Target Credit Card Net Charge-Offs Rise to 8.1% Annual Rate
Submitted by
CalculatedRisk on Tue, 04/22/2008 - 6:15pm (85 comments)
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Thanks for the free flat screen.
Charge-offs from Target? Cripes, the 99 cent stores are probably next...
I guess folks are just living up to Target's jingle, "Expect More. Pay Less."
It must be Friday. Those numbers suck but I remember several times during Christmas people were trying 2-3 cards before one would work. On the bright side though 91.9% of people are paying.
whoocoodanode?
When GE got out of the US credit card business by selling it to AMEX - you knew the game was up - the indefatigable US consumer continues to remain resilient.... NOT! still long AMEX, MA and V? Whoo hoo! Buy, buy, buy!
So I suppose this means lay offs at Red Dot. Whocoodanode?
I guess they are the next to say no new stores this year
I guess folks are just living up to Target's jingle, "Expect More. Pay Less." Classic
Remember back a couple months when target was going to sell their credit card biz- to help them do something -grow the company or buy back stock or buy more red and white paint. Everywhere I go there is a #%%#* target store. Target is the bullseye in more ways than one of what's wrong with us. Cheers
I said last year that the consumer would keep spending until they pried those cards from dead cold fingers... well it looks as though some of these merchants are looking about for meat cleavers & bolt cutters... to get their cards back.
BTW - as a Minnesotan you can't walk a block in any direction without running into a Red Dot. I've shopped at'em all. It is virtually impossible to walk in and out without being solicited to apply for a card... I mean run in to use the John & they meet you at the stall with an application - lousy too, real stiff & non-adsorbant. I have gone in there as grimy & white trash looking as anyone here can imagine - having been camping or fishing or mowing lawn - and still had them try to throw cards at me.
This result is no surprise at all. They been askin' for trouble for a long time. Ask and ye shall receive.
No-interest, no-payment businesses (e.g. Best Buy) will also face some challenging quarters ahead.
When parent company White Front Stores, Inc. filed for bankruptcy in 1975 and then went out of business, the locations were changed to Two Guys, another discount chain. Two Guys soon failed as well and the stores became relabeled as FedMart stores, the precursor to Target Stores.
The present-day Target store in San Bernardino, California sported the archway across its façade for many years until a recent remodeling.
White Front - Wikipedia, the free encyclopedia
"By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law ... The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." -- Mark Twai
"run in to use the John and they meet you at the stall with an application...." Classic
"but at regular periods..."
oh Mark....
No-interest, no-payment businesses (e.g. Best Buy) will also face some challenging quarters ahead.
Best Buy & Target. Both Twin Cities retailer. Completely incestuous - a virtual revolving door for retail middle managers. Hell they don't even have to move - just change color schemes.
Ya I would expect Best Buy to have some issues too.
heh, i thought the 'white trash lookin as any of you' comment was the best one.
wait, it wasn't exactly like that...
for a guy like me, the best buy zero interest same as cash for 6 months or 12 months or whatever is great. its like a major discount on the purchase.
i mean whats the consensus here on inflation, 22%?
I guess they are the next to say no new stores this year
I wonder if there is a geographical distribution to where those bad charges are occurring (and if certain stores are more likely to be closed).
dc1000 - shit never thought of it that way, debt averse fool that I am...
It is virtually impossible to walk in and out without being solicited to apply for a card
K-Mart is pushing Sears cards real hard.
All this nasty econ news today and another low volume yawner in the markets. Throw in food shortages and higher oil/gas prices just for fun. Investors are numb to it all. Amazing.
i mean whats the consensus here on inflation, 22%?
dc1000 | 04.22.08 - 10:46 pm | #
Real inflation or 'official core' inflation? Real inflation might hit double digits... Core? Howabout 2.9? You know excluding stuff you buy.
FDX
UPS, FedEx Decline Points to Continuing Recession (Update2) - Bloomberg.com
UPS, FedEx Decline Points to Continuing Recession
The volume decreases for the two shippers confirms ``the outlook that we are projecting for the rest of 2008 as being very bleak,'' said Satish Jindel, president of SJ Consulting Group Inc. in Sewickley, Pennsylvania, whose clients have included UPS and FedEx.
FDX
FEDEX CORP Share Price Chart | FDX - Yahoo! Finance
I wonder if there is a geographical distribution to where those bad charges are occurring (and if certain stores are more likely to be closed).
RayOnTheFarm | 04.22.08 - 10:47 pm | #
They are big time in suburban sprawl America. I mean go find a mega-development where they are having walk-away problems and you'll see people buying lotsa storage containers using Target cards. Connect the dots.
"Inflation consensus"
What's your net worth in Euros?
Obama got smoked tonight...
not that i care
There's a big private equity stake (Pershing Square IV) in Target as well. It's a special investment vehicle that's supposed to turn the company, or at least its assets, around through an activist shareholder strategy by 2010. Looks like the limited partnes will be scavenging for an out before then. Should get nasty.
What's your net worth in Euros?
Noble
Less than it used to be, more than it will be:(
Any ideas on BBY would love to see them go down in flames.
Craig, stop giving this s*** away for free, Please.
eBay Suing Craigslist: Tech Ticker, Yahoo! Finance
eBay Suing Craigslist
When all the big time spenders finally are maxed out to the moon, I suppose it will be down to cheapos like you and me
Geez, marketing, when done correctly, really works well.
Target disappoints me. With a French name, they still can't make it happen.
I must be the anti-trend! Got a mortgage with Nat City 6 months ago that I pay 2 weeks early, 20% DTI - there're in the crapper. Paid off a medium size balance at Target a year ago and decided to go debit 3 months ago - there goes Target . Who can I take down next? The Discover and a few Visa's are in a drawer, the debit card has a MC logo...
Roubini called this one.
One wonders, then, why Target persists in having its clerks offer every shopper a credit card application on checkout (and spend 10 minutes, with me fuming in line, completing it).
I've got news for you, Target: if you go out of your way to put credit cards in the hands of people who don't even want them enough to ask for them, you're gonna end up with high default rates!
for a guy like me, the best buy zero interest same as cash for 6 months or 12 months or whatever is great. its like a major discount on the purchase.
On the occasion that I make a major purchase, I've taken to, after settling on the price, asking "do you have a same as cash payment plan?" Actually I don't usually have to ask as they volunteer this during the sales pitch. I then follow up with "then would you be willing to give me a discount if I pay cash right now?" Usually, sometimes after consulting a manager, they say yes.
From Target's June '07 10-Q:
Our credit card program strategically supports our core retail operations and remains an important contributor to our overall profitability.
The net charge-off rate back then was 6%, up from 4.7% y.o.y.
At 3.39 a gallon nationally for gas, the monthly nut for fuel purchases ranks right up there with the avg monthly payment, around 360.
Huh?
"Investors are numb to it all. Amazing."
Why should they be concerned? President Bush just announced we're not in a recession it's just a "slowdown." Meaning Americans should shut their whiny pie holes and get back to the business of running up balances on their Target cards. And after they put the new shinies in the closet they can trip merrily down to their lenders and bring the mortgages up to date.
U.S. Gasoline and Diesel Retail Prices
I've got news for you, Target: if you go out of your way to put credit cards in the hands of people who don't even want them enough to ask for them, you're gonna end up with high default rates!
Specially if they offer them to people who look like me - at least on weekends or when I'm working the phones from home. Even I wouldn't offer me a card lookin' like that... someone that scuzzy should be required to pay cash (and have the nice girl swipe the money with the funny orange pen first).
Want to send some of that out to SF bay area? We're hitting $4 on the low grade, and over $4 on the other two, and it ain't even summer yet.
I know wal-mart is keeping its head above water, but at what point do we start seeing their CRE writedowns?
I've seen a lot of regular walmarts in bubble regions replaced by supercenters without unloading the priors lots. Going into a CRE crash, they're as screwed as Sears except sears already unloaded a chunk of inventory.
Credit cards have been hugely profitable for Target because they just gouge the hell out of their customers.
In 2007, according to annual report, they had average credit card receivables of $7.275 billion.
They earned finance charges of $1.308 billion.
And they collected "late fees and other revenues" of $422 million.
So, as a % of average receivables, their customers paid 18.0% interest on balances and 5.8% late fees and other revenues for a total of 23.8%.
Were all these charges collected in cash? Of course not. Average receivables increased from $5.544 billion in 2005 to $6.161 billion in 2006 and to $7.275 billion in 2007.
They were just rolling up sky-high interest and fees into bigger credit lines for their customers. What a great way to grow a merchant card business.
I've seen a lot of regular walmarts in bubble regions replaced by supercenters without unloading the priors lots. Going into a CRE crash, they're as screwed as Sears except sears already unloaded a chunk of inventory.
Alec | 04.23.08 - 12:20 am | #
Alec - I've seen some of that too but most of the old WalMarts were pretty well 'depreciated'. I don't think they have a lot of skin there.
I also don't think WalMart is a vulnerable to the card losses as is Red Dot... I mean does WalMart even offer a credit card?
OT-
Mike Whitney: Enough With the Rate Cuts, Already!
Good article.
They were just rolling up sky-high interest and fees into bigger credit lines for their customers. What a great way to grow a merchant card business.
rich | 04.23.08 - 12:22 am | #
And still their customers love them. Red Dot shoppers are for the most part insanely loyal to the Dot. It drives WalMart execs nutz.
BTW - being from Minnesota I look at the Red Dot like it was the 'Big Red Eye' in 'Lord of the Rings' - its everywhere. But maybe that's just me.
Late-night devil's advocate: does a store like Target have to worry about practicing discrimination in deciding whom it does and does not offer credit cards to?
(Sorry, suspect that sentence was a grammatical disaster as well as borderline incomprehensible.)
8.1% is a rate, not an amount. Does it matter if it's monthly, quarterly or annual?
This is great news for the economy. Just think how many jobs will be created by the explosion of growth in the debt collection industry.
Oil Equations writes:
At 3.39 a gallon nationally for gas, the monthly nut for fuel purchases ranks right up there with the avg monthly payment, around 360.
O.E., Krugman just posted a historical graph on his blog that seems to show that, in real terms, oil is as expensive now as it was in the 70's oil crunch.
That's another skewer to the ol' consumer.
Energy futures of the past - Paul Krugman Blog - NYTimes.com
BTW- dryfly, that mention of paper absorbency made me wince with the memories it brought back. I was just helping clean out my Gran's old place up in northern MN last weekend. She had an old two-holer that Dad would force us kids to use if we got too dirty for inside or started whinging too much.
Obama got smoked tonight...
What good is winning a battle when you've already lost the war?
Whoops. That anon was me.
Andrew,
Mid-grade & Premium are both over $4 here in SoCal; regular can't be far behind. I'm still waiting for the freeways to lighten up...
TJ,
They have lightened considerable in the DFW area
I gets my 10percent off o Target card and 10percent off o JCPenny Card and then I slash them cards up.
"neither a borrower or a lender be" is my maxim
Hmmmm. It starts at Target. Where does it go next?
I propose a new moniker for the type of recession we're in...instead of a "Consumer-Led recession", how about a "Bottom-Up Recession"?
Sub-prime borrowers defaulting has led to Wall Street job losses. It is also creeping up the home-value ladder as trade-up home purchases become impractical (at least until higher-end houses drop in price).
All we need now is for the squeeze on low-income and mid-income consumer to cause equity prices to drop further, and we'll have wealthy individuals feeling pinched as well.
The plankton are pinched. It's only a matter of time before it ripples up the food chain.
The trickle-up economy--it's payback for all those years of trickle-down.
Hey New York clean the street.
Page not found
Don't worry, it's already priced in!!! In fact I bet target gets a 1.5% bump to the upside tomorrow!!!
Oh, and this March write-off is for cc debt that was probably delinquent since summer 200t, BEFORE the credit collapse in August.
OT from another thread:
dashingdwl writes:
Moody's downgrades Downey to Ba1, negative outlook
New York, April 22, 2008 -- Moody's Investors Service downgraded the senior unsecured ratings of Downey Financial Corp. to Ba1 from Baa2.
Downey Saving and Loan Association's bank financial strength rating was downgraded to D+ from C-, long term deposit rating to Baa3 from Baa1 and short-term deposits to Prime-3 from Prime-2. Moody's placed a negative outlook on all Downey entities. This action concludes the review that began January 24, 2008.
dashingdwl | 04.22.08 - 6:14 pm | #
can someone add some color to what this might mean to dsl?
I've seen a lot of regular walmarts in bubble regions replaced by supercenters without unloading the priors lots.
Many of the old ones get subdivided into 2-4 spaces. Tractor Supply Company seems to be a popular use. A few Goodwill stores are well. The one common factor always seems to be some use that will not significantly compete with any of the core cash flow areas that WM operates in.
One wonders, then, why Target persists in having its clerks offer every shopper a credit card application on checkout (and spend 10 minutes, with me fuming in line, completing it).
I want to see that one explained in detail. Along with why Citi keeps sending a steady stream of cash-advance checks / balance transfer checks that I have no interest in.
I'd think that these operations would be pulling back, guess not. Perhaps debt makes them more money than selling actual goods.
Clerks offer it because it is still profitable.
The financing opportunities Target offers to its customers are probably the least incredulous of any retailer around.
Target, for all its imperfections, is still one of the best retailers in terms of price, customer treatment, and compensation packages available to its employees.
For all that can be said about Bill Ackman,
His huge stake in Target which he's been quoted as saying is worth over 100$/share will take away from his guru status attained by shorting bond insurers.
Whats wrong with debt when you know that the dollars you'll be paying with 5 years from now will be worth less ? You can use debt for all kinds of things...not just consumer spending.
Holy Anbac! share price $6, loss $11 per share.
United States : MBA Purchase Applications
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Released on 4/23/2008 7:00:00 AM For wk4/18 , 2008
Purchase Index - Level
Previous 381.6 \tActual 357.3
Highlights
The mortgage bankers' purchase index fell 6.4 percent in the April 18 week to 357.3, pushing down the four-week average to 369.9 and signaling continued weakness in the housing sector. The refinancing index fell 20 percent to 2,286.3. Despite the Federal Reserve's moves to cut short rates, loan rates are moving mostly higher with 30-year fixed mortgages jumping 30 basis points in the week to an average 6.04 percent. Yesterday's existing home sales report showed continued weakness in March. New home sales will be released tomorrow.
Huge number of announcements due out tomorrow...
Durable Goods Orders 8:30 AM ET
Jobless Claims 8:30 AM ET
New Home Sales 10:00 AM ET
Help Wanted Index 10:00 AM ET
EIA Natural Gas Report 10:30 AM ET
Money Supply 4:30 PM ET
Get the popcorn ready, Neil
When parent company White Front Stores, Inc. filed for bankruptcy in 1975 and then went out of business, the locations were changed to Two Guys, another discount chain. Two Guys soon failed as well and the stores became relabeled as FedMart stores, the precursor to Target Stores.
this is somewhat misleading and incorrect
Target was founded by the Dayton Family here in Minneapolis. (it was a subsidiary of Dayton-Hudson company until recently when the company changed its name to the Target brand and then spun Target off).
It was started in 1962. Store #1 is in Roseville, MN, right off Snelling Ave near the Roseville Mall.
Target did buy Fedmart in the 1980's and converted them to Target stores... but Fedmart was NOT a precursor to anything... they were purchased and then changed.
(sort of like how Dayton's was sold to Marshall Fields which has now been sold to Macys... Dayton's was not a "precursor" to Macys... in fact I mourn the loss of Dayton's and Marshall Field's, both 100x better than crappy Macys)
TOKYO - Likening the U.S. credit crisis to a broken bathtub draining water, Japan's financial services minister urged Washington on Wednesday to inject public money to fix the problem before it gets worse.
Sounding almost alarmist, Yoshimi Watanabe used unusually blunt language to warn that drastic action was needed to address the crisis that has battered global markets.
"If there is a big hole in the bottom of the tub, no matter how much hot water you keep adding, you will never have enough hot water," Watanabe said in an interview with The Associated Press.
Fixing the leak requires "an overall package, including monetary policy and public money," he said.
As the subprime fallout grows, the idea of a public bailout isn't sounding as far-fetched as it once did.
(From MSNBC this morning)
Hasn't sounded farfetched to readers here for a long while.
I would also be curious if the problem is wide spread or concentracted in same five or so states with the housing mess. I am in a small town north of Houston. They are building them coming north as fast as they can.
I just got this "personal" offer by e-mail. Too bad it had expired before I received it. I hope I'm not betraying a confidence by sharing it with all you. I smell panic on every line.
"Upon receiving the offer, you will have 72 hours to take advantage by writing a purchase agreement in one our communities.
Its obvious you have been waiting for the perfect time to buythat time is now! Never have prices and interest rates both been at all time lows. The positive media attention regarding the lowered interest rates and the governments new Stimulus Package brought a record breaking number of new prospects in our doors! We want to give you one last opportunity to take advantage of a fading buyers market before we start raising our prices again to meet the rising demand. We are getting back to the days when customers fight over lots and try for the earliest appointment to ensure they buy before the price goes up or incentives go away. You are being offered an opportunity of a lifetime. Buy a new home at the best price while interest rates are at all time lows. We look forward to speaking with you on Monday, April 21."
Sincerely,
Kelly Fuerst
Internet Sales Administrator
Ryan Homes * Virginia & West Virginia
Dark pools (not oil).
REG - Financial Week
Have we peaked?
321energy :: Are We Nearing The
Peak Of Fossil Fuel Energy? :: Simmons & Company International
Just a note in Target's defense: my son works there, in retail, and they treat their people much better than those at the Other Big Box. They also train them considerably better.
If you're going to work retail, there are much worse places.
Oh, and it's not "Tarzhay." It's Target with a hard "g." It's not a French name, Oprah notwithstanding.
UPS reported this morning.
UPS profit dips, cites sharp decline in economy
Yahoo! 404 - Page Not Found
Best,
I was away for a couple fo days and did not look at this website. There has been a staggering amount of bad news over the past few days. Since bad is good, I expect a 300 point rally today.
Bloomberg News
ah yes. a breath of fresh air.
The consumer has had it....the defaults are going to be monumental in the coming months....let see keep food on the table, put gas in the car, keep the house warm, and keep the lights on,...credit card bill....screw it!.
Target, because it has worked harder on merchandising and service, appeals to a somewhat better off demographic than Wal-Mart (or so everyone thought). The fact that its customers are tanking on credit is a bad indicator about middle class America.
Target has proportionally far fewer supercenters than Wal-Mart and, with consumers cutting back on softgoods and sticking to food/basics, Target is going to have a much tougher time in leaky tub America than Wally. [I see Target putting more and more food in regular Targets, but it really isn't the full supermarket experience.]
Wal-Mart has offered credit cards for some time, particularly at Sam's. For a while that was all they would take (except for cash) at Sam's. Roughly a year or so ago, Wal-Mart gave up on acquiring or developing banking for Wal-Mart stores. Instead they said they would offer debit cards. This may prove to be a very shrewd decision. Wal-Mart has some of the best retail people on board (at headquarters). Sometimes they make a misstep, but they figure it out and adjust/repair. I expect a lot of distress in the retail area, but not particularly for Wally.
Like Groucho Marx, Dryfly would not join a club willing to have him as a member.
BoE now accepts UK credit card (bundled) loans in exchange for govt paper...this should be interesting!
but Fedmart was NOT a precursor to anything
Yeah, but Sol Price who sold FedMart, then started Price Club, and a couple of his proteges bought Price Club and expanded their Costco brand. Small world.
I clearly remember when Target raised their earnings estimate because they saw so many more customers switching to credit cards.
Are these people really that incapable of seeing the obvious.
I haven't paid attention to rates of charge off before, so I don't have any feeling for it, but I'm still feeling surprised anyway at that figure. No wonder card interest rates are high!
I can't help but think most of the defaulted borrowers thought they might be able to afford those purchases originally. Perhaps they were thinking of HELOCs, but....well....
Did anyone else notice how huge the 4 months missed payment category was? It was $244million. I wonder what percentage of 4 months delinquent gets charged off. I imagine a very very large portion of it.