Thursday, September 6, 2007

The obsession with department store cards

It seems like just about every retail store, big and small, is getting into the credit card business. This is no surprise. All a store needs to do is team up with an existing issuer, negotiate a percentage, and hawk the card in their stores to their hapless customers. Who wouldn't want to have a hand in a 30 billion dollar cookie jar?

These cards, as well as their VISA counterparts (which most of them are converting to anyway) represent clear profit. The benefits are immediate. I will use Target as my example, since I recently witnessed something there that surprised me.

Target originally went through Household Financial, as I recall. Now apparently they have either a new division or their own in house financing called Target National Bank. Anyway, by teaming up with a bank they can negotiate or eliminate many overhead charges associated with using plastic at their POS stations, namely interchange fees. Further they get to earn interest on the purchases long after the sale is finished for those customers who carry balances.

That 10% discount they offer? Assuming they have their interchange fees (2-3%) waived and/or the corporation earns commissions from the issuing bank for the number of accounts they open, they've already recouped that loss. If you include the average markup on these items, the store is still making money even with their 10% discount.

So it is no surprise that every time I end up at the Target checkout lane, I am asked to sign up for their card. But we're not the only ones being harassed on a regular basis. Imagine working there!

Back to my experience. I was in Target and noticed a large group of redshirts in a circle dominating a clothing aisle having some kind of meeting. What caught my ear was that they were talking about the Target credit card. Apparently this Target wasn't meeting its quota for the day, so the manager was going around the group asking the employees if any of they had the Target credit card.

At the end (this all happened very quickly) the manager started in on how valuable the card was to the company and that all those employees who did not have a card (he pointed out a couple) should sign up that day and they would get 20% off their purchase, instead of the regular 10%. He then passed around a clipboard (presumably the same one the employees carry around asking customers to sign up).

Imagine! Working at a store and being forced to sit through a meeting where they point you out for not having a credit card and then being coerced on a regular basis to fill out an application.

And Target? It's the clear winner here. From my very short eavesdropping on their meeting I gleaned the following information:

  • Employees get 20% off when they open a new card, not just 10% like the customers
  • Stores have daily quotas they must meet for these cards
  • All employees go through a hard-sale of the card during their employment
  • Employees get some discount just for being employees (they did not say what amount in the meeting) but don't get their discount if they use a debit card or a credit card other than the Target VISA.
  • Store "meetings" will sometimes in reality be sales pitches for high interest credit cards
Shame on Target, I say! Their employees make barely above minimum wage and - in their demographic of low-income families and college students - are more likely to carry balances and be in credit card debt.

Stores used to offer discounts to their employees as a perk. Now the discount system is designed to earn more profit for the company by coercing their employees to run up debt on their affiliated credit cards!


Jim said...

I beg to differ when it comes to store cards. Some of them can be useful but the discount alone is not worth signing up for one. Store cards also have very bad interest rates, 22%+ most of the time.

When I worked at Sears and they suggested that employees sign up for the store card to help bump numbers for the month. Being only 19 at the time I didn't have a problem with it. I still have the account though even though I don't really use it for anything but major appliance purchases where I get 12 months no interest no payments. Instead of just buying it with the money, it sits in a savings account earning interest and will be paid off before the deal expires. Guess I'm taking advantage of them now.

I also opened a JCPenny card for a 25% discount when I bought a suit. It was already on sale to begin with, on a Saturday offering 15% off, and 10% off if you opened a JCP card. I opened the account, instant approval, charged my suit, and paid off the account. They wouldn't let me close it on the spot because I needed to receive the card first. When I received it I called them up and closed it right away.

Beyond the Consumer said...

Nice discount!

I really don't think it should be pitched so hard to the employees, though. There's just something sleazy about it.