Target Tightens Credit Terms More for Card Holders

Thursday, 23 Oct 2008, 8:42 PM EDT

NEW YORK -- Target Corp., facing slower sales and rising delinquencies in its credit card business, said Thursday it's further tightening finance terms for its card holders -- even those with good standing.

The discounter also may become even more stringent if credit conditions keep deteriorating.

Executives told analysts at the company's annual investor meeting, held in Minneapolis, that it was tightening terms for all customers, from high-risk to safer customers, who live in areas such as California that have suffered the biggest blow from the housing slump.

Target is also moving quickly to tighten standards for inactive cardholders who suddenly start using their card again, who may already be struggling, company officials said. It's also being more aggressive in collection activity. Reflecting the overall tightening of credit in the marketplace, Target noted that it's seeing lower credit card usage among its shoppers for the first time since 2001-2003.

"This is a clearly challenging time," said Terry Scully, president of Target Financial Services, citing higher credit card delinquencies in areas like California, Arizona, Florida and Nevada. "This economic stress has resulted in reduced profitability."

Target executives stressed that one of the top priorities was emphasizing the "pay less" part of its "Expect More, Pay Less" slogan; the retailer said it will focus on price in its holiday advertising. That follows rival Wal-Mart's earlier move to renew its focus on prices.

Still, Target is not backing away from trendy merchandise from emerging designers; instead it will play up the offerings as attainable luxuries. Meanwhile, in an effort to fuel customer traffic, the company is testing in Minneapolis a new concept that is a hybrid between its regular and Super Target stores. The general merchandise store will offer pre-packaged perishable food such as bagged lettuce.

The cheap chic discounter faces a sales slowdown as frugal customers focus on necessities like groceries and diapers, instead of trendy clothes and housewares, its forte. With more than 40 percent of its revenue coming from nonessentials, Target said it is more vulnerable to the economic slowdown than competitors such as Wal-Mart Stores Inc. and Costco Wholesale Corp., which have a higher penetration in food and other basics.

Target reported Wednesday that its annualized net charge-off rate rose to 10.1 percent in September. The company said Thursday that it expects its net write-offs as a percentage of receivables for the full year would be around 9 percent, up from the 8 percent to 9 percent it estimated in August during its last earnings conference call with analysts.

Amid such challenges, Target's share price has suffered -- losing half its value since trading about $70 in July 2007, with the drop accelerating along with the broader market since the financial meltdown intensified last month. Target's shares rose 52 cents to close at $33.93 on Thursday near its 52-week low of $33.96.

The retailer also said it would open new stores at a slower pace in fiscal 2009 and 2010. John Griffith, executive vice president of property development, told investors that Target was planning to open 70 net stores next year. That's below the company's annual average of 90 to 100 stores.