Target’s Discount Program Causes Surge In Private-Label Credit And Debit Card Approvals

Target Corp.’s growth rate for activating new private-label credit and debit cards quadrupled during the fourth quarter after the company’s October introduction of a 5% point-of-sale discount on purchases made with Target-branded cards, Target executives told analysts Feb. 24.

During a conference call with analysts to discuss the company’s fiscal fourth quarter results, Doug Scovanner, Target’s chief financial officer, said “sales penetration” of the retailer’s private-label cards at the close of the quarter ended Jan. 29  “was 1.8 percentage points higher than last year,” representing “the first significant increase in nearly a decade.”

 The discount program drove customers to visit Target stores more often and purchase more overall, “possibly adding close to two percentage points to our same-store sales growth later in the year,” Scovanner said.

Target also said its credit card profits quadrupled during the quarter as its default rate on troubled accounts fell along with its provision for loan losses (see story). 

The growth Target has experienced in its private-label card portfolio suggests the retailer’s previously announced plan to use discounts to drive more overall sales is meeting with some success. But the Minneapolis-based company continues to seek a buyer for its credit card receivables, Scovanner said.

The company in January said it hopes to sell its credit card receivables portfolio but retain operational control of the card program (see story).

“We’ve begun the process of identifying the right strategic partner to purchase our assets (and) fund our operations going forward,” Scovanner told analysts, noting Target’s goal is “to remove the receivables assets from our balance sheet ... and maintain our card operations, including all guest-contact touchpoints.” He said he expects the process to take “several quarters to unfold,” with a closing expected no earlier than late this year.

Target last fall introduced a 5% everyday discount on all purchases made with its branded cards (see story). The program replaced an earlier one to enable cardholders to accumulate enough points to receive a 5% discount on a single day of shopping at Target.

The company also said last April it no longer would offer the cobranded Target Visa card to new customers, but would continue to support it (see story). Cobranded cardholders, who comprise the vast majority of Target’s credit cardholders, continue to receive the 5% discount on all purchases at the point of sale.

Target expects overall store sales results from its 5% discount program to “build like a freight train as more and more” households request its private-label cards, Scovanner said.

At least one analyst says it is too early for Target to declare victory with its payment cards strategy.

“Target has floundered with its cards program for years,” Brian Riley, senior research director at TowerGroup, tells PaymentsSource. “The company suffered steeper-than-average losses at the beginning of the financial crisis and so far has been unable to find a buyer for its portfolio, probably because there are doubts about the portfolio’s credit quality.”

It will take “at least a year more” to see if Target’s 5% discount strategy is a long-term path for success, Riley believes. “Anybody can get people in the door with promotions, but there has to be a real loyalty factor to keep people coming in,” he says.  

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