Sunday, April 26, 2009

Do you have a Macy*s card?

If you ever shop at Macy*s, you have heard the all-too-familiar question, "Do you have a Macy*s card?" A similar question awaits you at Herberger's (Carson-Pirie-Scott), Dilliards, and JC Penney. Virtually all department stores market their own credit cards.

But, why does the sales associate ask this question? Quite simply, most department stores pay sales associates for each account they initiate. At first, this seems strange: most people go to a department store for clothing, not high-interest credit. Strangeness aside, the fact that department stores pay employees to sell credit cards suggests it is profitable to do so... provided that department stores know what they are doing.

From my inside source on department stores, I learned that a primary reason department stores sell store credit cards is that "Customers who have store credit cards buy more than customers who do not." This motivation to sell store credit cards saddens me because it is such bad logic.

This is horrible logic because correlation does not imply causation. The department store wants to know whether selling a credit card to a customer causes that customer to buy more. Knowing that cardholders spend more than non-cardholders tells nothing about causation for two obvious reasons:
  1. Customers who agree to holding a store credit card are different than customers who refuse to sign up. Those who obtain cards know they'll be more likely than average to use the card. They're the big spenders, and big spenders stand to benefit more from the credit card offer. For you econ nerds, this effect is adverse selection.
  2. The second effect is even more obvious. Having a store card entitles the customer to lower prices, extra discounts, and special store coupons. As introductory economics students know, people consume more when the price is low. If people are especially responsive to prices, the effect of buying more outweighs the discounted price in the revenue calculation. Expenditures go up, but only because of the special discounts: it had nothing to do with the card.

Given these reasons to expect customers with cards to spend more, it seems unlikely to me that people spend more money because their card has a Macy*s logo on it. But, don't tell that to managers at department stores. The number of "loyalty accounts" (as they are called) is an important metric for employee performance. At performance reviews, credit card peddling is almost as important as actual sales of clothing! These stores even have special managers whose sole purpose is to get associates to initiate more "loyalty accounts."

If the cards do not actually cause more customer spending, all of these efforts are a pure waste of time, energy, and company resources. Without spending so much time on credit cards, sales associates could focus on selling merchandise and providing good customer service. Such efforts would have a more direct (and perhaps, more effective) link to the company's bottom line.

This explanation really troubles me because the practice of selling store credit cards is a pervasive practice in the retail clothing industry. If selling credit cards is just pure waste of profits, wouldn't we expect someone to figure that out and make millions? To the readers, do you see other profit-seeking reasons to peddle credit cards? I have some ideas, which I will share in Tuesday's post, but I want to see what the readers think before I reveal my hand.

22 comments:

  1. One thing I think you forget to mention is the idea that a Macy's card is a form of advertisement. When someone is thinking about buying new clothes and/or going shopping and they see the Macy's logo in their wallet everyday, they are more likely to shop at Macy's instead of another clothing store. So in a way, it's a form of marketing/advertising the Macys name. But who knows how great this actually affects where and how often people shop. Maybe a ton, maybe just a little.

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  2. Amanda B from Quad C!April 27, 2009 at 9:14 PM

    First - Tony! What a surprise to see you again!

    Next - I think Mitch makes a good point about advertising. Also, you have to remember that some middle-of-the-road people get suckered into the credit card if there is a one-time discount or similar offer. These people and even the "big spenders" you mentioned may be more likely to shop at this than another store, knowing that they are eligible for discounts and etc. Even if the discount doesn't actually add up to the best price, people do love a sale.
    Also, the cards are one way for stores to target repeat customers - possibly not just with discounts but also by tracking what they buy.

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  3. Another revenue stream for stores that push branded credit cards is interest and fees income from purchases made OUTSIDE of the store!

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  4. i used to work for macy's and let me tell you the opening credits carries more weight on your performance review then actual sales. The methods they ask us employees to use are horrible...if you have a customer with a macy's card already, they push you to have he customer open a joint account with his/her mate or run a credit app again by claiming that the account has not been found...the logic for macy's is that the opening discount credit will get customers to spend...if they don't have enough to buy something they have the credit to give them a month to pay off the bill...pretty sad.

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  5. macys employees get paid very little on credit applications ($1). They HAVE to ask because it's their job and their performance scores depend on it... otherwise they could get fired.

    They make very little in credit so they don't care about the payout. They only care enough so that they make their quota so they won't get fired

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  6. I work at Macys and opening up "loyalties" is a must. Every employee in the store is ranked by sales and the number of loyalties they open every day. By opening an account, the payout for the employee depends on the Loyalty Card. The more you open, the higher the payout. It can range from $1 to $50 per loyalty. Some managers coach on sales and some opening credit cards. Full time employees have to open atleast 3 loyalties a week!

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  7. Wow and I thought Sears was bad. I work for the Lands End department and they require our whole department to get atleast one a month, but thats only because our customers are from a different demographic. I suppose it's also because a majority of our credit accounts come from appliances/lawn care/ tools-- where selling credit cards makes most sense. Also there's another aspect that you didnt cover... it's cheaper for department stores to make a sale on their own credit because there's less fee's involved with the transaction and they usually make more money off the interest. Those two points were the only thing they pitched to us during training, our rewards program is supposed to be what makes them loyal. (yeah, ohkay.)

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  8. I too work at Macy's. I've been working there a few months, and have only gotten 1 loyalty. I'm an "on-call" associate, and even though my manager is constantly on my ass, I won't get fired for it. In this economy, they can't possibly expect so many people to open up credit accounts. It's ridiculous, and I agree, a waste of time. If I'm making incredible sales (which I do!), then loyalties shouldn't matter. But they do, and it sucks.

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  9. i work at macys too and let me tell you they(managers) will push you soo hard to open a loyalty, and they'll think your not trying hard enough even if you've asked every customer and noone wants to open an account. And its true noone really cares about the payout, its just to get the managers off your a**. I also recently found out that the payout comes out of your paycheck so its just like an advanced check is what one of my managers told me. If you check your weekly paychecks you'll see that whatever you get payed for the accounts gets taken out from your paychecks. But besides that there is sooo much pressure on employees to open "loyalties". its 2 accounts(loyalties) a week for part timers and 3-4 for full timers..its crazy..

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  10. i work at macy's and its super easy to get people to open up credits. i opened up 7 today. didnt even have to twist their arm ( i work in mens) no you wont get fired if you dont get anyone to open one up...people exaggerate on here. they just want u to aim for 1 per 40 hrs of work. i think its very easy. simply ask the customer "do you have any coupons?" they will either say yes and hand you their star rewards card coupons or say "no" then say " oh well you can save 35 or 40%" depending on the day, if you sign up today! you can pay your bill right here at the register as well. if its a small purchase i usually dont bother asking, if its 50 bucks or more i always ask, people like to save money in this economy. try it! ive opened up 30+ credit apps this past month

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    1. You opened 7 because of the post-Thanksgiving sale.

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    2. It's definitely easier to open accounts around the holidays; it's busy and there are many special sales going on,ex: Friends and Family. It's definitely not as easy as you make it seem, unless of course you are deceiving the customer in some way. I work at Macy's and I have a hard time opening credits because I refuse to compromise my morals/principles just to appease Macys. They expect you to open it no matter what, even if it is a reactivation. If they want to let me go because I don't comply with their underhanded policy, so be it. It's kind of funny how it is always the same people(small handful) out of 200 associates) opening 10+ accounts a week; being there for three years, I know many of them, and trust me they are shady people and will do and say anything to open up a credit.

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  11. I believe Tony is referring to the specificity rule where you find the goal you hope to achieve and deduce plans that get them directly without incurring unnecessary costs. But those cards as has been said also contribute to their marketing efforts. The stores may also get interest revenues from credit stores, and given America's record with credit and debt, they are just following the norm.

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  12. It doesn't take an econ class to know that if you borrow money at 4% as a company and charge customers 25+% to use it you end up with a seperate revenue stream on top of the retail sales. When you open a card you give your customer more buying power that day, like putting new $ in their pocket. Better yet, when times are tough and they need to make a purchase they are likely to use the company who's card is in their pocket. They visit more frequently, buy better products and will continue doing business even if one of their visits goes bad. The Sears card and Macy's card got them through 2 recessions ahead of other competition because the card gave their buyers flexibility in tough times. You can choose to hate credit but for some it's the conveniant path for unexpected purchases. That conveniance comes at the cost of interest but that's the trade.

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  13. There are some truths to this article however, there are some aspects that are completely wrong. First, the associates are NOT motivated to open an account simply because they get paid. How do I know? I work as a sales associate at Macy's. The commission we get for opening an account is a crappy dollar which doesn't do much at all. The real reason is because sales associates are EXTREMELY pressured to open accounts by managers. Constantly harassed about opening credit and looked down upon if we do not do so. However, this is not the fault of the managers either. They have even more pressure by their bosses to constantly bother their associates to open accounts. All in all, it is not the fault of the associate because they are just worried about KEEPING THEIR JOB. I cannot stress this enough.

    SECOND, the reason, "Customers who have store credit cards buy more than customers who do not." is not the ONLY reason why Macy's encourages accounts. It is because if Macy's makes a transaction using another bank card, they must pay a small fee for every time a different card is used. If associates slide a Macy's card, Macy's does not have to pay that fee for every transaction thus giving them more profit. I am not saying that this is right of them, but this author does not have a clue over knowing the inside research about Macy's credit accounts only because I have to experience this every single day. Why don't I quit my job? Because I am a poor college student in a crappy economy where Macy's is the only place that will hire me. That's why. DO NOT BLAME THE ASSOCIATES!

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    1. I also work at Macy's. There is extreme pressure on associates to pitch credit cards. One other reason: The bank that is in partnership with Macys gives them a financial bonus for making their credit goal and a penalty for missing it. As employees know, each store has a daily "loyaty" goal. Full time are required to get 4 a week to receive the full number of possible points on their score card.
      We do not receive many actual cash payouts - most are for "Macy's Money" - employee coupons which can be used on store purchases - in other words they are onnly good if we spend our small salaries at Macy's. A cash award is given after a certain number of credits: it starts at $3 and goes up as you earn more during a given period. You only receive a large dollar amount if you are able to get a fairly large number in a month.
      As someone else noted Macy's tries to push 3 credit cards on couples - two individual and one joint. Another trick is "reactivation". They ask when you last used your card and if they can't remember or say it has been a while they tell the customer they need to rectivate the card. If the customer falls for this they can run the app and everybody is happy - but the customer. If an existing account is found they receive NOTHING but the credit ding. I find this morally reprehensible but my manager will push me out of the way and take over the transaction.
      We do have associates that earn huge numbers of credits. One of them got a woman to sign up that had such bad dementia she had no idea what she had done. After applying downstairs she came to my register and handed me her social security card - the associate knew the woman had dementia and had actually torn her temporary pass up and thrown it away after getting her to sign up. This person is considered a "star" at our store.
      People with dementia and non-english speakers are definite targets. And you will be threatened
      about loss of your job and a raise if you do not perform - at least at my store. My manager is the credit captain - her whole life seems to be devoted to pushing credit cards. Sales do seem to take a secondary position.

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  14. Yeah, I work at Macy's and will NEVER lie to a customer just to open an account. that's stupid and jeopardizes who you are after Macy's, you know, when you get a real job. It sucks to have the manager buzzing in your ear every time you work, but I just say to myself "whatever, I have a future elsewhere".

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  15. I believe store credit cards are absolutley pointless and ridiculous.. Now given that I am number 5 in my state for getting JCP credit apps. We only get $2 for each application we run but an extra 100$ to 200$ each pay check sure as hell helps. Even though I dont believe in store cards I will continue to sell it. But i will say JCP does get mad at associates if they dont get credit apps but they would never be fired and JCP never makes us lie to a customer by saying "Oh we couldnt find your account" similar to Macy's. Store cards are bad for the people who get them, good for the company, and good for the associate who opens them.

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  16. The pressure to sell credit cards (ICAP's) at JC Penney (at least at my store) has become more and more intense in the 14 years that I have been employed there. (I have been a full-time employee with benefits for about ten of those fourteen years.) Our goal of one card per week when I began has turned into a quota of one per shift or one per $1200 in sales, whichever comes first. Our goals used to be one of many factors that were considered in our yearly evaluations. Now, they are, for all practical purposes, the only factor that matters. In December, I was informed by the store manager that, unless I reach or exceed this "goal" (quota), I will see my hours reduced in January. The manager followed through on her threat, and I am now employed as a part-time employee with 20 hours per week. When I mentioned to the manager that I ask every customer to open a card, she simply said that I must not be trying hard enough. When I explained all the other things I do (generating repeat business and customer compliments, training in supervising new associates, etc.), she all but told me that this no longer matters unless I am getting a lot of ICAP's. When I told her that I always ask, but I will not lie or harass, she said that I had the wrong attitude. And when I mentioned the pushy, and duplicitous methods used by the star ICAP associates, she said that I was just jealous of them. Oh, and by the way, the two dollars we receive for opening these cards is little motivation to most of the employees in the store. The motivation is to mitigate the amount of time the managers pressure us, as well as to prevent the managers from reducing our hours. Also, while they have yet to fire someone at my store, they will reduce our hours until we decide that it is not worth working there. I have had enough, and I am looking forward to getting a job with a business that treats both its employees and its customers with respect.

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    1. I just started working at JCP at the beginning of June. The pressure to get ICAPS is making me sick. I don't see how it is good customer service. 99% of customers I ask get mad at me for asking. On top of asking them for ICAPS, we have to ask them to sign up for Rewards, then ask them to take the survey on the receipt. It takes forever to check out because of all this. I wish I had a job where I was truly helping people. Not making them angry.

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  17. I work for Macy's and yes we are expected to open credit accounts and it is only a challenge at our location sometimes because so many of our customers have accounts. I do believe it produces more customer loyalty because of the advertising and coupons that are given to the account holders. People who do not have a macy's account do pay on average 20-30% more than those who don't. I believe in choice, and I always explain that they are welcome to pay off their account as soon as they are done with their purchase. I would say one quarter does just that. Wake up and look at Every other retailer, grocery store, or pharmacy chain they all have some kind of loyalty program. Macy's also offers a clientele service, a phone app to receive coupons ( no charge required) search and sends, and donates and raises a lot of money to many different causes, and donates the money locally. Our location raised 30'000 for partners at heart, and lots of food for our local foodbank. I am proud to work there and customers want and expect choices. I had a customer just the other day walk up to me and say I would like to open an account today, My friends all have them and I am tired of always having to have them buy my purchases to get extra deals or coupons, I want my own...People want choice and Macy's does give them many options for promotions and coupons. Look online their is always some kind of special.

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