Focus on consumer credit: Stakeholders say consumer credit financing can boost sales tenfold


By Jennifer Bardoner

The ‘buy now, pay later’ model has been shown to boost ticket sales, but the flooring industry has been slow to adopt financing programs that allow customers to share their purchasing costs. in manageable monthly payments. Retailers without consumer finance could leave thousands of dollars on the table with every purchase, according to those who use these systems – and that was before home improvement spending jumped nearly 3%, to 420. billion dollars, in 2020, according to Harvard University Joint Researchers at the Center for Housing Studies, who also note that another 4% growth is forecast for 2021.

“When it comes to home improvement, offering financing options can take consumers away from a ‘What can I afford? To “What do I want?” ”Said Jason Farmer, vice president of advertising, branding and payment solutions for Synchrony, which partners with retailers across the country to provide financing options to consumers. “In a recent survey, Synchrony found that 75% of home improvement dealers said that offering financing options increased their average sales tickets. And 65% said the average sale increased by around 10% to 30%.

Many, like retailers who are members of CCA’s buying groups, use revolving credit programs in the form of a branded credit card, offering an unsecured line of credit that can be used over and over again for purchases. , thus building store loyalty and long-term sales. . An article from national debt service provider Americor reports that over 60% of consumers shop more often from retailers with which they have a credit card in store, and they are also more receptive to communications about events and promotions. this retailer. And a 2019 article from global e-commerce provider Scalefast quantifies it as roughly four additional store visits per year per cardholder.

Whether short term or long term, branded credit cards are big business. Private label credit card payments, which account for 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 a value of $ 340 billion in 2018, the latest data available.

“Our average ticket for funded purchases is up to three times the average purchase by credit card,” says Keith Spano, president of CCA Flooring America, Flooring Canada, International Design Guild and The Floor Trader. “It’s not uncommon for consumers to take advantage of consumer finance to not only buy better products, but also to add a coin or two to their initial purchase.

Spano says 85% of CCA member retailers take advantage of Synchrony’s fundraising 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 increased the use of consumer finance by our members, as our consumer is. waiting there, ”he said. Farmer points to the Synchrony study which found that 40% of flooring customers surveyed are still looking for financing options for large purchases, and that about a third of Synchrony cardholders would forgo a purchase if the financing didn’t. was not available.

The ability to pay the purchase price instead of being indebted for the amount in your bank account when you decide to buy often comes with high interest rates for the consumer, and retailers don’t get it either. the luxury of this option for free. While major brand partners like Shaw often reduce costs for retailers, whose combined volume can earn them competitive prices upfront, it should be noted that “competitive” can be a nuanced term.

“As a manufacturer, we partner with a supplier to consolidate the volume of consumer finance for a large group of our customers, to provide our customers 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 becomes for everyone. We have occasional promotional rates using our own funds [to supplement the cost]. “Hundley adds that Shaw’s brand-specific discounted rates as well as global purchases, as the cards can generally be used on any merchandise at a participating retailer,” have helped us promote acceptance and use of the program “.

The growing pool of financial partners has led to increased competitiveness overall, Hundley notes. “We noticed that flooring retailers really didn’t use this as other retailers, such as mattresses and furniture, were using it, and we thought cost was one of the reasons He said of Shaw’s decision to switch from Synchrony to Wells Fargo for its funding program starting in 2019. “There was only one major supplier in the industry at the time, and we didn’t really did not feel that this gave the industry enough competitiveness in terms of rates. So we introduced another competitor into the mix.

Dal-Tile’s sales manager Tony Wright also cites affordability as a potential barrier to using the program, but on the consumer side, which has led Dal-Tile to launch a new funding program through Service. Finance early in the year, increasing Dal-Tile’s (and parent company Mohawk’s) existing revolving credit option through Synchrony.

Inspired by installment loans, often used to buy a car, 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 window of longer repayment. Common consumer revolving credit promotions like six- or 12-month deferred interest can still be unrealistic for many buyers, he says, and the cost to the retailer “increases dramatically” when revolving credit terms are reduced. stretched to make it affordable for the consumer.

“With revolving credit, what you typically see offered in the flooring industry is 12-month deferred interest,” says Wright. “But think about it, $ 10,000 divided by 12 months is $ 833 a month. Most homeowners don’t have this in their budget. By giving buyers up to ten years to pay off the cost, which can go up to $ 15,000 for tile – “the most expensive flooring option sold by retailers,” according to Wright, customers of Wright may be even more likely to spend more this time alone. purchase which, unlike a car loan, is not guaranteed, making it easier for buyers to qualify for financing.
Wright says customers often arrive on a budget that’s set too low for what they want, and end up cutting items or switching to low-end products in order to keep that budget.

“When given an affordable payment option, whether it’s revolving credit or long-term financing, customers are more likely to go ahead without compromising on that. they want, ”he says. “For some clients, a 12-month deferred interest plan is the right answer, and for others, it may be a 60-month equal payment plan. Being able to offer consumers affordable payment options that fit their particular budget is a key factor in closing the sale. “

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

“It is proven in a great many studies that, given a longer payment period, consumers spend a lot more money,” said Wright.

To some extent, however, it will still depend on the seller and their pitch. Synchrony and Wells Fargo both offer onboard training and ongoing resources.

“We are partnering with the vendor to help with marketing materials, advertising, training and technology to make the program a part of our customers’ sales process,” Hundley said. “I have been heavily involved in all of our retail customer incentive programs over the past five or six years and, from my perspective, this program is by far one of the best tools we offer to. our customers to grow their business and improve their profits. . “

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