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NATIONWIDE DSN REPORT -- Two of the nation's largest discount chains are turning to plastic to strike gold.

During the Halloween weekend, Minneapolis-based Target Stores rolled out a new private label credit card at all of its stores, signing up customers at store entrances across the country. Shoppers were enticed to fill out applications with a free gift, a ladies' personal planner and calendar.

On Nov. 1, Norwalk, Conn.-based Caldor introduced a cobranded Visa credit card that promises to become a profit center in itself, as well as a vehicle for repeat purchases.

The Target card, which carries an effective annual interest rate of as low as 18% (in Minnesota, Texas and North Dakota) and as high as 21.6% (in Illinois and Ohio), marks the expansion of a test involving acceptance of parent Dayton Hudson's department store credit cards at Targets nationwide.

There is no annual fee, and a regional credit spokesman said that the average credit line will be $500 or so on in-store applications; consumers requiring more credit may fill out a more detailed form or apply for an increase later.

However, unlike cards from many other retailers, no instant credit is awarded. A brief form (name, address, employer, drivers license number and Social Security number) is filled out in-store, and the card is mailed out within a few weeks. A credit officer confirmed that the approach was developed in part to lower exposure to credit card fraud, a problem that has become rampant in recent months. For instance, a ring of Florida shoppers used forged drivers' licenses and false addresses to open dozens of instant accounts at dozens of retailers, including Montgomery Ward, then immediately charged them up to the limit, later fencing the ill-gotten gains.

Target's card may be used at any Dayton's, Hudson's, Marshall Field's or Target store, and is issued by Retailers National Bank, which is owned by DH. Target had issued a credit card in the 1970s, but limited it to stores in the Minneapolis area.

The obvious advantage to Target, apart from a potential profit center along the lines of Sears' profitable credit card and a competitive advantage against retailers like Wal-Mart that don't offer a card, is an increased ability to sell big-ticket items. Consumers rarely have cash on hand for the price of a multimedia computer or a big-screen television, and few have enough of a Visa or MasterCard credit line available for such a purchase.

Mass merchants have been at a disadvantage in selling such products since category killers like Circuit City, CompUSA and Best Buy have introduced private lable credit cards with immediate acceptance, and then have promoted them with "one year/same as cash" plans that allow shoppers to pay for purchases as much as a year after the transaction with no interest or late-fee penalty.

Best Buy director of accounting services Chris Steele noted that its customers tend to make major purchases when first applying for the Best Buy credit card, but after that, the average ticket is "a mixture of large and small transactions." Those customers become loyal shoppers, he said.

Best Buy, he said, runs the card as a customer service, not necessarily as a profit center. And the fact that every store card purchase is at minimum "90 days/same as cash" is heavily promoted in the company's flyers.

The Caldor card, issued by Fleet Financial, Providence, R.I., offers a number of features, including a rebate program payable in Caldor gift certificates redeemable only for additional purchases. The card program includes:

* No annual fee;

* A 25-day grace period on interest if the balance is paid in full;

* A coupon good for 10% off the first purchase at Caldor;

* An interest rate of 16.25%, following an introductory rate of 9.9% for the first 90 days;

* A rebate of 1% of purchases, regardless of where made;

* An additional rebate of 1% on the first $1,000 in purchases from Caldor, or 2%, and 1% more on purchases beyond $1,000, or 3%.

The rebates will be paid in October of each year--just in time for Christmas shopping.

"We believe the new cobranded Visa will be a terrific payment vehicle for our customers, especially with the Christmas selling season fast approaching," said chairman and chief executive officer Don Clarke. "We look forward to working with Fleet and to taking advantage of the potential marketing synergy of Fleet and Caldor as our marketing areas have significant overlap."

The deal with Caldor is the first co-branded card Fleet has issued with a retailing partner.

Although co-branded cards are a fixture in retailing, such as at Nordstrom, the Caldor card apparently is the first for a discounter.

Co-branded cards provide a major advantage over a proprietary credit card: giving the cardholder added purchasing power. Customers may want to be loyal to a retailer, such as Nordstrom, but also use their cards at other types of retail establishments, said a spokeswoman for the American Bankers Association.

Both parties share in the interest revenues from cobranded cards.

But Caldor views the cobranded card as a way to reduce the costs of selling goods on credit, rather than a way to make a profit, chief financial officer Robert Schauman said.

If customers use a Caldor card, the chain avoids paying the 1% to 2% charge incurred if they use someone else's card, he said.

Because of merchandise markups, the rebate, payable in goods, actually costs Caldor about 70 cents on the dollar, he said. Moreover, not every customer will redeem the rebates, Schauman said, further reducing net costs.

Another advantage of a cobranded card is that customers tend to use them for other types of retail purchases, driving their balances higher and increasing interest revenues for both parties, he said.

Caldor still accepts Discover, American Express, Master-Card and other Visa cards.

Both Wal-Mart and Kmart have made attempts of late to provide a credit facility. Kmart has reportedly tested a credit card of its own, with unknown results, and Wal-Mart has tested several approaches. Many of its supercenters, like one that recently debuted in Tulsa, Okla., now offer full-service banks in-store, with a short-term loan specialist on duty for extended hours, specifically to approve fast loans of $1,500 or so to qualified shoppers (generally homeowners and regular State Bank customers). The loans are provided by State Bank Inc., which is owned by the Walton family.

Several Wal-Mart stores in Tennessee and Georgia have tested a store-specific credit card. The card, promoted very consrvatively (one shelf-top talker) in the consumer electronics department, allows the user to charge purchases only at the issuing store, and seemed to be offered only to shoppers considering a major purchase, like big-screen television. The CE department manager appeared to be the only floor-level employee authorized to discuss the credit card.

Bradlees, the Northeast upscale regional discounter, has had its own credit card for several years.

Electric Avenue & More, the Montgomery Ward superstore that links its largerticket categories, like furniture, computers and video, offers an on-premises credit officer in addition to its instant Ward credit card. For purchases above the Ward card limit (generally under $1,000 on instant cards), the officer will attempt to first combine various existing credit facilities, and then, if necessary, arrange for a third-party loan.

The downside to discount store credit cards includes the administrative expense and the disruptive effect on inventory float resulting from the extension of credit on low-cost, low-margin goods. If paper towels are purchased by a retailer on 60-day terms, and sold almost at cost, waiting 60 days for consumers to pay for their purchases could cost a retailer interest and tie up a lot of already marginally profitable inventory dollars.

Target's credit card appears to resemble Sears' strategy, which extends a limited credit line to just about anyone, with the limit raised on an as-needed basis. However, Sears sells very few lowmargin commodity products like household cleaners, which lowers its exposure to unprofitable credit sales.

Prior to the introduction of the Target card, the chain accepted virtually all national credit cards, including American Express, Visa/Mastercard, Discover and Diners Club.