Managers at American Express must have taken particular delight last month when AT&T Corp. announced that it was selling its Universal credit-card business to Citibank. AT&T's no-annual-fee entry into the credit-card game in 1990 made this industry universally ugly, particularly for Amex. With free Visa and MasterCard bank cards bulging their wallets, consumers were increasingly leaving home without American Express plastic. Instead of paying membership fees for cards that many merchants refused to honor--since American Express took a heavy bite out of purchases--more than 2 million Amex holders cut up their cards in the early 1990s. "We were in fairly sharp decline," says Kenneth Chenault, American Express's president.
No longer. While poor profits have chased AT&T and others from their plastic perches, American Express is soaring. Shoppers today are gladly flashing Amex cards for everything from gasoline to groceries to trips to China. The card was so hot in 1997 that American Express reversed a decade-long slide in its share of the U.S. card market. With a slew of new consumer cards to go with its traditional strength in corporate plastic, American Express raised its share of the $469 billion general purpose card volume in the first half of 1997 from 18.3% to 18.9%--as Visa saw its No. 1 position slip very slightly from 48.88% to 48.85%.
American Express's turnaround surprised everyone, including H. Spencer Nilson, publisher of the Nilson Report, which tracks spending on credit cards. Nilson is impressed that Amex was able to "come away with any kind of stabilization." He applauds the company for its "significant advances in improving product line and in growth of cardholders and volume. I would not have given them any chance of doing that several years ago."
That change of fortune reflects the revolution that Chenault and CEO Harvey Golub have quietly wrought at American Express (1996 revenues: $16.2 billion). Golub, 58, took command in 1993 after directors dumped James Robinson III for turning the company into an unwieldy financial supermarket. Golub promptly lopped off the brokerage, investment-banking and life-insurance units that Robinson had assembled, leaving American Express focused on credit cards, travel and financial services, including mutual funds. Golub, a sometimes abrasive native of Brooklyn, N.Y., initially slashed $2 billion out of a $13.4 billion cost structure, and has kept expenses in line with sales growth through such moves as downsizing the work force and streamlining procedures.
Wall Street has loved his less-is-more philosophy. Shares of American Express have more than quadrupled in value since Golub began running the company. (The stock closed last week at $88.68 a share, not far from its recent all-time high of $91.50.) Analysts expect the company to produce its third straight year of record profits in 1997.