🎯 Did anyone catch the HUGE secret Target revealed in their recent 10-Q filing?
Target has routinely reported the share of their total revenue that goes onto their suite of branded payment products, in their filings to Wall Street (emphasis added).
"We monitor the percentage of purchases that are paid for using RedCards (RedCard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target. […] For the three months ended July 29, 2023 and July 30, 2022, total RedCard Penetration was 18.6 percent and 20.1 percent, respectively."
Target generates ~$25B in revenue each quarter, 20% of which goes on their branded payment products (~$5B!). But that’s not the most interesting part.
The big reveal is that they believe “a meaningful portion” of the incremental sales on the RedCard are incremental to their business.
Of course, they don’t tell us the share of RedCard sales that they believe are incremental — but it’s obviously a big enough number that they’re happy to subsidize the 5% reward for all RedCard purchases. When we measure this at Tandym for our merchants, we routinely see branded payment programs driving a 25% lift for the customers who adopt. Assuming similar for Target, that’s ~$1B in incremental revenue from the program each quarter worth ~$285M in earnings.
Oh, and that doesn’t account for the cost savings of not running those sales on network rails ($100M), nor does it account for the revenue share they get from their issuing partner ($175M).
Add it all up and Target’s branded payment program accounted for $560M of the $1.9B EBITDA generated last quarter.
30% of EBITDA. 🤯
I'll drop a link in the comments to a blog post I wrote recently with more detail on this topic for anyone who's interested.