Target Puts Card Receivables Up for Sale

It's a move that would give a Chartered Accountant nightmares but I agree with the philosophy. The lure of credit as a business model has caused more than a few retail companies to take their eye of the real ball--that being their store business.

I admire Target's focus on what got them where they are today. Retail!

Doug Stephens, President, Retail Prophet

I agree with Jeff. Many times there is danger in becoming too widespread on focus. Retail is hard enough and takes great execution without adding the complexities of being a finance company.

Susan Rider, President, Rider and Associates, LLC

The timing is right for Target to exit this portion of the business. Pershing was pushing them to take the steps 20 months ago. Target remained calm, and didn't reduce its complete position in cards at a fire-sale. Sound thinking at the time.

The consumer has stepped through a great deal of de-leveraging, just as businesses have, in the past 2 years. Payment by credit cards actually increased in the final 4 months of 2010 vs. 2009, just as the Consumer Intentions & Actions (CIA) Survey had forecast. Consumers living in households earning $50,000+ are maintaining that when making purchasing items for gifts, in December there choice of Credit Cards was up sharply from December, 2009 - 41.0% vs. 23.4% in 20009. Cash payments preference dropped to 15.9% vs. 29.8% in '09, while Debit transactions lowered to 39.6% vs. 45.7% for last Holiday's gift shopping.

At the same time, 47.3% of those Households of $50,000+ are paying Credit Card balances in full, vs. 27.8% in December, 2009. And, those who are only paying the minimum has dropped to 7.6% vs. 14.9% last year.

The consumer is not likely to be willing to rush back to excess debt in the next couple of years. And with government regulations and hungry attorneys poaching around hiccups that may pop up with the new regs, this is the time to step away in a fuller fashion. Store cards continue a flat pattern, and the big boys of Visa, Mastercard, Discover, and American Express work with the banks and consumers for a living...let them do their thing.

Target will do nicely focusing on retail, and expansion to new climes, like Canada.

Roger Saunders, Managing Director, PROSPER BUSINESS DEVELOPMENT / BIGinsight

Now is indeed probably a good time for Target to sell receivables and become entirely focused on retail, however, I still wonder about the back and forth on this issue and why Target decided to be in the card business in the first place--and what was truly expected?

David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

It's about cash, cash, and only cash. It's also about the business you are in and the business you are not in. Nevertheless, the decision is purely about cash, cash, and only cash. But, that cash will assist them in doing the business they are really in and focusing on it. Yet that's not the point. It is about cash, cash flow, cash in hand. Cash. Did I mention cash?

'Scanner'

Target is taking an appropriate step to work with a highly credible firm (First Annapolis) to validate their published business decision and then to value and package for sale its portfolio.

The implementation of the Card Act of 2009 changed the game for all card issuers, but in particular had impact on issuers of private label cards. Some key revenue streams were restricted or eliminated and the challenge to maintain profitability was amped up, making cards a better fit for organizations that place focus on cards.

While private label credit cards have a place in the economy, that place is narrowing and the horizon for this product is coming a bit closer into sight.

Bill Hanifin, Managing Director, Hanifin Loyalty LLC

These cards represent an entirely different, and profitable business model. Target's decision to get out of this card is very smart, as they focus on their REDcard instead. It will be difficult to sell this product, given the changes that Target is making to its REDcard. If Target can sell this part of their business for this amount of money, good luck to them. I doubt that Target's valuation of this business will reflect the amount which a buyer will end up purchasing it for.

Kai Clarke, President, Miraclebeam Products, Inc.