Target Puts Card Receivables Up for Sale

Discussion
Jan 17, 2011
George Anderson

Target’s announcement last week that it had reached a deal
to move into Canada took up much of the headline space for the retailer. It
was far from all the big news coming out of Minneapolis, however.

The company,
which has gone back and forth on selling its credit card receivables in recent
years, has decided to do just that. According to the Star Tribune,
Target has hired First Annapolis to help it find a buyer for its $6.7 billion
in receivables.

Target sold 47 percent of its card business, then valued at
$8.1 billion, to JP Morgan Chase in 2008. At the time, CFO Doug Scovanner,
equated it with the Dire Straits song “Money for Nothing.”

Target
intends to maintain operational control of its REDcard business. In October,
the company introduced an automatic five percent discount on all purchases
made in its stores and on Target.com for consumers using the card. The retailer
has said it expects the card to add one to two percent to same-store sales.

Jeff
Klinefelter of Piper Jaffrey told the Star Tribune, “Now’s
a good time to go ahead and do it (sell receivables) and become entirely focused
on retail.”

Discussion Question: Do you agree or disagree with Target’s decision to seek a sale of what remains of its credit card receivables?

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7 Comments on "Target Puts Card Receivables Up for Sale"


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Doug Stephens
Guest
Doug Stephens
10 years 3 months ago

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!

Susan Rider
Guest
Susan Rider
10 years 3 months ago

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.

Roger Saunders
Guest
10 years 3 months ago
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… Read more »
David Biernbaum
Guest
10 years 3 months ago

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?

Mark Burr
Guest
10 years 3 months ago

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?

Bill Hanifin
Guest
10 years 3 months ago

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.

Kai Clarke
Guest
10 years 3 months ago

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.

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