Abandoning its effort to sell its private-label credit card portfolio, the bankrupt retailer Spiegel Inc. said Monday that it will collect what it can from that business and build a separate one through Alliance Data Systems Corp.
The Downers Grove, Ill., subsidiary of Spiegel Group said it has signed three separate 10-year agreements with Alliance Data Systems, one for each of its merchant divisions: Eddie Bauer, Spiegel Catalog, and Newport News.
The Dallas-based Alliance Data, one of the largest third-party retail card issuers, will not acquire Spiegel's receivables, which apparently were too weak to attract a buyer, but will instead start a new business in which it issues cards through its own bank under Spiegel's three retail brand names.
Alliance Data will use much tighter credit standards and will not necessarily offer new accounts to all Spiegel's current cardholders, said Debbie Koopman, a Spiegel spokeswoman.
"Those cards were issued under First Consumers National Bank standards, [but] Alliance Data Systems wants it to be done under their criteria," she said. "In some cases, more stringent credit-granting policies and procedures" will be used.
Shelley Whiddon, an Alliance Data spokeswoman, said the setup "will be just like we were launching a brand new private-label credit card program." It uses the same credit criteria for all its private-label customers and does not make subprime loans, she said.
Alliance Data calls itself the second-largest third party private label issuer, with 72 million accounts and $2 billion in loans for 50 private label programs. Its clients include Pottery Barn, Ann Taylor, The Limited, and Crate and Barrel.
For Spiegel, the deal is "a real lifeline," said Walter F. Loeb, an analyst at the New York firm Loeb Associates Inc. The retailer had used a loose credit filter in its card operation, he said. "From what I understand, they went to lowest common denominator in accepting customers."
A chargeoff rate that last year reached 18.2% prompted bank regulators to order the sale or shutdown of Spiegel's credit card bank. The retailer was forced to stop honoring its own cards in March, the same month it filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code.
While losses on the card business were the biggest factor in the bankruptcy filing, Spiegel also owed its existence to that business. More than 40% of its store and catalog sales were conducted with private-label store cards in 2001, according to company reports. If the same percentage held in the first nine months of last year, that would have translated into $616 million of sales. Spiegel has not yet reported its full-year 2002 results.
It is hardly the only credit card issuer to fall victim to the weakening economy. The Internet issuer NextCard Inc. went bankrupt when it was unable to sell its $2 billion card portfolio last year.
Sears, Roebuck and Co., based in neighboring Hoffman Estates, announced in March that credit quality problems had forced it to sell some or all of its $30 billion of private-label and MasterCard products. However, Sears appears to be in much better shape than Spiegel; some of the largest bank issuers have expressed interest in buying its loans.
In a separate announcement, Spiegel said that it would close a customer sales and service center in Bothell, Wash., that employs 365 people. Its Eddie Bauer division will cut 180 employees from its headquarters. The retailer has already closed some store locations for all of its brands.
