Many big retailers have been getting out of the credit card business by selling their receivables and outsourcing the work to banks, but Cabela's Inc. has been expanding its credit card arm.
The Sydney, Neb., wilderness outfitter's World's Foremost Bank is one of only three merchant-owned credit card banks managing more than $1 billion of receivables, according to Kevin Werts, the bank's chief financial and marketing officer. (The others are owned by Target Corp. and Nordstrom Inc.)
The cards are cobranded general-purpose Visa products, not private-label ones. The vast majority of them reward customers for shopping at Cabela's, though the bank also has cobranding deals with International Speedway Corp. and Woodworker's Supply Inc.
Cabela's, which mailed 121 million catalogs last year, is best known as the world's largest direct marketer. But with industrywide mail solicitations setting records, and some top issuers trying to sell cards through bank branches, telemarketing and invitation letters bring in a notably small share of World's Foremost cardholders.
"The average consumer that meets our credit criteria probably gets so many offers in the mail that they don't look at them," Mr. Werts said.
Last year half of the cardholders his bank acquired signed up while browsing at Cabela's expansive hunting and fishing stores. Though mainstream issuers struggled to generate growth, the retailer's average managed credit card loans grew 23%, to $1.1 billion.
It helped that the retailer's technology lets customers find out within minutes if they have been approved. Last year total accounts averaged 760,000, and they generated close to 19% of Cabela's $1.8 billion of revenue.
Cabela's retail operation "influences the way we sign up accounts," Mr. Werts said. "Whenever the customer is touching Cabela's, that is when we bring them in. We don't do a lot of direct marketing for cards."
The average visit time to one of Cabela's 16 stores - which range in size from 35,000 to 247,000 square feet - is 3.5 hours, he said, and visitors are readily encouraged to apply for the cards.
Bob Simonson, an analyst with William Blair & Co. LLC, who has worked for Cabela's, said employees "are right there as you come in to sign you up" for the card. "They sign up an awful amount of people every time."
Analysts say focusing on in-store solicitation makes sense, even for a direct-marketing colossus.
"It's probably more cost-effective for them to do it in-store rather than through direct mail," said Jenny Roock, a research director at the research firm Mintel International Group Ltd. "If the catalogs are trying to drive people into the store, then the next move is to target people with credit card offers when they are in the store."
But direct mail remains an effective channel for signing card customers, Ms. Roock said, though banks and retailers look increasingly to in-store and online origination.
Since World's Foremost is a commercial bank owned by a nonfinancial company, its activities are limited to issuing consumer credit cards funded with brokered deposits. The bank says its focus is promoting a program that gives shoppers points when they pay for purchases with their World's Foremost Visa.
Cardholders receive a two-cent reward for every dollar spent at Cabela's, and a one-cent reward for every dollar spent elsewhere. Those rewards can then be redeemed for Cabela's merchandise.
"We are not pushing any other financial products," Mr. Werts said. "We really are a bank wrapped around a loyalty program."
Unlike retailers such as Neiman Marcus Group Inc., which sold its card portfolio to HSBC Holdings PLC last year, and Inter Ikea Systems BV, which sold its portfolio to Citigroup Inc., Cabela's says it fears a third-party financier would compromise the loyalty program it views as its major asset.
"We want our bank to focus on servicing our customer," said Ralph Castner, the chief executive of Cabela's and the chairman of World's Foremost. "I think if you had a third-party relationship, they would not be as responsive."
The bank's executives said another advantage of the loyalty program is its lowering of delinquency and chargeoff rates. Last year the chargeoff rate was only 2.1%, a particularly low figure in the retail card business. By comparison, Target's rate hovered at 7.2%. (It does not break out chargeoff rates for its cobranded general-purpose cards from its private-label ones.)
In effect, World's Foremost Bank says, reward points encourage brand loyalty as well as reliable bill paying. "Cabela's is a lifestyle, so people don't want to lose it, and they will pay us before they pay" other creditors, Mr. Werts said. Last year the average cardholder's FICO score was 778, well above the national average of 723.
Cabela's also is quick to distinguish itself from Target, which has both a credit card bank and an industrial loan company, and Wal-Mart Stores Inc., which is waiting out a six-month federal moratorium to create an ILC. The Bentonville, Ark., giant has said it would use the charter only to be its own acquirer on credit and debit card transactions, though opponents of the application say it is trying to get into retail banking.
"An ILC would give Wal-Mart broader powers than we have now, and it claims it has no plans to expand at this time," but World's Foremost is a pure credit card bank, Mr. Castner said.
According to Mr. Werts, Wal-Mart's goal "is probably totally different from ours."
Cabela's was a part-owner of the bank when it was founded in 1995, along with National Bank of Commerce and Trust Savings Association of Lincoln, Neb. In 2001 the retailer purchased National Bank's 50% share.
That year the bank switched from a federal charter to a state one.
"At the time, the federal regulators were getting a little queasy about credit card companies, and the state was a little more responsive," Mr. Castner said. The bank's proximity to the state capital in Lincoln provides more opportunities to interact with the state Legislature and regulators, he said.
That explanation makes sense, according to Timothy McTaggart, a partner at the law firm Willkie, Farr, & Gallagher LLP.
"It's really more an issue of what the relationship is like with the regulators," Mr. Gallagher said. "Having the focused attention of an approximate regulatory structure does enter in, in terms of people thinking about where to enter business and operate."
With eight Cabela's stores slated to open next year, the bank says, it is well poised for growth.
"We give the customer a new form of currency to be able to buy our merchandise, and basically for free," Mr. Werts said. "I'm not sure there is another card in the retail industry that gives that kind of reward."
