Once a financial services titan, Sears Holding Corp is
attempting to regain a foothold in consumer banking. Its goals are
more humble than its last iteration – a failed 2002 bid to gain an
industrial bank charter – but its strategy hews more closely to its
retail footprint this time around, reports Charles
Davis.
Go deeper with GlobalData
Sears is back in banking. Sears Holdings Corporation
– the parent group of Kmart, Sears and Roebuck – is the
fourth-largest North American retailer with approximately 3,900
retail stores in the US and Canada, but it has a chequered history
in financial services.
The appointment of Susan Ehrlich,
head of Sears’ financial services unit, shows that it means
business.
Ehrlich, an experienced retail
banker, joined Sears in 2006 from Washington Mutual (WaMu) where
she headed marketing for the company’s $20bn credit card portfolio.
Before that she managed new product development at Providian
Financial before it was bought by WaMu. She has also served as a
vice-president in the cards unit at Citibank.
In her role at Sears, Ehrlich said
the retailer’s target market includes a group she calls the
“disenfranchised”, who are fed up with overdraft fees and other
hassles.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“The banking environment has
changed such that there are a lot of Americans who don’t trust
their bank or don’t have access to banks anymore,” Ehrlich told
RBI.
Setting up in parking
lots
“The alternatives they have are setting up shop in our parking
lots anyway. We can do it less expensively, with safety and
security in mind, and our incentive really is to leave them with
more of their pay cheque in their hand so they can go make their
purchases.”
Since late last year, Sears Holding
Corp has been testing financial centres, where customers can go to
cash cheques, wire money and pay bills in eight Kmart stores in the
Chicago area. Ehrlich said Sears Holdings is continuing to
fine-tune its financial services offerings using the eight test
centres as laboratories.
“We are not yet at the point where
we think the service, its positioning in the store and its
marketing is perfect just yet, but we are getting close,” she said.
“We have ambitious goals for 2011.”
After merging with Kmart Holding
Corp in 2005, Sears’ network of stores grew by nearly a third, and
it gained exposure to a broader slice of the retail market. Sears’
flagship department stores sell big-ticket goods like appliances
and electronics. Kmart is a discount store, with a focus on
everyday items such as clothes, household goods and even some
groceries.
Its goals are to facilitate
consumer financial transactions – cheque cashing, money orders,
bill payment and prepaid card issuance and loading. Sears Holding
has no plans to offer current or savings accounts, and it has not
sought a banking charter since an unsuccessful 2002 application to
open an industrial loan company.
Ideal vehicle
But, according to Ehrlich, a generation of primarily younger
consumers who have, or previously had, low-balance current and
savings accounts has been growing rapidly, and has little interest
in current account relationships anyway.
Sears views its Kmart franchise,
with 1,327 stores across 49 US states, Guam, Puerto Rico, and the
US Virgin Islands, as the ideal vehicle for transactional financial
services.
“This is a point in time where
retail has a real opportunity to meet a shopper’s financial needs,
and I would rather us serve them as some of the cheque cashing
places and pawn shops,” Ehrlich said.
“If we are already running a store,
there is no reason why we can’t free people up to buy the important
things.”
Ehrlich views the “disenfranchised”
category much more broadly than the underbanked alone. She includes
immigrant consumers who have no credit history, or a very thin
credit file; consumers with damaged credit who are trying to
restore their creditworthiness; and also an entire generation of
younger, technologically sophisticated yet underbanked
consumers.
“These people, for a variety of
reasons, deeply distrust banks, yet they have the same financial
needs we all do,” Ehrlich said. “Their business and their loyalty
must be earned, and they see no reason why a prepaid card can’t do
everything they need financially.”
Down on credit – even if they can
get it – these consumers are eager for alternative banking
products, Ehrlich said.
That explains the success of two
Sears products that haven’t been seen in the US in decades –
layaway plans, in which a buyer reserves an article of merchandise
by placing a deposit with the retailer until the balance is paid in
full, and Christmas club accounts.
Christmas clubs, first popularised
during the Great Depression, were a way that frugal families could
budget for future costly events. Sears has made the concept more
attractive by offering savers a 3% bonus, while the real saving is
in avoiding interest charges. Sears will add the bonus to account
balances accumulated before 15 November. As that is less than four
months from the card’s launch, Ehrlich said you would have to earn
9% annually to get an equivalent return.
“We have seen millions and millions of shoppers loading tens of
millions of dollars on their Christmas Club cards or placing
purchases on layaway plans,” Ehrlich said. “It is about providing
tools in keeping with the times in which we live.”
