Target, Caldor pan for gold with new store credit cards - Target Stores, Caldor Inc

Discount Store News, Nov 21, 1994

NATIONWIDE DSN REPORT -- Two of the nation's largest discount chains are turning to plastic to strike gold.

During the Halloween weekend, Minneapolis-based Target Stores rolled out a new private label credit card at all of its stores, signing up customers at store entrances across the country. Shoppers were enticed to fill out applications with a free gift, a ladies' personal planner and calendar.

On Nov. 1, Norwalk, Conn.-based Caldor introduced a cobranded Visa credit card that promises to become a profit center in itself, as well as a vehicle for repeat purchases.

The Target card, which carries an effective annual interest rate of as low as 18% (in Minnesota, Texas and North Dakota) and as high as 21.6% (in Illinois and Ohio), marks the expansion of a test involving acceptance of parent Dayton Hudson's department store credit cards at Targets nationwide.

There is no annual fee, and a regional credit spokesman said that the average credit line will be $500 or so on in-store applications; consumers requiring more credit may fill out a more detailed form or apply for an increase later.

However, unlike cards from many other retailers, no instant credit is awarded. A brief form (name, address, employer, drivers license number and Social Security number) is filled out in-store, and the card is mailed out within a few weeks. A credit officer confirmed that the approach was developed in part to lower exposure to credit card fraud, a problem that has become rampant in recent months. For instance, a ring of Florida shoppers used forged drivers' licenses and false addresses to open dozens of instant accounts at dozens of retailers, including Montgomery Ward, then immediately charged them up to the limit, later fencing the ill-gotten gains.

Target's card may be used at any Dayton's, Hudson's, Marshall Field's or Target store, and is issued by Retailers National Bank, which is owned by DH. Target had issued a credit card in the 1970s, but limited it to stores in the Minneapolis area.

The obvious advantage to Target, apart from a potential profit center along the lines of Sears' profitable credit card and a competitive advantage against retailers like Wal-Mart that don't offer a card, is an increased ability to sell big-ticket items. Consumers rarely have cash on hand for the price of a multimedia computer or a big-screen television, and few have enough of a Visa or MasterCard credit line available for such a purchase.

Mass merchants have been at a disadvantage in selling such products since category killers like Circuit City, CompUSA and Best Buy have introduced private lable credit cards with immediate acceptance, and then have promoted them with "one year/same as cash" plans that allow shoppers to pay for purchases as much as a year after the transaction with no interest or late-fee penalty.

Best Buy director of accounting services Chris Steele noted that its customers tend to make major purchases when first applying for the Best Buy credit card, but after that, the average ticket is "a mixture of large and small transactions." Those customers become loyal shoppers, he said.

Best Buy, he said, runs the card as a customer service, not necessarily as a profit center. And the fact that every store card purchase is at minimum "90 days/same as cash" is heavily promoted in the company's flyers.

The Caldor card, issued by Fleet Financial, Providence, R.I., offers a number of features, including a rebate program payable in Caldor gift certificates redeemable only for additional purchases. The card program includes:

* No annual fee;

* A 25-day grace period on interest if the balance is paid in full;

* A coupon good for 10% off the first purchase at Caldor;

* An interest rate of 16.25%, following an introductory rate of 9.9% for the first 90 days;

* A rebate of 1% of purchases, regardless of where made;

* An additional rebate of 1% on the first $1,000 in purchases from Caldor, or 2%, and 1% more on purchases beyond $1,000, or 3%.

The rebates will be paid in October of each year--just in time for Christmas shopping.

"We believe the new cobranded Visa will be a terrific payment vehicle for our customers, especially with the Christmas selling season fast approaching," said chairman and chief executive officer Don Clarke. "We look forward to working with Fleet and to taking advantage of the potential marketing synergy of Fleet and Caldor as our marketing areas have significant overlap."

The deal with Caldor is the first co-branded card Fleet has issued with a retailing partner.

Although co-branded cards are a fixture in retailing, such as at Nordstrom, the Caldor card apparently is the first for a discounter.

Co-branded cards provide a major advantage over a proprietary credit card: giving the cardholder added purchasing power. Customers may want to be loyal to a retailer, such as Nordstrom, but also use their cards at other types of retail establishments, said a spokeswoman for the American Bankers Association.

Both parties share in the interest revenues from cobranded cards.