Private-Label Credit Cards: A Tale of 2 Management Firms

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NEW YORK -- In the weeks before Halloween, Citicorp Retail Services began mailing out preapproved credit card applications to nearly a half-million customers of 66 C.R. Anthony Stores in the Southwest and as far north as Idaho. By the day after Halloween, sales clerks throughout the 284-store chain of junior department stores were ringing up the first proprietary credit card sales in C.R. Anthony's more than 70-year history.

Says Richard Kane, president of Citicorp Retail Services: "They basically didn't believe in credit."

Proprietary cards may be old hat to most retailers, but not to the C.R. Anthony Co., which had $416 million in sales in 1985. The company's stores have been accepting MasterCard, visa, and American Express for some time. But it was not until last year that Mr. Kane was able to convince Robert Anthony, president of the Oklahoma City-based company and grandson of the founder, that the store card makes good retailing sense. Now Citicorp Retail Services is handling the chain's credit card marketing, financing, operations, and credit management services.

About the same time that Mr. Anthony was signing on the dotted line with Citicorp Retail Services, the company Mr. Kane sees as his chief competitor -- the General Electric Credit Corp. -- was busy signing a similar contract with Barney's, a New York clothier. Both Citicorp Retail Services and General electric Credit say they handle more than $2 billion a year in consumer receivables, dominating a market in which their customers have long thought of their product as a necessary evil.

Traditionally, retialers have viewed credit as a nonprofitable cost of doing business -- in effect a costly service they had to provide to be competitive. Bank cards and travel and entertainment cards generally cost merchants about 3% or 4% of sales from those cards; proprietary cards are slightly more expensive. Yet retailers that hook up with Citicorp Retail Services or General Electric Credit are not hoping to cut those costs but rather to increase the effectiveness of credit.

"Credit is not usually one of the strengths that a retailer has," Mr. Kane says. "The talents that strong retailers usually have are, first, buying; second, merchandising; and third, store site selection. It isn't necessarily true that the people who do these three things superbly will also manage credit superbly."

Yet credit -- and particularly the private-label credit card -- is a subject of much retailer ambivalence. Numbers alone would seem to indicate that successful retailers are willing to accept what their credit managers tell them: Get proprietary cards into the hands of their customers, at whatever cost.

According to the National Retail Merchants Association, 99 of the top 100 department stores have proprietary credit card programs. Ten of the 99 have selected Citicorp Retail Services to manage their programs. Accordingly, the company -- a business division of Citicorp -- now claims it "has 100% of the [biggest] department stores which employ a third-party program."

Nevertheless, when department store credit executives gather -- as they do regularly at National Retail Merchant Association conferences -- the tone they take is typically defensive. They often seem to be convincing themselves that credit is worth the cost. According to Alan S. Hooker, divisional vice president for credit at John Wanamaker's in Philadelphia, "The principal is this: Retail proprietary cards cost a lot, perhaps more than other cards, but it may be worthwhile to pay a little more in expense to get a lot more in sales. …