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Credit cards do more than half of Jefferson Ward biz
MIAMI--Credit cards are big business at Jefferson Ward--producing more than 50% of its total volume--while most other discount chains remain firmly entrenched in their cash-and-carry roots.
Jefferson Ward accepts the same two bank cards as most other chains. The difference lies in the unique coattail benefits it receives from parent company Montgomery Ward, which issues, administers and markets its own first-party credit cards.
The Miami-based discounters's credit card volume has taken on even greater importance in the last several years as it struggles to return to profitability.
The two cards--Jefferson Ward's and Montgomery Ward's--differ in cosmetics only; they may be used interchangeably at any of the chain's retail locations or for mail order buying.
Though their trading areas overlap in few locations, that advantage is realized in the large number of Northern Montgomery Ward card-carrying vacationers who annually head to the Sunbelt during the winter months.
As a result, the operations draw from a shared customer base of 8.3 million active accounts producing roughly $1 million to $3 million in daily payments, according to Tom Hester, Montgomery Ward's national credit relations manager. Jefferson Ward's credit cards produce about 600,000 active accounts monthly on an approximate base 03 1.2 million accounts.
By contrast, total credit card volume at many discounters is 5%-10%, with most chains offering only MasterCArd or Visa. With some notable exceptions--such as at Caldor or Murphy's Mart--chains have stayed away from the first-party cards as too expensive to administer.
"We haven't placed much emphasis on credit cards or spent a lot of time assessing their impact--they're only a customer convenience," said Charles Selk, Wal-Mart's vp/ controller. "We're basically a cash business operating at low margins. Any extensive use of credit cards would tend to lower margins still further, so we don't really encourage their use."
retailers are charged variable rates for the third party cards, estimated between 1% and 2% for American Express and slightly lower for the BAnk cards, based on actual volume.
At Jefferson Ward/Montgomery Ward, the cost to administer the first party card has historically been closer to that of the bank credit cards, with the goal of completely breaking even through a series of investments and borrowings at or near the prime rate.
But the chain's use of its own card goes well beyond cost considerations, influencing many aspects of its marketing and merchandising strategies, Hester said.
"They key difference, the way we look at it, is that the bank card customer is everybody's customer, whereas those with the Montgomery Ward card belong to us," he explained.
The chain aggressively "sells" the card to a carefully targeted base that is younger and more affluent--the two important characteristics in its attempts to upscale. Those customers are sought out through in-store, direct-mail and telephone solicitations from purchased lists, census tract data and new homeowner lists in the stores' trading areas, according to Hester.
Since the cardholder customer base changes at a rate of 25% each year, the effort is ongoing.
Solitations, collections and other administrative functions connected with the operation are handled by a small army of 2,500 workers.
But despite the required time effort and investment, the payoff is substantial, according to Hester. The average credit card customer transaction was estimated at nearly double that of the average cash transaction. And, The typical Montgomery Ward cardholder spends more than $200 more each year on the card than the typical bank cardholder.
The Montgomery Ward card also serves as a prime advertising vehicle, with four to six merchandise and informational inserts sent with monthly statements. Additionally, merchants and marketers at the chain have access to demographic profiling information produced by the card, aiding in their planning process.
But unlike other chains, the first party credit card has been in use for years at Jefferson Ward, which has also been able to realize greater economies of scale through its shared arrangement with Montgomery Ward. Other chains have been unwilling or unable to make use the same commitment.
For example, Murphy's Mart has offered its own card since 1970, under an administration contract with the Mellon Bank of Pittsburg. However, that card has been available only in Pennsylvania and has won little active marketing support.
While total credit transactions were estimated at about 5%, the Murphy Card contribution to that was described as "miniscule" by chain and bank executives.
Murphy's Mart, as a result, was said to currently be assessing its credit program.
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COPYRIGHT 2004 Gale Group
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