Target Corp. is not alone in testing the effect of various benefits associated with its private-label credit and debit cards and its co-branded Visa card (
As retail and credit card profits come under pressure following the economic downturn, large retailers are scrutinizing the rewards they offer customers for paying with credit and debit cards to ensure they are maximizing profitability, Scott Strumello, an associate with Auriemma Consulting Group, tells PaymentsSource.
“Recently, some other large retailers began taking another look at their rewards programs to see if they have the mix right because the economics can be good or horrible depending on how consumers are rewarded for paying through various channels,” Strumello says. He declined to name other major retailers analyzing rewards through different payment channels.
Target last October began two tests of its credit card programs. In one test, certain customers applying for a Target credit card will be assigned only Target’s private-label credit card, instead of the co-branded Visa card Target issues. A Target spokesperson says Target had not defined which customers will receive the private-label card only.
In a second test, Target is giving some customers an everyday rebate on all store purchases made with Target’s private-label credit card, the Target Visa card or the Target Check Card, which deducts purchases electronically from customers’ checking accounts through the automated clearinghouse system. Target is testing a 3% rebate in its stores in San Antonio and a 5% rebate in its stores in Kansas City, Mo.
Target typically offers customers 10% off all purchases made in the store that day when they open a private-label or Visa credit card account. The routine reward program for Target’s private-label credit, debit and Visa cards (collectively called Red cards) is one point per dollar spent in Target, and one point for every two dollars spent elsewhere using its Visa card. Customers get 10% off for an entire day’s purchases for every 1,000 points accumulated.
For the duration of its tests in San Antonio and Kansas City, Target is not offering new credit card customers 10% off on their first day’s purchases, the spokesperson says.
Target declined to say how long the tests will continue or whether it will expand the programs to other markets. “We are considering all options,” the spokesperson says.
During a conference call with analysts yesterday, Douglas A. Scovanner, Target executive vice president and chief financial officer, said that with its test Target is “exploring the idea of returning to issuing cards solely for use in our stores,” adding that the company is seeing “sharply higher penetration” of card accounts and card use in the markets where it is testing everyday rebates, particularly in Kansas City. “The whole question in Kansas City is whether all of those benefits are sufficient to be able to afford the incremental markdowns associated with a 5% program on every transaction on every item every day.”
Strumello speculates Target, like other large retailers fighting to maintain sales momentum in an uncertain economy, also is pushing harder on its credit card rewards to prove their value as competitive levers.
Last spring, a dissident shareholder made headlines by demanding that Target sell its card portfolio, while attempting to gain a seat on Target’s board. Target prevailed in that proxy battle (
In May 2008, Target sold a 47% stake in its portfolio to JPMorgan Chase & Co. “Target still owns the majority stake in its credit card operation, and with these experiments Target may be attempting to demonstrate how card rewards and rebates can be used to drive higher in-store sales,” Strumello says.
