Sears Card Profitability

A recent listing of the most profitable card issuers listed Sears, Roebuck and Co. as the third most profitable portfolio in the U.S., trailing only Citigroup and MBNA. In 2001 Sears earned $1.53 billion on its $22.4 billion of card receivables, compared to Citi's earnings of $2.13 billion and MBNA's earnings of $1.69 billion. About $5.2 billion of Sears portfolio is in its co-branded Sears MasterCard product. The surprising aspect of the Sears ranking is that its portfolio of receivables is substantially smaller than the other leaders. Citigroup has nearly $100 billion of receivables in its Visa and Mastercard portfolios.

Kevin Keleghan, President of Sears credit services, told the American Banker that there are several reasons his company is able to extract higher profits per dollar of receivable. Account acquisition costs are lower than for other card issuers because it offers instant credit at its store network. In addition, the Sears brand name appears to give the issuer extra appeal in direct marketing solicitations. Keleghan said that Sears' direct mail response rates are "typically in the 1.2 percent to 1.4 percent range, as compared to the industry-wide direct -mail response rate of about 0.5 percent. (according to BAI Global, a research firm based in Tarrytown, NY that tracks credit card marketing programs). That gives Sears an account acquisition cost of about $30-35, far below the industry average.

In addition, Keleghan said that following the credit quality problems Sears had in 1997 and 1998, "we concentrated on getting best-in-class, in-house scoring technology as good as anyone out there." Chargeoffs for the entire portfolio were 5.4 percent in 2001.

To boost spending, Sears began marketing Sears MasterCard upgrades in 2000 to 10.5 million light users of its Sears proprietary charge card, and another 8.5 million inactive account holders. In-store spending by those who took the new card surged 35 percent. The boost in card spending on the Sears MasterCard has helped to offset the steady decline in store sales on the Sears proprietary card, which has fallen to about 47.4 percent in 2000 from 57 percent in the mid-1990s.