After nine years of issuing a cobranded Visa credit card, Target Corp. said Tuesday that it is considering a return to issuing credit cards only for use in its stores.
Doing so would be a major shift; the Target Visa card makes up roughly 95% of the Minneapolis retailer's receivables.
"We're exploring the idea of returning to issuing cards solely for use in our stores," Doug Scovanner, Target's chief financial officer, said during a conference call to discuss quarterly results. He did not say why.
Target spokesman Eric Hausman would not give a reason when contacted by a reporter. He said the company has recently been issuing store-only cards to a sample group of consumers applying for credit who would have otherwise been eligible for Target Visa cards.
"Lots of possibilities could come out" of the test, not just a phasing out of the cobrand portfolio, he said.
Target is also testing a new rewards program in select markets that would give cardholders a small discount on every item purchased in its stores every day.
The tests "could result in the card being used more as a loyalty tool with rebates," said Dan Binder, a managing director at Jefferies & Co. Inc.
Target's credit card unit swung to a $39 million profit in its fiscal fourth quarter, which ended Jan. 30, from a $135 million loss a year earlier. It ended the fiscal year with gross receivables of $7.98 billion, down 12% from fiscal 2008.
Target set aside $284 million during the quarter to cover bad debts, down from $500 million in the prior-year period. Writeoffs to total receivables rose 320 basis points to 14.4%.
The future of Target's credit card portfolio has been a major question over the past year and a half. Last spring, a shareholder who wanted Target to quit the card-issuing business tried unsuccessfully to get himself and four others elected to the board.
In May 2008, Target sold a 47% stake in the portfolio to JPMorgan Chase & Co. The retailer has said it is interested in selling the remainder of the portfolio once market conditions improve. "If it were easy it would be done by now," Scovanner told analysts last month.