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In what I would have considered a minor shocker a few quarters ago, Target Corp. (NYSE: TGT) is rumored to be looking for a suitor for its internal credit card division. Target frequently highlights the decent revenue its credit card operations bring in every single quarter, but with activist investor William Ackman pressuring Target's board to get rid of non-retail assets, a sale may indeed be on the near horizon.Now, this is where things get odd. When covering Target's quarterly calls last year, execs (including CEO Bob Ullrich) stated many, many times that the retailer had no interest in selling its credit card operation. Why? At the time (and still today), the unit brings in a decent chunk of quarterly revenue, although receivable amounts on the books have raised investor eyebrows in some quarters. Still, why sell a profitable business and one that can partially smooth out the ups and downs of retail every year?
Target may be bowing to Ackman since he now controls just under 10% of Target's shares. Are activist investors intimately knowledgeable about the operations of the companies they own? Perhaps, perhaps not. Unless Ackman would like to see Target operate on a retail-only business model, why would he want the retailer to shed its credit card business, which remains profitable? Would Target customers see changing service levels if the credit card business was sold to some other company with lower standards? Target has said it does not want that to happen. However, anything can happen in an effort to pacify large shareholders.
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Reader Comments (Page 1 of 1)
9-12-2007 @ 12:06PM
ubercapitalist said...
I will never understand why Target is allowed to open, own and operate its own bank while Walmart is not. Other than Target successfully making marketing itself as the hip discounter, their is little difference between TGT and WMT. Just another dose of the unbelieveable hypocratic nature of american media and the lemming-like american populace.
9-12-2007 @ 12:21PM
Tracy said...
I hope they don't sell. I love my Target card. What I love most about it are those 10% off buying days WITHOUT exclusions. Even low margin stuff like iPods. I have been looking for a second card with such good deals.
9-29-2007 @ 9:18AM
Ken said...
ubercapitalist
Target was not allowed to open a bank, they got it when the company name was changed from Dayton Hudson Corp to Target Corp in 2000. The name of the bank was Retailers National Bank before it became Target National Bank and it existed long before Target did.
Wal-Mart's problems began when they wanted to open a bank to sell financial services and insurance and that ran into problems with Federal regulations, so they currently dropped it.
Target doesn't offer any of those services and they may sell their bank and credit card operations, many of the major retailers have sold off or have third party banks like: Chase, Citibank and HSBC currently run the credit card operations for companies like: Sears, Best Buy, Kohl's, JCPenneys, Circuit City and most major gas cards. Even Wal-Mart (Wal-Mart Credit, Wal-Mart Discover, Sam's Club Credit and Sam's Club Discover) is run by GE Money Bank.
You need to follow a bit of your own advice and not act like a lemming and assume that Wal-Mart is not being allowed to open a bank.