I love to shop at Target. I buy brightly colored baby clothes for my cutest-in-the-world granddaughters and doggie toys for my almost-as-cute golden retriever. I always figured I was their perfect customer. I’m cheap, but willing to spend money on those I love.
I was wrong. I had the business model upside down. I figured Target made their profits on high-style, low-cost goods. Businessweek just reported that Target’s latest statement shows that three-quarters of their profits didn’t come from the sale of goods they came from subprime lending. That’s three out of every four dollars of profit come from interest, late fees, over-limit charges and penalty fees. I guess the baby clothes are just the teaser; what they really want is 29% interest on the Target card. And that difference has big-time political implications.
Business analysts are worried about Target because the evidence is growing that they have pumped up credit card returns by steadily lowering lending standards and pushing credit cards into high-default territory. As the American family begins to stumble under a crushing debt burden, hard times are predicted for Target. They sell low-cost goods, but they are surviving on high-cost credit products.
But there’s another implication to the Businessweek revelation. The Target example shows how far subprime lending has permeated American business. Is Target in the low-cost baby-stroller business or the high-cost credit card business? By a vote of three-to-one, the profit line says it is all about credit cards. That means that Target cares about tariffs and trade laws, immigration policies and all the things that keep their stores running. But they are even more interested in the laws of consumer credit. If they want to protect their biggest source of profits, then Target becomes a big ally for the credit card companies in the battles over credit card disclosure laws and interest rate regulation. Target has a real interest in every law that lets creditors squeeze debtors for repayment.
When it comes to passing laws to protect them from predatory lenders, consumers don’t have many friends in Washington. The Target story is a reminder of just how many forces are aligned against them.
