A recent monthly performance report issued by discount mega-retailer Target is showing that, in the ongoing economic downturn, more of the company’s customers have stopped making the monthly payments on their Target-branded credit cards. Not just that, reports the Minneapolis Star Tribune, but those customers who are making payments are paying smaller amounts than they previously were (“Target’s Credit-Card Users Find It Harder to Pay Up,” Sept. 22, 2008).

Documents filed with the Securities and Exchange Commission revealed that Target Corp. wrote off 9.86 percent of its $8.7 billion credit card portfolio in August as uncollectable debt — an increase of almost 10 percent over the previous month and a walloping 74-percent hike since last August, when charge-offs totaled just 5.66 percent.

The current charge-off rate is now already significantly higher than the 7– to 8–percent rate Target had at one point projected for the year and could rise as high as 12 percent within the next six months, said William Ryan, an analyst at New York equity research firm Portales Partners.

Todd Slater, an analyst at Lazard Capital Markets, noted that Target’s credit card delinquencies “increased to the highest level we have seen, while charge-offs increased to the highest level since the bankruptcy law changed in October 2005.”

Some financial analysts attribute the retailer’s rising charge-offs and delinquencies to the fact that debt-ridden consumers are struggling to make their monthly credit card payments at the same time they’re paying more for basic necessities like food and gas.

Other analysts say the depressed housing market is hampering consumers’ ability to pay down their credit card debt, noting that 25 percent of Target stores are in states that have been hardest hit by the foreclosure crisis and declining home values — Arizona, California, Florida, and Nevada.

“We believe many consumers were using the equity in their homes to reduce revolving credit card debt,” said Jeffery Klinefelter, an analyst at investment banking firm Piper Jaffray. “Now, this avenue of ‘debt relief’ is largely gone.”

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