Focus on Consumer Credit: Stakeholders Say Consumer Credit Financing Can Increase Sales Up to Ten Times

Focus on Consumer Credit: Stakeholders Say Consumer Credit Financing Can Increase Sales by Up to Ten Times - October 2021

By Jennifer Bardoner

The “buy now, pay later” model has been shown to drive ticket sales, but the flooring industry has been slow to adopt financial programs that allow customers to spread their purchase cost into manageable monthly payments. Non-consumer finance retailers could be leaving thousands of dollars on the table with every purchase, depending on those using these systems, and that was before home improvement spending grew nearly 3% to $ 420 billion. , in 2020, according to Harvard University Joint. Researchers from the Center for Housing Studies, who also point out that another growth of 4% is expected by 2021.

“When it comes to home improvement, offering financing options can shift consumers out of a ‘What can I afford?’ to ‘What do I want?’ ”Says Jason Farmer, vice president of advertising, brands and payment solutions for Synchrony, which partners with retailers nationwide to offer consumer financing options. “In a recent survey, Synchrony found that 75% of home improvement dealers said that offering financing options increased the average number of tickets sold. And 65% said the average sale increased by roughly 10-30%. “

Many, like the retail members of CCA’s shopping groups, use revolving credit programs in the form of a brand name credit card, which offer an unsecured line of credit that can be used over and over again to make purchases, which also drives store loyalty and long-term sales. . An article from national debt service provider Americor reports that more than 60% of consumers shop more often with retailers with whom they have a store credit card, and are also more receptive to communication about events and promotions. that retailer. And a 2019 article from global e-commerce provider Scalefast quantifies that as roughly four additional store visits per year per cardholder.

Whether short-term or long-term, brand name credit cards are big business. Private label credit card payments, which represent a growing percentage of all credit card payments, according to the Federal Reserve, have grown 12.7% per year in number and 11% per year in value. since 2015. The 2019 Federal Reserve Payments Study put them worth $ 340 billion in 2018, the latest data available.

“Our average ticket for financed purchases is up to three times the average credit card purchase,” says Keith Spano, president of Flooring America, Flooring Canada, International Design Guild and The Floor Trader at CCA. “It is not unusual for consumers to take advantage of consumer financing not only to buy better products, but to add a room or two to their original purchase.”

Spano says that 85% of CCA member retailers take advantage of Synchrony’s financing program on a monthly basis, and that customers have come to trust it. “Consumer finance has been an integral part of the sales process for CCA members for as long as I can remember, but the pandemic has certainly reinforced the use of consumer finance by our members as our consumer expected.” He says. Farmer points to Synchrony research that found that 40% of surveyed flooring customers always seek financing options for large purchases, and that approximately one-third of Synchrony cardholders would walk away from a purchase if financing was not available.

The opportunity to pay the purchase price instead of being in debt to the amount in your bank account when you decide to buy often comes with high consumer interest rates, and retailers similarly don’t have the luxury of this option. for free. Although major brand partners like Shaw often lower the cost for retailers, whose combined volume can lead to competitive rates up front, it’s worth noting that “competitive” can be a nuanced term.

“As a manufacturer, we partnered with a vendor to consolidate the volume of consumer financing for a large group of our clients, in order to provide our clients with access to a lower-cost financing solution,” says Alan Hundley, vice president of corporate finance. for Shaw Industries. “The more volume we can add to the program, the more affordable it will be for everyone. We have occasional promotional rates using our own funds [to supplement the cost]. “Hundley adds that the discounted rates specific to Shaw brands, as well as purchases in general, as the cards can generally be used on any merchandise at a participating retailer,” have helped us drive uptake and use of the Program”.

The growing pool of financial partners has led to greater overall competitiveness, Hundley notes. “We realized that flooring retailers really weren’t using this to the extent that other retailers, like mattresses and furniture, were using it, and we felt cost was one of the reasons,” he says of Shaw’s decision. of transitioning from Synchrony to Wells Fargo for its financing program beginning in 2019. “There was a major vendor in the industry at the time, and we really didn’t feel like it was giving the industry enough competitiveness around rates. So we brought in another competitor. “

Dal-Tile Sales Director Tony Wright also cites affordability as a potential barrier to utilizing the program, but on the consumer side, prompting Dal-Tile to launch a new financing program through Service. Finance at the beginning of the year. Increase Dal-Tile’s (and parent company Mohawk) existing revolving credit option through Synchrony.

Following the model of installment loans, which are often used to make car purchases, the new program offers a fairly low fixed interest rate (6.99% to 9.99%, depending on the program or loan product used) and a longer payback window. Typical consumer revolving credit promotions, such as six- or 12-month deferred interest, can still be unrealistic for many buyers, he says, and the cost to the retailer “increases significantly” when the terms of the revolving credit contract are they extend to make it affordable for the consumer.

“With revolving credit, typically what is offered in the flooring industry is 12-month deferred interest,” says Wright. But think about it, $ 10,000 divided by 12 months is $ 833 per month. Most homeowners don’t have that in their budget. “By giving buyers up to ten years to pay the cost, which can run to more than $ 15,000 for tile,” the most expensive flooring option sold by retailers. ” According to Wright, customers may be even more likely to spend more on that one-time purchase that, unlike a car loan, is unsecured, making it easier for buyers to qualify for financing.
Wright says customers often come in with a set budget that is too low based on what they want and end up subtracting items or moving to lower-end products to maintain that budget.

“When offered an affordable payment option, be it revolving credit or long-term financing, clients are more likely to move forward without compromising what they want,” he says. “For some clients, a 12-month deferred interest plan is the right answer, and for others it might be a 60-month equal payment plan. Being able to offer the consumer affordable payment options that fit their particular budget is a key factor in closing the sale. “

In the pilot of Dal-Tile’s new program, ticket sales were up to ten times higher, although he expects the longer-term effect to be three times higher than unfunded purchases. Currently limited to the brand’s approximately 300 Statements Elite partners, though not Dal-Tile products, the program offers another tool for qualified retailers when combined with revolving credit financing established by the company through Synchrony, which that possibly allows a client to start with an installment loan. and then transfer your balance to your Synchrony account. Synchrony’s promotional terms – deferred payment / interest, interest-free / equal payment, and interest / fixed payment – can range from six to 60 months, says Farmer.

“It’s been shown in many, many, many studies that given a longer time to pay, consumers spend considerably more money,” says Wright.

To some extent, however, it will always depend on the sales associate and their pitch. Both Synchrony and Wells Fargo offer on-board training and ongoing resources.

“We partner with the vendor to help with marketing, advertising, training and technology materials to enable the program within our customers’ sales process,” says Hundley. “I have been very involved with all of our retail client incentive programs for the last five or six years and from my perspective this program is by far one of the best tools we offer our clients to grow their business and improve your earnings. . “

Copyright 2021 Floor Focus

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