gun-related violence in its stores prompted the decision. The company also chose to stop selling the controversial hoverboards that suddenly caught fire on various occasions.
This series of events implies that the primary condition Walmart sets for its supplier relationships is the consistent delivery of sufficient consumer safety and their customers’ overall satisfaction. It’s not surprising that Walmart is quick to break ties in a long-standing partnership if they believe their partner is not delivering exceptional service. Walmart’s move to dissolve a retail partnership with Capital One comes amidst an industry-wide series of similar cases, including when Uber broke ties with its third-party contractors in November 2020.
Despite filing the lawsuit, the two companies are still willing to work together – at least in the meantime. According to a press release, as they work toward resolution, Walmart “continues to honor and service the Walmart Credit Cards issued by Capital One, including managing all aspects of the customer relationship.”
However, the dispute showcases the increasingly competitive nature of the retail credit-card market. This market remains crucial to both retail businesses and banking institutions, primarily because it encourages consumers to make significant purchases that might be unattainable without a credit card. The credit card still plays a significant role in retail sales and forms the backbone for purchases of high-value and big-ticket items such as furniture, appliances, and electronics. Credit cards also enable the purchase of gift cards and rewards points, which create recurring revenue streams for their issuers.
Companies can extend their product lifecycles in retail by continuously using credit cards as an essential component of their consumer offerings. By providing consumers with a convenient, flexible way to pay for products or services, businesses are incentivized to maintain long-lasting customer relationships secured through effective credit card partnerships. Retailers must establish strong partnerships with credit card issuers to ensure they can meet consumers’ needs and continue to grow in a rapidly changing retail environment.
