Target Corp. will stop issuing Visa credit cards to its shoppers and will instead offer new cardholders access to the company's proprietary credit card, the retailer known for its cheap-chic designs said Tuesday.
The change, which takes effect next Thursday, won't affect current Target Visa card holders. That group makes up about 70 percent of the retailer's total credit card holders.
Target said its research shows that shoppers who use the in-house credit cards, which it began issuing in 1995, tended to spend more money than those with the Visa cards.
"The whole purpose is to drive retail sales and this is doing that," said spokesman Eric Hausman.
In a statement, Visa Inc. said it "respected" Target's decision.
"We look forward to working with Target to provide existing Visa Target cardholders with the value they have come to enjoy with a product that can be used both in Target stores, and at millions of merchant locations worldwide," the credit card company said.
Target is one of the few retailers to retain its own credit card business, which can be profitable for merchants but also increases their risk of being liable for customers' bad debt.
Target took significant write-downs on the business in the fourth quarter of 2008, but it has improved as the economy recovers.
In February the company said its credit-card segment profit for the quarter was $39 million, compared with a $135 million loss in the fourth quarter of 2008.
Fourth-quarter bad debt expense fell 43 percent to $284 million in 2009, from $500 million in 2008, when the company added significantly to its allowance for doubtful accounts.
Activist investor William Ackman, whose Pershing Square Group has a stake in Target, has pressured the chain to get rid of the business in the past, and in 2008, Target sold 47 percent of its credit card receivables to JPMorgan Chase.
Ackman reduced his stake in Target Corp. to about a 2.8 percent stake as of Dec. 31., from 8 percent in 2009.
Target, which has more than 1,700 stores, is headquartered in Minneapolis.
Its shares fell 7 cents to $56 per share in afternoon trading. Visa shares, meanwhile, climbed 60 cents to $93.72.