Retail Card Buying Spree Slows

  Card issuers continued to snatch up the private-label credit card portfolios of retailers last year and to settle into relationships with merchants whose cards they bought in previous years.
  But the acquisition trend is slowing, as there are so few retail portfolios left to buy, say analysts. "There really are very few large players out there to go to a third-party provider," says Steve Jacowitz, managing associate at Auriemma Consulting Group Inc.
  Target Corp. continued to maintain its private-label and co-branded independence in 2006, with its portfolio earning $693 million before taxes in 2006, up 53% from the previous fiscal year.
  Among the few other big retailers operating its own card program is Nordstrom Inc. Nordstrom's total receivables of its securitized private-label portfolio at the end of 2006 were $582.3 million, up 5.9% from $550 million in 2005, according to the retailer's annual report. Receivables more than 30 days past due last year were $15.8 million, up 40% from $11.3 million in 2005.
  Doug Scovanner, Target chief financial officer, said in a February conference call about fourth-quarter earnings that the retailer "expect[s] to continue to enjoy both the strategic benefits of our credit card portfolio and the financial benefit of annualized [earnings before taxes] yields in the range of average receivables."
  GE Money, General Electric Co.'s card-issuing unit, agreed in February to buy the private-label portfolio of Hudson's Bay Co., Canada's largest department store chain, for US$321 million. The chain's private-label program reported US$995.1 million in receivables and 3.1 million active cardholders at the time.
  GE and home-improvement chain Lowe's Cos. Inc. also rolled out what they call a Project Card. Interest does not begin to accrue on the card until six months after the purchase of at least $1,000 in goods and services related to home-improvement projects.
  And GE introduced a MasterCard-branded private-label credit card for ShopNBC, a direct-marketing firm that sells general merchandise through television, the Internet and direct mail. The deal keeps the money in the family since ShopNBC is owned by ValueVision Media and NBC is owned by General Electric.
  HSBC Retail Services, a division of HSBC North America Holdings Inc., bought a number of retailer portfolios last year, including those of Reading, Penn.-based Boscov's Department Stores.
  Best Buy and Saks Inc. both added cobranded MasterCard-branded HSBC cards in 2006. And HSBC agreed to launch and manage a private-label card program for Cornerstone Brands, a catalog and direct-marketing retailer that operates under various names including Ballard Designs, TravelSmith Outfitters and Frontgate.
  JPMorgan Chase continued its private-label buying spree in 2006. In April, Chase completed a $1.6 billion purchase of Kohl's Corp.'s private-label portfolio of 13 million cards. In August, Chase paid $155 million for Pier One Imports Inc.'s portfolio of nearly 1 million active card accounts and $140 million of receivables.
  With so few independent retail card programs left, the game now turns to providing the best card services to retailers, lest they switch issuers when their private-label and cobranded contracts expire, says Brian Riley, senior analyst with TowerGroup, MasterCard's consulting division.
  Retailers that have sold their portfolios want to focus on selling products rather than managing card receivables, Riley and Jacowitz agree. And they want issuers to treat their customers well.
  "The retailer will think, 'Is this the issuer I want to stay with, or is the grass greener on the other side?'" Jacowitz says.
  The most-important part of that customer service is managing risk and bad debt without alienating a retailer's customers, Riley says. "How do you retain them as a [store] customer when you deny them a card? That's an interesting challenge [issuers] have," he says.
  Riley says a constant flow of communications is important, including sensitive treatment by collections specialists and special offers to keep customers coming into a store even if they have been declined a card product.
  Managing risks while growing profits will continue to be a balancing act for retail card issuers in 2007, with third-party issuers working to keep both their retail customers and individual cardholders happy.
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