Playing The Cards
When Pier 1 Imports was exploring opportunities to boost income last year, the struggling home furnishings chain sold its private label credit card division to JP Morgan Chase for $155 million.
A lot of retailers have gone the way of Pier 1 and exchanged their private label cards for co-branded MasterCard or Visa cards with financial institutions.
The single greatest reason that prompts retailers to switch to co-branded cards is the high risk of defaults that many private label cards carry, said Michael L. Walden, professor of economics at North Carolina State University.
Kohl's Corp. also sold its card accounts to JP Morgan Chase for $1.5 billion last year. In 2005, Federated Department Stores sold a portfolio of its private label and Visa cards to Citigroup for $2.7 billion. In 2003, Sears, Roebuck & Co. sold its 59 million credit card accounts to Citigroup for approximately $32 billion.
Private label credit cards offer retailers a number of advantages, according to Walden. Among them are detailed data on their customers' shopping habits, greater loyalty and interest rates that are often higher than 20 percent compared to the single-digit rates charged by bank operators.
For example, last year, Target cracked the list of Top 10 credit card issuers in the country posting $693 million in earnings before taxes for its credit card division, representing more than 15 percent of its total earnings for 2006. But analysts worry that the prominent role the card plays in its operations puts Target at risk if the economy tumbles.
“Target's credit portfolio appears to be wellrun, but it is worth watching, given that exposure to an in-house credit card business has tripped up other retailers,” writes Morningstar analyst Joseph Beaulieu. “[The chain] could suffer from any major economic shocks, causing lower sales and credit card defaults.”
That risk was highlighted in March, when the Mortgage Bankers Association revealed that there had been a significant increase in delinquencies for all mortgage loans last year, including an increase of 10 basis points for prime loans, 170 basis points for sub-prime loans and 28 basis points for FHA loans.
There has not yet been any spillover effect on the credit card industry, according to Mark Vitner, senior economist at Wachovia Bank, but many market experts worry that American consumers might soon become overwhelmed with the $2.41-trillion debt they have accumulated in recent years.
Another reason for the shift toward co-branded cards is that consumers are demanding the convenience of cards that can be used at a variety of venues, not just at one store, says Gwenn Bezard, research director with the Boston-based Aite Group, an independent research and advisory firm. “I think the overall activity you get with a Visa or MasterCard portfolio is simply higher than with a private label credit card,” he notes.
As a result, it makes sense for retailers to opt for co-branded cards, since banks tend to have more stringent requirements for credit card applications and will take away some of the risk should the economy bottom out. “The benefit of private label cards is primarily loyalty and more frequent store purchases, but financially, there is some risk involved if your population has a greater default rate,” says Walden. “Private label cards are a [good] marketing tool, but their popularity will probably run out its course.”
DDR Has Heart
Developers Diversified Realty donated $10,000 to charity on behalf of 20 young people across the United States in recognition for their Good Samaritan acts in their communities last year. “The Kids with Heart” award pays tribute to 200 children, who volunteered in their communities. The Beachwood, Ohio-based developer of community shopping centers presented a $500 check in the name of each of the 20 grand-prize winners to the charity of his or her choice. In addition, each of the nine finalists from the 20 DDR centers received a $100 shopping spree. The winners were selected by a team of judges from their communities.
LBDS Cell Search
LBDS mall directory software lets shoppers scan store listings, view sales and search for items from their cell phones. The technology allows mall owners and retailers alike to personalize their customers' shopping experience giving them customized store and sales information. Mobile shoppers can also use the service to locate stores and even mall facilities. The online service, purchased by mall owners or management, is free for shoppers. Mall management doesn't incur any additional expense purchasing hardware or hiring staff to implement or maintain their directories.
Edens' ADDYs
Edens & Avant picked up five ADDY Awards for their “Building Retail” campaign. The Columbia, S.C.-based retail development firm received “Best of Interactive” for its branding campaign targeted to retailers from the Columbia Advertising Club, the local affiliate of the American Advertising Federation. In addition to its “Best of,” the owner and developer of 150 neighborhood shopping centers along the East Coast received four Gold ADDYs in the following categories: 4-Color Ad Campaign; Web site, Flash Video and Comprehensive Video incorporating the Web site, ads, flash video and printed materials. The firm teamed with Capsule, a Minneapolis-based design firm and Columbia-based Web development firm True Matter LLC.
Love Shack
Lovejoy Wharf, LLC a mixed-use waterfront development on Boston Harbor, has awarded its automated parking garage to A.P.T. Parking Technologies. A.P.T., and its partner Westfalia Technologies, will construct the largest automated garage to date, providing 300 parking spaces occupying a small footprint within the 455,000-square-foot project. Drivers enter the garage, park their vehicles in a transfer cabin on the ground floor, turn off the engines and leave. The vehicle, parked on a pallet, is moved through the automated garage by a computer-operated system of robots that places vehicles in a parking space. Vehicle retrieval, activated by swiping a card, takes less than two minutes. The automated garage, scheduled for completion in 2009, will provide parking at the mixed-use center that contains 250 residences and more than 40,000 square feet of commercial and retail space.