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Why Department Store Credit Cards Are So Profitable

January 6th, 2009 · No Comments

OK, I’ll admit it.   I am amazed at all of the perks the Kohl’s charge card throws at you.  If you spend $600+ per year you are in the MVP Program.  Periodically throughout the year Kohl’s has sales that reward you with $10 coupons for every $50 you spend.  Finally, it seems like every other week they have a sale with extra savings for Kohl’s credit card customers.  The psychology behind it is unbelievable almost like you are losing money if you do not have a Kohl’s credit card.  Sometimes I wonder how much margin is built into their products that they can literally give away the farm on some items and still remain profitable.  How do they do it?  Exactly like every other major department store with a credit card.  It’s a numbers game.

The more transactions you put on your card per month (and especially the more dollars on the card per month) the more likely the store is to make extra profits when and if you don’t pay off the balance each month.  Now, hopefully most readers of this blog pay off the cards each month or, better yet, don’t use cards at all.   But if you are in the majority of consumers who do not pay their cards off each month, happy days for Kohl’s!  They also know the age-old Las Vegas secret that not seeing your actual green money leave your wallet drastically increases your odds of spending it.  Kohl’s isn’t stupid, folks.  I have not even read Kohl’s annual report to shareholders, but I guarantee the credit card division is among the most lucrative division of the whole company if not more profitable than the whole company itself.

So, the next time you consider opening a charge account just for the initial 10% off your first purchase remember….if you play with snakes, eventually you’ll get bitten.

Tags: Credit Cards · Money

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