Sears Portfolio for Sale

Sears, Roebuck and Co. announced in late March that part or all of its $30 billion credit card portfolio is for sale. Company CEO Alan Lacy indicated that the proceeds from the sale would allow the company to improve its balance sheet and focus resources (and investor attention) on its core retail business. The New York Times reported that Lacy had determined that the value of the company's credit operations " are not reflected in today's market valuation of Sears."

The sale would mark the end of an era for a company that pioneered and arguably perfected the retail store card model over the past 60 years. About 60 million Americans hold Sears card products. Sears created and later sold the general-purpose Discover card in the mid-1980s which directly challenged the Visa and MasterCard brands and popularized the idea of cash-back rebates. As recently as a year ago, the credit card division accounted for over half of Sears corporate profits. However, the card division experienced well-publicized credit quality problems in late 2002, particularly in its $12 billion MasterCard portfolio. In hindsight, analysts recognize that the portfolio was grown too fast. Its gold MasterCard product was introduced just three years ago and initially marketed to a select group of Sears proprietary cardholders. However, to accelerate portfolio growth the company also launched a direct mail campaign that attracted at least 2 million customers from outside the Sears proprietary cardholder pool. Apparently many new cardholders from both groups turned out to perform more poorly than expected. Sears stunned investors last October when it announced it would take an additional $222 million charge to cover card chargeoffs in the third quarter.

Sears CEO Alan Lacy told the American Banker that any deal that transferred the portfolio to another issuer would be a "partnership." This clearly indicated that Sears would prefer to retain the Sears brand name on the cards and collect a fee for every new customer signed up.