Target Corp. said Tuesday it will stop issuing Visa credit cards after April 29 and give new applicants a card that can be used only at Target.
Current Target Visa cardholders will not be affected.
The move is intended to spur sales at Target stores, though over time it also will lower the retailer's risk of bad-debt write-offs from consumers who don't make payments.
Target Visa cardholders make up about 95 percent of Target's receivables and about 70 percent of the overall accounts, spokesman Eric Hausman said.
Target's credit-card operations contributed about 5 percent of pretax profit in 2009. But its fortunes have floundered in recent years. Its annualized net charge-off rate is more than double what it was before the recession. In the fourth quarter, Target wrote off about $293 million in bad credit.
Adding more Target-only cards to the mix will eventually shrink the credit-card portfolio, now valued at $7.6 billion, because Target Visa holders can use their cards anywhere Visa is accepted, not just at Target stores.
The long-term decline is expected to benefit the company because it will have to set aside less money to fund the receivables, freeing up cash to be used elsewhere in the business.
"It's a win-win," Hausman said. "Our funding requirements decline while at that same time we're increasing sales."
Target, the nation's second-largest discount chain, has nearly 24 million Visa credit cards outstanding. It is the third-largest issuer of Visa cards, according to the Nilson Report.
In October, Target began a nationwide test to compare the way consumers use its own card vs. the Target-branded Visa. The retailer discovered that consumers with Target-only cards in their wallets shopped at Target stores more often and spent more as a result.
Hausman declined to say how much sales improved with the Target-only card.
Jackie Crosby • 612-673-7335