Target Shifts to Everyday Discounts for Branded Cardholders
Value retailer Target will restructure the rewards offered to holders of its branded credit and debit cards, swapping accrued discounts over time for an immediate 5% discount at the point of sale.
Starting this fall and in time, customers who use one of Target’s three types of REDcard products will get 5% deducted from their total bill when paying either in Target stores or online at Target.com.
Target, one of the few retailers to manage its own credit-card operations, currently offers customers a Target-branded Visa card, a Target Check Card debit product, and a Target credit card. The last was introduced in April 2010 and is only good in Target stores and on the company’s Web site, unlike the Target Visa and debit cards.
The new point-of-sale discount program for REDcards replaces Target’s former practice of awarding a 10% discount when new applications were approved—something Target cashiers could process from their registers—and then earn coupons for 10% off a future day of shopping.
Target said it has tested the changes to the cardholder rewards program in the Kansas City market since October 2009 and has seen “meaningful incremental sales and profits” as a result, especially among existing and high-value retail customers. While customers in the test area bought the same size basket of goods, the company found, they increased the frequency of their trips to Target.
“We believe guests will appreciate the simplicity and compelling value of this program, which will lead them to choose to shop more often at Target,” chairman, president and CEO Gregg Steinhafel said in a release. “As a result, we expect this new program to drive profitable incremental sales, which will more than offset the cost of providing this everyday discount to our cardholders.”
The company said it expected the new rewards program to add up to one percentage point to comparable-store sales for the fourth quarter of 2010, with little impact on earnings, and to add as much as one to two percentage points to same-store sales in 2011.
The new rewards are expected to go into effect nationwide in late Q3 2010 or early Q4, in time for holiday shopping.
Target’s self-management of its financial services has become a point a contention in recent years among shareholders who worried the company would be left holding growing amounts of bad debt. Revenue for the company’s credit-card business was down last year to $1.9 billion from $2.06 billion in 2008.
An analyst note from Jeffries & Co. found that the new rewards system has “very favorable” economics. “We think it will serve as a fantastic marketing tool given the size of the discount,” the investment firm said. “The new program is likely to result in a greater portion of sales occurring on Target credit and debit cards.”
