Retailers Like Target May Be In Trouble As Consumers Run Out Of Money
Forbes says that Wall Street is starting to be concerned about Target because of an increase in the amount of delinquencies in its credit card operation. Uh oh...
Target has 25% of its stores in areas that have been slammed by the subprime meltdown, and the percentage of its customers who are not paying their credit card bills on time is um, kinda high...
"Target has 25 percent of its stores in states that have experienced excessive mortgage delinquencies compared to the national average," PiperJaffray analyst Jeffrey P. Klinefelter wrote in a client note.
G.E. which runs the private label credit cards for Walmart, IKEA and Lowe's wants to sell the (still profitable) division, but isn't having much luck as delinquencies rise and the pace of consumer spending slips, according to the New York Times.
Meanwhile, another report suggested that consumers will see lots more store closings in regional malls due to crappy sales and a weak back-to-school season.
Target declines as analyst downgrades it to 'Hold' [Forbes]
Fitch: Regional malls may see more store closings [BusinessWeek]
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Perhaps if they weren't so easy to get in the first place?
Are credit cards the next sub-prime mortgage bubble? Stay tuned.
@MercuryPDX: I agree so much with that statement...every time I'm at Target, or a department store, the salespeople try to sell me their credit card, with the premise I'll get 10% off my purchase. 10% off a purchase now can mean hundreds of dollars in heartache and financial mess later, since credit cards are a privilege, not a right. Credit cards are for people who have proven that they can handle their money as to not get themselves into debt. Smart people also know that having 10 credit cards is generally a bad idea, and store credit cards tend to have much higher interest rates. It doesn't surprise me there are a lot of delinquencies on Target cards.
@MercuryPDX: seriously, maybe more stores shouldn't be so willing to offer store credit cards. because as we're seeing, it's not working. our economy is based on debt, and it's pathetic.
credit cards/loans/borrowing should be more difficult to obtain. but, that hurts people's feelings.
Oh no! I LOVE Target. I shop there once a week, even with their terrible returns policy. It's not my first choice for electronics, but for little everyday things it's a great store. (And a lot less evil than Wal*Mart!)
In the lunch room today, there was some talk about running up the cards and then going Chapter 7. Some of my coworkers figure that as the sh!+pile gets bigger and bigger, they might as well live well. Sigh....
@IHaveAFreezeRay: Keep in mind that Target has a store card that can be used in store only, and another one that's just a regular Visa that can be used anywhere. My mother has the latter and its interest rate is pretty reasonable.
I'm wondering if this article is talking about one or the other, or both.
@postnocomments: you know, I'm actually surprised that credit cards weren't the first sub-prime mortgage bubble...
wait... that didn't sound right..
but you know what I meant. Especially when its way easier and less traumatic to default on a credit card than a home loan.
@allthatsevil: I didn't know that having the store card was still an option. I had the store card and they switched it to the Target Visa a few years ago without even asking if I wanted it.
Whichever card it is, there's always a bank or a finance company behind it.
Huh. That kinda explains why the Target in Lauderhill is all kinds of quiet. Well, at least for five in the PM, at least.
It's the end of the world as we know it!
Target is too big to fail though, they may have to close some stores and stop store branded credit cards (which are a bad idea to begin with in my opinion) but they won't fall from this just like Best Buy and walmart won't fall from this although I'm betting retail in general is wishing they were making the profits they were making a few years ago right now.
Hey, at least if this keeps happening I won't get bugged to "sign up for our credit card" at every damn store I shop at. No, I don't want your crappy credit card. No, I don't care that you'll give me 10% off.
Although I think the worst was my freshman year of college - this was 2001, pre-9/11, and lemme tell ya, there were people setting up tables all over campus during freshman orientation and at least three quarters of them were those crappy low-limit, ultra-high-interest credit cards. Needless to say, even as a destitute clueless college freshman, I knew better than to sign up for any of those cards. But with that kind of interest rate and the basically 100% approval rate it's no wonder college kids have so many credit card problems!
I'm really starting to pay attention to what I NEED v. what I WANT.
The needs are winning. Also helps w/ decluttering the house, not that I'm anywhere near there yet. I haven't even opened the Target sales flyer for the past two weeks, and when I do go, I make a beeline for the clearance rack.
I was in line at a Target in Milwaukee last week when the person in front of me had her Target card declined.
I though it was kind of weird how the customer and the clerk were so matter-of-fact about it. (The customer ended up paying cash, and neither one acted embarrassed or annoyed.) Maybe that scenario is more common than I realized.
I have no real point here, do I?
This was expected. Where else to turn when your ATM (a.k.a. homeowner line-of-credit) runs dry?
@MercuryPDX: especially at target - i've referenced this article before (when we were all discussing wal-mart's bid for an ILC) - it's from 2 years ago & it was already predicting a "meltdown" of target's cc division --> [www.businessweek.com]
target has more problems than your average department store b/c they were financing their profits - search some 2006-2007 articles about target credit cards or target bank & you'll see what i mean. 15% of their income was from their cc division. 30% growth rates (more than double the average for the industry). stories of people who had piss-poor credit getting approved for $5,000 cards. when they maxed them out & couldn't pay them, target would boost the limit to $10,000.
they unloaded the bulk of their portfolio earlier this year, but considering such a large amount of their profit was due to that portfolio, you have to wonder what they'll do to make up the difference. [insert layoffs, store closings, & price increases here]
I could have wallpapered a small room by now with the receipts I've received stating that I qualify for a Target credit card. I never could figure out *why* I would need a Target card. What kind of person needs to finance their grocery shopping or the purchase of tee-shirts?
So, if Target (and others) have finally angered the Gods of Finance, and their policies are finally coming back to bite them in the butts, good.
It's about time.
I don't get it... is this a small but material number of people with this problem, or is this the bulk of America???
I carry $0 in debt, own a nice car, have investments, and enough cash to go 6 months without a job... all with a career obtained with a Bachelors degree - why are there so many rampant money management problems making the news?
@JamieSueAustin: you know, i think our perception of credit (scoring) has a lot to do with that. i honestly think there are people that were more concerned about defaulting on 4 or 5 credit cards than they were about losing their HOME! i can only imagine that they think 1 foreclosure doesn't look as bad as 5 delinquent cards (i dunno, maybe it doesn't).
just today i was speaking with someone who wanted to refinance their car into a better rate but was trying to do so without a hard pull on their report - i tried to explain to them that the hard pull only had a nominal effect & i might be able to save them ~$3000 in interest payments (6.5% c.u. financing vs. 15% dealer financing). he said no & walked out of my office b/c he was so concerned about his score.
what's the point of grooming your score if it doesn't get you what you want & save you some $$$ along the way?!?
@freelunch: Not everyone is as responsible with money as you obviously are. Unfortunately, you are a phenomenon in this country.
I haven't been to Target in months. Okay, I've been, but I haven't dropped any real cash there in a bit. I used to not be able to leave without spending at least $150. So, I stopped going. I didn't really NEED anything--I'd just be grabbing stuff I liked (home dept. stuff). That's not responsible. I'm asked each time I'm there if I want their card and then I'm asked if I'm sure when I decline. As if they didn't hear me just say "No, thank you". Riiiight. We don't live off of credit cards and I'm not going to start buying stuff that isn't large ticket AT ALL with a credit card from Target. I think that's reckless!
Credit is going to be/has been the death of people! We use cash... if we don't have cash for something, we don't buy it. That concept is lost with a lot of people I know and that stinks (for them).
I love Target just as much as the next person and if it goes away, I'll miss it, but I'll definitely live. :)
@freelunch: personally, i think the "credit crunch" is largely a mask for the real problem - a lot of america is un- or underemployed right now. unemployment at 6.1% - that's 1.5% increase in a year (& expect it to grow as half of manhattan hits the classifieds).
@freelunch:
Same here freelunch, but that doesn't mean the rest of the country is as responsible. So many $ problems are making the news because there are A LOT of people effected by the economy.
I hope people get their sh*t together because I can't live without Target!
I have a Tagert card but I always pay my bill early and I don't carry a huge balance on the card either. I do use it from time to time so I can get enough points towards another 10% off though but that won't happen till next year but when I purchase a PS/3 it will be nice to save 10% on it and then I'll pay off the PS/3 when the bill comes. I wouldn't get that 10% if I walked in with cash, which I will save first before I stick the PS/3 on the card.
And having a Target card keeps them from asking me if I want to apply for one. Nothing wrong with having a credit card. Just cannot be stupid with it.
@freelunch: Zero debt? So you have no mortgage, which is the basis of most of the problems. I would also suggest that your "investments" might be doing well, while other people may have invested in Lehman Brothers or numerous other companies that are tanking in the stock market. If you own real estate in most markets you probably took a huge loss in the value of your properties over the last year. If you own your own business that sold to a company that declares bankruptcy and then doesn't have to pay you, you are stuck. The attitude is ridiculous that you are somehow superior to others when you have no idea what caused their situation. You choose to live a very conservative life which means you are risk adverse. People like you are fine, but people who do great things tend to take risks, including the risk of losing it all.
The needs are winning here as well, most of the time when I go to a store I bring home essentials such as toiletries and food. If I buy a non-essential it comes from the clearance rack and is extremely cheap or I don't buy it.
The target where I live seems to have an unusually high percentage of customers who like to pick out items while on their cell phone (meaning they never look at a price), and pay for them while on the phone too. They just swipe, sign and walk away without looking at what is charged to their card. This is fine if you are rich and can afford it, but I don't think that applies to most target shoppers in my area.
Add to that the fact that there is a lot of expensive decor in my target, things that cost 10-20$ an item that can quickly add up to hundreds before you even know it and before you know it you have overspent on a pile of decor that you never even needed in the first place.
The two aren't far off from each other. You can take out a Home Equity Line of Credit on your home and attach a credit card to it for "easy access."
Voila! You can spend your house!! ...until you lose it.
@postnocomments: Now *there's* a bailout I'd like to see. For completely selfish reasons, of course, and not for those middle america trash that ran up their visas ordering from late night commercials
@freelunch: Ditto for us. Of course we've had to make some decisions like: live in a townhouse and not a single family home, I drive a 17 year old car (91 Integra) and my wife drive a 7 year old car, spend less money when things are tight and spending less money when times are good. We limit ourselves to $60 a month for eating out. Unfortunately the philosophy of Oprah has set in. My favorite things is the absolutely worst thing in the world. It says you deserve whatever you want. Until people begin to say to themselves we're all messed over.
@coolkiwilivin: Oops, no to themselves. Also the favorite things is an episode where oprah has a materialistic orgy of stuff and everyone in the audience gets everything she highlights.
Whatever happened to department store cards starting you at $500 in credit until you proved yourself? Extending credit to the less than credit worthy was just mirroring the subprime mortgage mess.
As to the Target locations, I travel for business and I see these stores that are less than 5 years old in the middle of McMansion subdivisions. They've stuck themselves locations dependent on one type of demographic. I always wondered what would happen if that demographic could no longer spend like usual.
Target same store sales are off 10%. WalMart sales are up 12%.
@postnocomments: Credit card delinquencies are next up... people who have been skipping mortgage payments have been paying off CC debt. Seems as though having the choice between paying one or the other, people are choosing the liquidty of a cc vs making a house payment
@Michael Bauser: I think you do have a point- there's used to be personal embarassment associated with having a card declined, foreclosures, bankruptcy, etc. In essence you felt ashamed that you couldn't handle your sh*t.
Now, you're right, its so matter of fact. I actually think we should return to the days where being over your limit was an embarassment or moral failure not an opportunity to just pull out another card.
25% of the stores in sub prime areas which means areas of high growth and higher income(at the time).
I've always considered Target 1 step above Walmart but I've noticed a creep in prices over the last 2 years in particular.I don't think Target needs credit to survive,it's not like they're selling 3000$ big screens.Personally as long as the price is there I'll be there.
@mac-phisto: that's at least part of it - and executives getting laid off is a very big deal, because it's not that easy just to waltz into another position (particularly when so many companies are going under, but even under normal circumstances).
I have family who had perfect credit and were extremely responsible up until something like that happened, and in the time it took to dig their way out, racked up a lot of credit card debt just on day-to-day necessities. Fortunately, the housing market wasn't so bad, and they were able to rent out their house (and live someplace cheaper), and then sell it - now, even if people *want* to reduce their expenses because of a layoff, trying to rent out the place at what you're paying in a mortgage has to be ridiculous.
@Michael Bauser: My mother commented that she's seeing it *constantly* lately (a lot of people who are not as matter-of-fact, but still a lot more often than before) - it's making her very nervous about what's going to happen in this area.
All mathematical Jujitsu aside (that's an oxymoron there...) ; We chopped our cards up a few years ago and have not looked back. The merchant agreements on Visa/MC branded debit cards afford us similar protections for returns and I select rental cars/hotels that will take debit cards or cash. Spending within in our means (I.E. less than we make) is a much healthier choice for our family.
Choosing not to make the CC/finance companies rich is good for us. Not carrying any payments except for our House (not for long) has brought us way more serenity than retail-therapy ever did. The borrower is servant to the lender. I will be a servant to no man. If I don't have a fiver on me then I don't need the overpriced latte flavor of the day.
Need vs. Want . The stuff is Chess not Checkers.
well, this blog is sorta the wrong place to ask that question. People interested in a consumer "watchdog" blog, are gonna be more savvy or at least interested an thoughtful about their money.
@junip: I love that people have CD purchases, toasters, tv's and underwear bought at WalMart tied into their adjustable rate mortgage at 6 1/4 for 30 years.
However, Wal-Mart stock is up over the last 6 months+ as people stop shopping at Target for Wal-mart...
I'm still not going to stop shopping at Target and start shopping at Wal-Mart, I'll just shop less often at Target...
People have been out of money for a while...now they're starting to run out of credit.
@Michael Bauser: Cards get declined for many reasons, including electronic errors. I've had my debit card declined once when there was plenty of money in the account; when I checked with the bank to see what the problem was, they had no record of the decline, even though the terminal clearly said "declined" when I ran the card. And while many people do get declined because they are over their limit, it's certainly not the clerk/cashier's job to shame them. "Hey, everybody, this moron's card just got declined! Feel free to point and laugh, folks!"
Target is the upscale version of walmart. Cleaner, wider aisles, and more expensive products. A place where upper-middle class housewives tend to shop.
Walmart is for us regular schlubs who are just trying to survive. I always felt out of place at target.
With the downturn in the economy.... walmart will be getting more of Target's customer base.
Note: I only went to target twice.... onece to check it out and find something (they didnt have & I eventually went to walmart because they DID have it) and another time to buy a microwave/ipod table-top radio combo deal.
Never been back since
This is very strange to me - it should be entirely obvious to me that people should not spend what they don't have the ability to pay for.
Interestingly, I'm about to get a car. I don't have any more money than many people, but I know better than to start buying things I don't need - whereas I do need a car to get to work.
That what happens when customers are given bags of chips in exchange for credit cards applications.