Wal-Mart Stores Inc. used to be an anomaly: a superstar retail chain without a credit card program.

That changed two years ago when Wal-Mart introduced a cobranded MasterCard with Chase Manhattan Bank. In the spirit of "everyday low prices," the interest rate was set at 14.48%, about 3 percentage points below the industry average.

Wal-Mart has built the program up to 1.8 million cardholders, and it recently took top honors in J.D. Power and Associates' annual customer satisfaction survey.

Wal-Mart took a less-traveled path in selecting a cobranded bank card over the private-label alternative.

Virtually all its peers, from Kmart Corp. and Sears Roebuck & Co. on down, rely on their proprietary brands to encourage customer loyalty and boost sales.

Private-label cards are considered especially important in the cut-price market. Conventional wisdom says bank cards are more appropriate for more upscale consumers who are more likely to qualify for bank credit.

Discount chains have traditionally offered their own cards-at higher interest rates that compensate for the credit risks in a lower-income clientele whom banks tend to turn away.

Wal-Mart's decision "was a disappointment to the private-label community," said John C. Grund, a principal at First Annapolis Consulting of Linthicum, Md., who is a close observer of the private-label industry.

"Wal-Mart would have been the crown jewel of the private-label community," Mr. Grund said. "If you were (private-label servicer) GE Capital and you got Wal-Mart, you would have met your sales goals for the next five years."

The Bentonville, Ark., retail giant understood the consequences of working with a bank. But Steve Hunter, who heads Wal-Mart's card operations, said the choice was straightforward.

"We do not want to be managing receivables ourselves," said Mr. Hunter, whose title is director of investor relations and financial operations.

"I don't want to downplay the importance of our card program, but we're merchants and we want to sell goods," Mr. Hunter said. "That's why we picked a good partner in providing a financial service for the customer."

Wal-Mart, with nearly 2,300 stores in the United States, reported record sales and earnings for 1997 and for the most recent quarter.

Net income for 1997 increased 15%, to $3.5 billion. Income for the quarter that ended July 31 was $1.03 billion, buoyed by international growth.

Chase Manhattan executives said they are delighted with the partnership. The bank prides itself on working with brand-name companies with mass appeal, such as Toys 'R' Us, Bell Atlantic, Continental Airlines, and Shell Oil.

"Our partners don't come to us with small and limited sets of customers," said Chase executive vice president Harry F. DiSimone. "Millions of people walk through a Wal-Mart every day."

When the card was announced on Sept. 30, 1996, David Glass, Wal-Mart's president and chief executive officer, said his goal was to "create a basic credit card with a fixed, low interest rate for the working family, which is what our customers expect from Wal-Mart."

Before the Chase MasterCard came along, he pointed out, Wal-Mart had not participated in any cobranding arrangement.

Aside from the low interest rate, the no-frills card offers a 9.9% balance transfer option. The rate stays "until you pay off that piece of the credit card," Mr. Hunter said.

"This whole payments arena has become an opportunity for us to make convenience for the customers important," Mr. Hunter said. "A lot of people are playing the loyalty advantage. We took the approach-kind of like we do with merchandise-that we want to find the best value we can deliver to the customer and put it out there."

From one perspective, Chase and Wal-Mart seem unlikely bedfellows. Wal- Mart was the original lead plaintiff in a class action that charges Visa U.S.A. and MasterCard International with antitrust violations.

Many of the largest retailers are objecting to the associations' rules that require credit-card-accepting merchants also to take those brands of debit cards.

The suit was filed in 1996 in U.S. District Court in Brooklyn, N.Y., and promises to drag on for years. Neither Chase nor Wal-Mart executives would discuss the litigation, but they indicated that their joint MasterCard program exists apart from the debit card controversy.

Mr. Hunter characterized the card program as pragmatic for both companies. "I believe we and Chase identified ways we could service our mutual customers," he said. In so doing they "found some alignments in our thoughts and processes."

In a separate realm, Wal-Mart has been ahead of the rest of the U.S. market with SET, the credit card industry's Secure Electronic Transactions standard for Internet purchases.

Though other banks and retailers were slow to commit, Wal-Mart was quick to make its on-line store SET-compliant, working with Chase, MasterCard, American Express Co., and First Data Corp.

Wal-Mart's Web site offers 40,000 items in 27 merchandise categories.

The Internet "is not a huge piece of our business yet," Mr. Hunter said. "SET is a great concept, but it's still in its infancy, and I don't know that it determines consumer behavior yet."

A low-interest credit card, however, does make an impact.

"We're very fortunate that we have strong brand recognition across the board, not just on a card," Mr. Hunter said. "People recognize and trust the Wal-Mart name. I don't believe it was important whether it was on a white piece of plastic or a piece of plastic that had a bank's name on it as well."

Anita Boomstein, a lawyer at Hughes, Hubbard & Reed in New York who has expertise in cobranding deals, said Wal-Mart's clean slate made it easier to skip the private-label option and go straight to a cobranded card.

"If I were them, I would have thought about whether it makes sense, given the card environment today, to start a private-label portfolio at all," she said. The approach may be "somewhat passe."

George Rosenbaum, chief executive officer of a Chicago-based market research firm, Leo J. Shapiro & Associates, said private-label cards give a "stronger connection to the store," but Wal-Mart MasterCard customers "probably only need a Wal-Mart card to do all their charging.

In that sense Wal-Mart has the possibility of being the exclusive card in the wallet."

Mr. Rosenbaum said the product is "too young" to determine if Wal-Mart might have been better off with an exclusive card. But its cobranded program establishes the "primacy" of the store.

Mr. Rosenbaum said Sears, which has private-label card relationships with some 40% of U.S. households, might learn a lesson from Wal-Mart.

"If you're carrying a Sears card, suddenly it could dawn on you that the last thing Sears could do for you is make that card important enough so that other stores could accept it," Mr. Rosenbaum said.

On the flip side, Mr. Grund of First Annapolis said Wal-Mart might have to "resort to a private-label card some day" to "develop another tier" of credit customers.

"It must be very difficult for Wal-Mart to turn down customers, because their whole business model is based on customer service," Mr. Grund said.

He guessed that it poses a challenge when Chase has to reject an applicant.

Mr. Hunter said Wal-Mart is striving for a "top-of-the-wallet-type mind- set." People who carry credit balances are prime targets.

"I don't mind a customer using (the card) as a convenience tool," Mr. Hunter said. "But if you think about our card-with a low annual percentage rate and no frequency points-it is focused on being a credit vehicle for the consumer."

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