When it comes to card-based loyalty incentives, no U.S. retailer rivals Canada's oldest and largest department store chain.

Hudson's Bay Co., established in 1670 as a dry-goods store for fur trappers, offers cradle-to-grave rewards to its 10 million customers, perhaps half of whom hold a private-label card. Even customers who do not carry its card can win loyalty points.

"We don't want to turn back a customer because they don't have our credit card," said Stephen J. Hucal, executive vice president of credit and financial marketing services.

While many U.S. retailers are struggling to find the right mix of credit and rewards to maximize customer loyalty, Toronto-based Hudson's Bay has been building on a credit program that can be traced back to its early years when frontiersmen could "buy now and pay later" on gunpowder and other staples.

Today the 440-store chain of discount and high-end emporiums claims 40% of its market, Mr. Hucal said. A new computer system installed in August helps the company track buying habits and manage its risks.

Hudson's Bay processes all its own accounts and-in what many bankers and retailers consider the holy grail of data base management-uses its customer knowledge to tailor credit and retail offers.

The credit program is "highly profitable" and "an integral part of their overall plan," said David Brodie, a retail industry analyst at CIBC Wood Gundy, Toronto.

He said Hudson's Bay, Sears Canada Inc., and Canadian Tire "all have very large, captive finance subsidiaries that supply them with mechanisms for marketing benefits."

At Hudson's Bay, the centerpiece is Club Z, or "Club Zed" in Canadian argot. Buying merchandise at the company's flagship stores-The Bay is its upscale chain, Zellers the discounter-earns points toward items listed in the Club Z catalogue. Customers can use the Internet to keep track of their points, view catalogue items, and make purchases.

Parents-to-be can exchange Club Z points for baby strollers, car seats, or even a youth account at Canadian Imperial Bank of Commerce. Senior citizens can apply for the Hudson's Bay "Advantage 60" card, which has special discounts for them. Canadians of all ages can accumulate air miles by using private-label cards from The Bay or Zellers.

Mr. Hucal said 45% of retail store purchases in Canada are made on private-label cards-not out of line with what the major U.S. retailers report.

A former head of credit cards at KeyCorp of Cleveland, Mr. Hucal said retailers should run their own credit programs rather than letting banks and third-party processors play a role. Store operators then can "integrate credit with merchandising and marketing," he said. "It creates multiple dimensions to the retailing card that you never have an opportunity to think about when you're on the bank card side."

"The integration of the profitability equation is a bit different when you run the program yourself itself versus outsource it," as another former employer of Mr. Hucal's, Sears, Roebuck and Co., recently did.

Mr. Hucal, 46, left KeyCorp to join Hudson's Bay in November 1997. He was responsible for the KeySmart card-its interest rate comes down as cardholders make higher installment payments. The card is "doing exceptionally well for them," Mr. Hucal said.

Beginning in 1985, Mr. Hucal spent 10 years at Sears in its former network of financial services companies-Dean Witter, Discover & Co., and SPS Transaction Services-as well as Sears Credit and Sears Consumer Financial Corp.

Mr. Hucal contrasted the Hudson's Bay strategy to that of Wal-Mart, which does not issue a private-label card but does offer a cobranded MasterCard with Chase Manhattan Bank.

"Wal-Mart really doesn't have a core competency in credit cards per se," he said. "I think they got caught up in the interest rate issue" and decided to work with a partner.

Among bankers, Mr. Hucal said, "There is a perception there that retailers don't understand the risk-management function. But we probably have the most sophisticated risk-management system in Canada because of the population that comes through our doors."

"The banks say 'no' to the people we say 'yes' to," Mr. Hucal said. "But we manage them very profitably and very effectively."

Credit can be a competitive advantage in Canada, where five department store chains dominate. According to Mr. Brodie of CIBC Wood Gundy, Sears Canada is the largest single store chain in the country, followed by The Bay and Eaton's. On the discount side, Wal-Mart is the largest, and Zellers is next.

Hudson's Bay is the largest retailer when its figures are combined, Mr. Brodie said.

Hudson's Bay also boasts a fresh management with experience elsewhere. Bill Fields, who became president and chief executive officer in June 1997, was previously president of Wal-Mart Stores and of the Blockbuster Entertainment division of Viacom Inc.

The newly named president of the Bay division, Ira S. Pickell, was chairman and CEO of Bon Marche, a Federated Department Stores unit in Seattle. The new president of Zellers is George Heller, president of Kmart Canada before Hudson's Bay took it over this year.

Hudson's Bay is extending its retail reach as it widens its credit and loyalty programs. Hudson's Bay Company Outfitters, to debut in October, will sell outdoorsy clothes and gear amid decor meant to evoke Canada's frontier heritage. Bed Bath & More opened last spring, becoming Canada's first domestically-based home furnishings superstore.

On March 31, Hudson's Bay took over sponsorship of an air miles reward program that had previously been operated by Sears Canada. Loyalty Management Group runs the program, which lets customers earn, for example, one travel mile for every $20 spent at the Bay. Participants can also earn miles other places-including Blockbuster Video, Bank of Montreal, and Shell Canada-though the miles are only good on Canadian Airlines.

Hudson's Bay is also using its rewards expertise to manage a project for Citibank Taiwan. On May 15, the companies introduced a catalogue of merchandise that Citibank's one million Taiwanese cardholders can earn through a points system.

"We're getting into a lot of on-line retailing," Mr. Hucal said. "We've got a flower business, travel businesses, and we do Club Z redemption on the Internet."

The chain is reviewing smart card systems and aims to begin accepting stored value cards soon.

"We're the only retailer in North America that has all smart-card- readable point of sale terminals," Mr. Hucal said. "That's one of our advantages that we haven't tapped into yet."

Debit cards are also a large part of Hudson's Bay business, representing about 20% of transactions, Mr. Hucal said, adding, "Canadians are much more sophisticated when it comes down to leveraging electronic banking opportunities."

But private-label cards are likely to remain Hudson's Bay's bread and butter. "They provide a real value to the customer" and to the retailer that makes use of the information they provide, Mr. Hucal said.

People who hold the Bay Card can earn travel miles, telephone discounts, and Club Z points. They can purchase credit insurance and can pay bills by mail or through telephone banking.

"You've got to give customers what they want, let them afford what they need, and give them opportunities to aspire," Mr. Hucal said. "Financing is a very critical part of that."

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