Toys 'R' Us Taking a Shot At Cobranding

Toys 'R' Us is ready to play the cobranded card game.

The nation's top toy retailer is "very close" to a deal with Bank of New York Co., said John Kimmins, vice president and treasurer of Toys 'R' Us.

The company has been in discussions with a number of banks for what could be one of the more attractive cobranding programs this year. The card could give Bank of New York access to a large numbers of customers with strong loyalties to the toy chain.

Although Toys 'R' Us has been talking to a number of banks, Mr. Kimmins pointed out that the retailer has a substantial relationship with Bank of New York. The bank recently approved a $1 billion line of credit for it.

The card could be released by the fall, in time for holiday shopping. It will offer rebates comparable to those of other retail cards, like the Caldor Visa card issued by Fleet Financial Group, Mr. Kimmins said, though "we like to think ours is a little better."

The Caldor card features a 9.9% teaser rate that jumps to 18% after one year, a 1% general purchase rebate, and up to 3% back for shopping at the chain.

Michael Auriemma, president of Auriemma Consulting Group Inc. on Long Island, said the Toys 'R' Us program "could be huge," attracting well over a million consumers, if it offers unique enhancements.

But, he said, the typical retail rebate formula is not a "home run" and would appeal only to "die-hard Toys 'R' Us shoppers."

The details of the Toys 'R' Us program will be hammered out in what could be tough negotiations, said James Accomando, president of Accomando Consulting Inc., Fairfield, Conn. Corporate partners are in the driver's seat, he said.

As the plum corporate partners get snapped up, Mr. Accomando said, banks will pay the price to lure the few major programs still available.

Toys 'R' Us, with 618 U.S. stores and 293 foreign stores, has a virtual lock on the toy market. It reported $8.7 billion in sales for 1994, with profits of $532 million.

"Imagine if you were the worldwide leader of a category and there was no No. 2," Mr. Accomando said.

While the company's market share expands each year, competition from discount chains, as well as the smaller toy retailers, have slowly eroded growth.

David Poneman, research analyst at Sanford C. Bernstein & Co., said the phenomenal growth of Wal-Mart Corp. over the past four years has altered the playing field. In terms of added locations and store size, the company is dwarfing its peers, he said.

Though Wal-Mart carries a diverse array of consumer products, "toys is certainly a department that participates in getting extra space" as the stores get bigger, said Mr. Poneman.

While earnings growth for the king of toys has been more than 17% for the past three years, the card program is "clearly for customer loyalty, as well as a basis for understanding our customer base and being able to market to them," Mr. Kimmins said.

"Toys 'R' Us has a well-known image," said Anita Boomstein, partner with Hughes, Hubbard & Reed, a New York-based law firm. "It's very popular, with a dedicated group of consumers that go there."

Ms. Boomstein, who was involved with the launch of the AT&T Universal card, pointed out that parents would be motivated to use the card. "For anyone who has children and knows the cost of toys, this will be a pretty good card."

The company is planning a high-profile launch with in-store displays, direct mail, and radio and television advertisements.

Though Mr. Kimmins said the card brand has not been selected, a MasterCard International spokesman said he had not heard of the program and attributed it to "the other" group. He also said the program would be a big one.

Although Visa U.S.A. declined to comment, most of the retail card programs issued so far, including Federated, Nordstrom, Caldor, and Sharper Image, have been Visa branded.

A spokeswoman for Bank of New York (Delaware) said the bank would not comment about customers or prospects.

The Nilson Report, an Oxnard, Calif.-based newsletter, ranks the bank as the 13th-largest credit card issuer, with 8.1 million cards and $7.46 billion in outstandings.

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