My wife loves Target (she and her friends use the French pronunciation). It appears the chain store is going to provide a flat 5% discount to customers using the Target Credit Card starting this fall.
Target tried the discount at some locations in Kansas City and found it increased sales. So the company will launch the program nationwide this autumn. This is a substantial discount, especially for savvy shoppers who couple this discount with coupons. If you do a large portion of your shopping at Target, you may want to look at getting the card.
The big question is how long will Target offer this sizable discount. During the economic downturn, Target saw credit card charge offs rise to 15%, which is extremely high. If this 5% discount encourages more consumption, it could lead to high charge offs and offset the increase in store sales. Since the credit card division hurt the company previously, why do the executives think it won’t in the future. This doesn’t pertain just to credit cards. The auto dealers are already back to the 0% financing, which was a large factor in the hardships of the auto manufacturers. It appears many of these parties haven’t learned their lesson.
Credit, in particular cheap credit, is not a problem during good times. People are able to handle the cheap credit payments. However, cheap credit induces higher spending (and lower savings) so when a downturn hits the default rates are substantially higher as consumers have way too much debt. Considering our debt levels have not receded much since 2008, any company expanding credit at this time is playing with fire.
That said, I will probably get a Target card since it is my wife’s second home.