Last week, Target reported its first full-year sales decline since 2016, closing out a 2023 that marked a difficult period for the general merchandise retailer. Straddling the line between discounter and department store, the company has struggled to attract customers who have cut back on discretionary spending and traded down to less expensive options when possible.
In response to these macroeconomic trends, Target has made a concerted effort in recent months to promote its affordable offerings, including relaunching one of its low-cost private-label brands and introducing a new product line of essential items—some priced lower than $1.
But selling merchandise isn’t the only way Target brings in revenue. The catch-all “other” category in its Q4 earnings report saw gains that helped offset the decline in sales, increasing 5.1% in 2024, while full-year sales dropped 1.7% from the previous year.
Now, this somewhat ambiguous category could be headed for a shakeup: Target is launching a paid membership program, along the lines of Amazon Prime or Walmart+, while also expanding an in-house advertising business that could bolster non-sales revenue in the years to come.
“Over the next decade, we expect to continue seeing outsized growth in other revenue,” CFO Michael Fiddelketold shareholders during an earnings call.
Target isn’t alone in trying to expand non-sales revenue. Rival retailer Walmart has made similar moves, rapidly expanding its retail advertising business and membership program.
At the same time though, an existing income stream under Target’s “other revenue” category is on the backfoot. Target’s in-store credit card program, which is currently one of the biggest drivers of non-sales revenue, is facing regulatory and macroeconomic hurdles. The Biden administration’s Consumer Financial Protection Bureau has finalized a new rule reducing credit card late fees from $32 to $8, a change that sent rumbles through recent earnings calls.
Choosing other: While Target did not break out many of the revenue streams that flowed into the $1.6 billion “other” category, it did highlight that a profit-sharing agreement with TD Bank, the exclusive issuer of its credit cards, raked in $667 million in 2023. This marks a decline from 2022 and 2021, when the agreement brought in $734 million and $710 million, respectively.
Fiddelke acknowledged the drop in an earnings call this week, characterizing it as “a little bit of softness year over year” and “kind of an expected return to normal.”
- US consumers notably racked up credit card debt last year as their pandemic-era savings dwindled. Now charge-off rates—when a creditor declares that a debtor is unlikely to repay—are at their highest levels since the tail end of the Great Recession.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
Fiddelke did not address a question from one shareholder about how changes to credit card fees could impact the business, and Target declined Retail Brew’s request for comment on the topic. Instead, he emphasized that the softness was “offset nicely” by the “incredible growth” of Target’s in-house advertising business, Roundel, which grew 20% in 2023.
Cornell, meanwhile, said the ad business was the “fastest-growing contributor to the other revenue line on our P&L.”
Package deal: In the meantime, Target is rebranding its credit card to match its new $49 per year membership package, which is called Target Circle 360. The company is renaming the Target RedCard as the Target Circle Card. The card will continue to offer an extra 5% off purchases. Both take their names from Target’s free loyalty program, which launched in 2019.
“Reimagining Target Circle is one of the biggest initiatives for us as a company in the next year and really accelerates the company’s next phase of growth,” Chief Guest Experience Officer Cara Sylvester told investors.