An Interesting Conversation About Store-Branded Credit Card Applications
Today, I went shopping for Mother’s Day gifts. As I was checking out at one particular store, the woman behind the cash register asked me if I wanted to apply for a credit card and receive a 10% discount. As I’ve written about before, I’m not interested in credit cards, especially high-rate store-branded credit cards. But, I’m also not interested in being a jerk, so I politely declined her offer. But, I couldn’t resist asking her if she ever tired of trying to get people to apply for the cards. She sighed and said yes. Then, she went on for about five minutes about how she and the other customer service people were required to produce a certain number of applications, every week, or they would be ‘written up’. Having worked in retail when I was in high school, I was familiar with that type of company policy. Apparently, her particular manager asks each CSR to get 2 credit applications, per week. I asked her what she thought about credit cards - in general. She cocked her head, slightly, and said - almost at a whisper -
“They tell us if we can get someone to sign up, and be approved, that we have guaranteed that that customer will shop at our store, on average, three times more often than they would have if they didn’t have a card with our store’s name on it.”
I hope those customer’s enjoyed their 10% discount.
(As a side note: I have no idea if what she said is true or not, but I am inclined to believe that part of the allure of the store-branded card is that it gives its owner a false-sense of belonging. Think about it. When you sign-up for the card, what type of process must you go through. Ah - an approval process. Interesting word, don’t you think?)
Cool thing about cash - no approval necessary. I don’t need a ‘cash’ score. And, I’m not paying for my shirt, three years after it went out of style, at 23% interest.
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So we can say that american business has been “hoisted by its own pitard” with the credit mess and over abundance of credit cards which probably influenced all the foreclosure problems. With being badgered at stores for credit cards and receiving 6 to 8 solitications in the mail at home it gets rather annoying!!! For the ones I received at home I even tried cramming everything I received from a credit card company that did not have my name on it into the return envelope and dropping it in the mail. That even got a little tiresome.
I broke my absolute rule regarding store credit cards at Christmastime, since the combined discounts were about 20%. I’m not totally sure it was worth it, as it’s taken a couple of emails and a bit of a hassle, to close out the account once I paid it off (had to wait two weeks for charge to be posted!). What shocked me was the charge and payment structure, where there were two different rate structures, i.e., one for instore purchases and one if you used the card elsewhere (it was store/visa card). Interest rates were appalling, you could not designate which to apply a payment to; it WAS NOT clear in the application process that this would be how it was structured. Wouldn’t have known if I hadn’t signed up for online access until the first bill. Nasty!
Only two a week?? I worked at Express from 2005 to 2007 while I finished up my degree. We had to get at least two cards every shift we worked. In my best week, I believe worked 4 or 5 days and got 15 applications. I hated doing it, but I really wanted a promotion, and our CC applications were one of the big factors they looked at. It’s also true about customers with the card being more likely to be return shoppers. My company had specific statistics on it, but I don’t recall them at the moment. They send out coupons to card members, which definitely brought in lots of customers. The trick is, they have to use their card to pay for the purchase if they want to use the coupon. Customers were also more likely to tack on extra items we up-sold if they were opening a card since they were “saving 15%!”
I think the worst part of the card was having one while working at the store. Most of my coworkers who were 18 or 19 had maxed out their’s already. When they wanted to buy new clothes, they would pay off the amount they needed to be able to charge those clothes on their card. Here we were, getting a regular 30% discount (45% on special days), and most of us probably paid more than the regular price from all the interest we racked up.
Luckily, I finally dug myself out of that hole after I graduated and quit working there. I paid off the last few hundred dollars I still had on my card, and I haven’t charged a penny on it since.
A note on the use of “approval” … the word also sends a message that the company is the one in power.
For those of you wishing to get fewer credit-card offers, you can register to opt-out on optoutprescreen.com. The Direct Marketing Association might also have an opt-out list, and you could call these credit-card companies individually and ask them to suppress your name from their mailing lists.
A great story. Considering retail employees are some of the lowest paid folks in the workforce it’s a real pity to require them to get credit card apps and/or use the cards themselves.
A note about “belonging”. The loyalty cards some retailers hand out are another interesting ploy. While they are not credit cards per se(and you actually have to pay for them in some cases!) they do get you coming back to spend more and more with special “members only” type offers and discounts. Of course, a discount isn’t a discount if you weren’t going to to buy the item in the first place.
Once I have my Borders card it makes me feel like I’m betraying them if I go to Amazon or a second hand book store! (not really but you get the point)
I worked as a manager at 2 retailers that really pushed the store card. Some interesting facts:
1) GE (General Electric- yes, the same company that makes light bulbs) owns most of the branded store cards.
2) GE handles the card- once you sign up, the store really has no part in your account (other than accepting the cards and any coupons it may come with). What’s the incentive for the store to offer the cards? Every time you use your credit card, the company has to pay a processing fee to Visa/MC/AMEX/etc. Believe it or not, this fee can cost the store anywhere from $2K-$8K a MONTH, maybe even $12K during the peak shopping seasons (like the Holidays). Mind you, this is per store, not for the entire company! If a company’s big enough to offer store cards, they probably have anywhere from 600-1,000+ stores in the US so… if you do the math, you can see why companies want to save money on those fees! When you use a store brand card the store, not only doesn’t have to pay a processing fee, but actually gets money from GE. It’s not much, something like 5 cents per transaction, but it adds up, and, it’s one less CC processing fee they have to pay!
3) The statistic is that the average XYZ customer spends $50 a year, where as a card holder spends $500. I don’t know how much the sense of belonging has to do with it. Your theory has merit but I think it has more to do with the constant coupons, special offers, mailers, etc. that the customer receives.
4) If a retailer offers a store card, every employee, from the managers to the cashiers, have a store card goal. Both places I worked never fired anyone for failing to meet their goal, however, the top performers would often get more hours, their pick of shifts, etc.
5) Most employees are offered incentives to get you to sign up (money, prizes, food, extra breaks, etc.). The top performers have several tricks to get you to sign up, including the “They will fire me/write me up- please help me!” schtick.
6) In all fairness, if you have good credit, if you manage your money responsibly, if you’re good at resisting temptation, and if you mostly shop Store XYZ, then the store card will save you money through their on-going rewards program.
7) However, if you do decide to sign up for a store card I HIGHLY recommend you sign up on-line (most store site will have a link). Think about it- If you sign up at the store you’re basically giving a total stranger a piece of paper with your name, your address, and your SSN… yeah, not a good idea.
I always say, “no thank you, I don’t use credit cards” which gets an interesting response.
Sam, I say that too! Usually, they’ll ask why… and once in a while, I get a chance to talk about debt reduction.
The approval process is usually about 30 seconds and nearly everyone gets approved. I don’t think too many cheer that they have accomplished a great feat or anything.
The other side of the coin is that perhaps if you are already a frequent shopper of the store, it makes sense to get the store card for various promotions. It’s a chicken and the egg syndrome. Does the card make people shop more, or do the people who shop a lot tend to have the card?
We have a Home Depot card because they send us 10% off coupons every now and again. We don’t go out and buy a new BBQ every couple of weeks - instead we use it on projects that we’d do anyway.
Also, store brand credit can actually hurt your credit score when it comes time to get a mortgage. That is what happened to my DH and I. He used store credit when he had my engagement/wedding ring set custom made. He only wanted to pay a portion of the set before it was actually made and then pay it off when he picked it up. The only way at the time to do this was to apply for and get “store-brand” credit. And he payed it off without acquiring any interest. So even though it was “clean”, the bank looked at it as store brand credit and it reduced our credit score by quite a bit when it came time to get our mortgage. (and, yes, the bank told us that was the reason they were offering us less money to borrow at a higher interest rate - of course, we shopped around and got what we needed at a better interest rate) I now warn all my students to stay away from any “store-brand” credit or credit cards.
Another thing to be careful about with store branded credit cards is that many of them don’t carry the same consumer and anti-fraud protections that “real” credit cards (AmEx, Visa, MC, Discover) carry. Caveat Empor!
During high school, I worked at Mervyn’s (a clothing store along the lines of JC Penny’s, maybe slightly lower scale). They are/were owned by the same parent company as Target. Anyway, they pushed their store brand credit cards hard. Apparently, the store credit cards were actually more profitable than the store itself. I couldn’t believe it until I realized how many discounts and coupons they gave to induce shopping. Add a 25% interest rate and it adds up fast!
This was well over 10 years ago now, so I have no idea what the current situation is.