In the eight months since it started issuing MasterCards to seven million of its inactive Sears cardholders, Sears Roebuck and Co. has broken into the ranks of the top 25 bank card issuers, amassing $1.4 billion in receivables on the general purpose cards.

Moreover, another retailer that quietly began pumping its general-purpose cards last year, Nordstrom Inc., has hit the top 50, with $271 million in card loans on its Nordstrom Visa at yearend. These retail giants - particularly Sears - are in prime positions to shake up the traditional hierarchy among credit card banks, experts say. Both Sears and Nordstrom already have millions of customers carrying their private-label cards, which work only in the companies' stores, and both are encouraging higher-credit customers to switch to the cards that work everywhere and that come with generous rewards programs.

At least one other retailer, Target Corp., has declared its broad intentions in financial services, and may be among the other department stores that follow the lead of Sears and Nordstrom.

If the rapid success that Sears and Nordstrom have enjoyed so far in racking up card loans continues - as is expected - those companies could well become some of the largest card-issuing firms in the United States. While both companies have very far to go before their portfolios begin to look anywhere as large as the ten or so giant bank card firms that dominate the industry, the retailers have certain advantages in customer loyalty and in the rewards programs they can offer shoppers.

"At the end of the day, the larger players are going to win," said Kevin Keleghan, president of Sears Credit Services. "And that's why we decided to launch MasterCard last year."

In addition to its MasterCard portfolio of seven million accounts, Sears has 60 million private-label accounts. Together, the MasterCard and private-label portfolios include about $27 billion in loans, which Sears says makes it the seventh-largest U.S. card issuer. "Our objective is to be in the top five," Mr. Keleghan said.

According to The Nilson Report, an industry newsletter that publishes rankings of card issuers, Sears MasterCard was the fastest-growing among bank card portfolios in 2000. Sears MasterCard grew by 6.7 million (starting from zero), placing it third in growth behind Citigroup (15.1 million) and Capital One Financial Corp. (9 million) for the year.

Private-label card portfolios have long been regarded as the poor relative of the bank card industry, because those portfolios had notoriously low percentages of active accounts, and cardholders were considered of lower-than-average credit quality. But companies that have held onto private-label programs - and Sears is the largest by several orders of magnitude - seem to be enjoying success in parlaying their customer bases and expertise into other card products that are popular and lucrative, such as general purpose cards and gift cards.

Mr. Keleghan said Sears' private-label customers give it a competitive advantage. Because Sears could evaluate the credit quality of its customers with inactive accounts, it could target those with the highest credit ratings for the MasterCards it sent out unsolicited.

Mr. Keleghan said Sears has succeeded in trying to resuscitate flagging Sears card accounts without extending bad loans. So far, half of the people who received the MasterCards have activated them, and the active customers have an average Fair, Isaac & Co. credit score of 760. The score, which most lenders use to assess creditworthiness, is based on a formula developed by Fair, Isaac, and 800 is considered about the highest score.

"It's a very pristine group, almost too pristine," Mr. Keleghan said. "We don't expect significant delinquencies since we're starting out with a low-risk group."

So far, he said, the delinquency rate has been lower than in Sears' private-label portfolio. "Like everyone else, we've been crossing our fingers while waiting for a bit of an economic downturn," Mr. Keleghan said. "But we've seen no signs at all of credit quality deterioration in our [private-label] portfolio."

Nordstrom has been issuing Visa cards since 1994, but only at yearend 2000 did it break into The Nilson Report's list of the top 50 general purpose card issuers.

L. Wayne Hood, an analyst at Prudential Securities in Atlanta who rates Sears a "strong buy," said the company made one important change to its infrastructure when it began issuing MasterCards. "In the past, Sears had a system where they would offer all consumers the same annual percentage rate, whether the credit was good or bad. The cobranded MasterCard with its variable rate pricing gives them more flexibility to attract more customers and grow the receivable balances," he said.

Sears is making its move at a time when even solid midsize issuers such as Wachovia Corp. are deciding to quit the business. Meanwhile the biggest issuers, Citi and MBNA and others, are getting bigger. Mr. Keleghan said he was not surprised by Wachovia's recent announcement that it was considering selling its cards unit, and said that Sears decided to venture more deeply into the cards business because it knew it could compete.

Sears believes it can claim a sizable niche as a middle-income but not subprime issuer. "We're the low-cost provider in the industry," Mr. Keleghan said. Because of its substantial brick-and-mortar, Sears can acquire a new card account for $15, a fraction of what other issuers spend.

Mr. Hood, who follows several retail companies with big card programs, said that large retailers have nothing to lose by upgrading to become Visa or MasterCard issuers. "It's hard to say that it's a negative thing to do," he said. "Private-label programs have to become flexible. People don't like carrying 20 different credit cards."

He predicts these companies may well grab market share from the major bank and monoline issuers. "Retailers have incentives that can be tied to their own stores, Web sites, or services," Mr. Hood said. "That's something other credit card companies do not have, unless they form an alliance."

Sears, with its solid American brand name, has other natural advantages. "There has always been this phenomenon that if customers get in trouble, they pay Sears first," Mr. Keleghan said. He chalked this up to Sears' customer-friendly collections department, which works out payment plans with cardholders who have high balances.

But Mr. Keleghan said that another factor may be at work. "Market researchers call it the water heater phenomenon," he said. "If your water heater goes bad, you want to be able to buy one from Sears."

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