Strong Response in Test Marketing Cited : Sears to Launch Credit Card Early
Citing strong consumer and merchant response to test marketing of its new credit card, Sears, Roebuck & Co. said Tuesday that it will launch its Discover card nationwide later this month instead of in the spring as previously announced.
The Chicago-based retailer, which has moved aggressively into marketing financial services, also disclosed for the first time how much it is spending on the new credit card venture.
Edward A. Brennan, chairman and chief executive of Sears, said the after-tax loss on the Discover card operation and its national rollout in 1986 is estimated to be $115 million. The start-up costs include advertising, operations support, systems development and loss reserves.
The national launch comes less than a year after Sears first disclosed plans for the new credit card, which offers services of a conventional bank credit card and at the same time provides access to the retailing giant’s array of financial services.
Brennan said in a statement that the company decided to go ahead earlier than planned “because the response by consumers and merchants in pilot markets has exceeded our expectations.”
Discover was introduced in two test markets last fall--Atlanta in September and San Diego in October. “Based on the results we have seen in these pilot markets,” Brennan said, “we are confident that Discover card will have a substantial market position nationally by the end of the year.”
A Sears spokesman said the response to Discover direct-mail solicitation in Georgia exceeded the company’s projection by more than 400%. He said the response in San Diego “was similar,” but he declined to elaborate. Brennan was quoted in a newspaper interview last fall as saying that 130,000 applicants had responded in Georgia.
Fast Sign-Up Rate
Sears said it has signed up a number of national companies to accept the card. Included are American and Eastern airlines, Budget, Hertz and National car rental companies, Best Western International, Hilton hotels, Denny’s, Dayton Hudson, Montgomery Ward, Zale, and Unocal.
The Sears spokesman said merchants continue to be signed up at a rate of 1,200 a day. By last October, Sears had about 100,000 establishments signed up for Discover’s national rollout.
Sears is charging merchants an average transaction fee of 1.89%, compared to the 2% to 5% charged by other conventional credit cards such as American Express, Visa and MasterCard. Discover’s finance charge for consumers is 19.8% in most states, but Sears is not planning to charge an annual fee for two years.
John Landschulz, an analyst with the Chicago-based brokerage Mesirow & Co., said the finance charge is offset by premiums offered through members of the Sears Financial Network. The card is being introduced by Sears’ Dean Witter Financial Services Group.
Sears did not disclose the size of Discover costs incurred in 1985. But Walter Loeb, an analyst at Morgan Stanley & Co. in New York, estimated that the card will cost Sears $35 million for the year ending this month.
Both he and Landschulz expect Sears to incur further losses on Discover in 1987, but they expect the company to break even on the card operations by 1988.
The marketing of Discover will begin with a print campaign Jan. 23 and will be followed by TV advertising that will debut on NBC’s Super Bowl broadcast Jan. 26. It will be the first time that Dean Witter will advertise on the Super Bowl, which commands premium advertising rates.
In March, Discover will launch a direct marketing blitz in key cities, including Los Angeles and San Francisco.
