Target plays its cards right: discounter hopes AmEx will boost sales, customers - discounter to begin accepting American Express cards

Discount Store News, Oct 30, 1989

Target Plays its Cards Right

NEW YORK - Target has joined a growing list of discount chains that hope their customers "don't leave home without" their American Express cards.

Moreover, Target, which began accepting AmEx cards at its 401 stores on October 29, hopes that it will gain enough extra customers, who then will check out with higher tickets, to more than make up for the higher cost of American Express transactions, compared to the Visa, MasterCard and Discover credit cards it already accepts.

Charges to retailers range from 3 percent to 4.5 percent of the amount customers charge, said Kathryn Russell, vice president, retail marketing. She acknowledged that its charges are higher than for bank credit cards.

In 1988, AmEx discounts averaged 3.29 percent, Forbes magazine reported, compared to 1.96 percent for Visa.

In its sales pitches, which have netted 18 discount chains since 1983, AmEx cites a Management Horizons study it commissioned that concluded that higher profits on extra customers that AmEx brings in more than offset higher charges.

After surveying customers of (unnamed) discount stores, the consulting firm concluded that 29 percent of sales at discounters that accept American Express are incremental sales: their customers wouldn't have shopped there if they didn't accept the charge card. In addition, 16 percent of their customers would purchase less if unable to use their AmEx cards.

AmEx now has brought the third-largest discount chain, Target, and the fourth-largest, Ames/Zayre, into its fold.

As for K mart and Wal-Mart, Russell could only say that she's working on them. It took a year of talking to Target, she said.

Target already was accepting Visa, Mastercard and Discover credit cards, Russell said, but she declined to disclose what percentage of its sales are made on credit.

Moreover, the Management Horizons study failed to indicate what proportion of discount chain sales are made on charge and credit cards.

In addition, the discounter will accept AmEx's Optima card, which is a credit card that AmEx charge card customers can obtain after they have had a full year of good payment history.

Charges on the AmEx charge card must be paid off monthly, whereas the Optima credit card permits customers to pay their bills in installments, with interest charged on the unpaid balances.

Other discounters that accept AmEx cards are: Bradlees, Caldor, Jamesway, Montgomery Ward, Marshall's, T.J. Maxx, Alexander's, Clothestime, Ross Stores, Burlington Coat, Filene's Basement, Toys "R" Us, Herman's, Lechmere, Western Auto and Consumers Distributing.

Charges for retail merchandise purchases now account for 30 percent of AmEx's business, Russell said. Within the retail segment, discount store volume is growing at the rate of 20 percent a year. The addition of Target "will make the needle swing," she said.

Target will promote its new link with AmEx in its Christmas promotion based upon the Velveteen Rabbit storybook figure that will be its Christmas plush, (See DSN, Oct. 16, 1989, page 1), as well as its television and circular advertisements, Russell said.

AmEx Promotes Target

Conversely, AmEx will promote Target in the monthly "newsletter" that it tucks into bills and is considering a mass mailing that would let cardholders living in Target operating territories know where they can find the nearest Target store, Russell said.

An AmEx release quoted Target marketing vice president, John Pellegrene, as saying, "American Express shares our vision of total commitment to our customers." Target is looking forward to working with AmEx on a number of innovative marketing programs, Pellegrene said.

Accepting the AmEx card is "another convenience for Target customers," said Teresa Peterson, a promotion executive under Pellegrene. Peterson declined to comment on what kinds of sales gains Target expects to see.

In its sales pitch to Target, AmEx also cited a customer survey of its cardholders that found that Target was one of the stores they most frequently cited as stores where they would like to use their cards, Russell said.