Consumer Credit Focus: Stakeholders say consumer credit financing can increase sales 10-fold


By Jennifer Bardoner

The “buy now, pay later” model has been shown to drive ticket sales, but the flooring industry has been slow to introduce funding programs that allow customers to divide their purchasing costs into manageable monthly payments. Retailers without consumer funding could leave thousands of dollars on the table with every purchase, according to users of these systems – and that was before home improvement spending rose nearly 3% to $ 420 billion in 2020, according to the Harvard University Joint researcher Center for Housing Studies, who also note that further growth of 4% is expected in 2021.

“When it comes to home improvement, offering financing options can shift consumers away from the ‘what can I afford’ mindset. to ‘What do I want?’ ”said Jason Farmer, vice president of Advertising, Branding and Payment Solutions at Synchrony, which works with retailers across the country to offer consumer finance options. “In a recent survey, Synchrony found that 75% of home improvement retailers said offering financing options increases their average ticket sales. And 65% said the average sales increased by around 10 to 30%. “

Many, like the retail members of CCA’s purchasing groups, use branded credit card revolving credit programs that offer an unsecured line of credit that can be used over and over again to make purchases, increasing loyalty and sales in the store over the long term. An article by national debt servicer Americor reports that more than 60% of consumers shop more often at retailers who have a store credit card, and they are also more receptive to communications about that retailer’s events and promotions. And an article by global e-commerce provider Scalefast from 2019 puts this at around four additional store visits per year and cardholder.

Short or long term, branded credit cards are big business. Private label credit card payments, which represent an increasing percentage of all credit card payments according to the Federal Reserve, have increased 12.7% annually in number and 11% annually in value since 2015, valued at $ 340 billion in 2018, the latest available data.

“Our average funded purchase ticket is three times the average credit card purchase,” said Keith Spano, president of CCA’s Flooring America, Flooring Canada, International Design Guild and The Floor Trader. “It’s not uncommon for consumers to use consumer finance not only to buy better goods, but also to add a room or two to their original purchase.”

Spano says 85% of CCA’s member dealers take advantage of the Synchrony funding program on a monthly basis – and customers are now relying on it. “For as long as I can remember, consumer finance has been an integral part of the sales process for CCA members, but the pandemic has certainly encouraged our members’ use of consumer finance, as our consumers have come to expect,” he says. Farmer points to Synchrony research which found that 40% of flooring customers surveyed are always looking for funding options for large purchases, and that around a third of Synchrony cardholders would abandon a purchase if funding was not available.

The ability to pay the purchase price instead of being tied to the amount in your bank account when making the purchase decision is often associated with high interest rates for the consumer, and merchants do not get the luxury of this option for free either. While large branding partners like Shaw often cut costs for retailers whose combined volume can give them competitive pricing right out of the box, it’s worth noting that “competitive” can be a nuanced term.

“As a manufacturer, we are working with a provider to consolidate the consumer finance volume of a large group of our customers in order to give our customers access to a more cost-effective finance solution,” said 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 occasionally have promotional prices with our own resources [to supplement the cost]. ”Hundley adds that discounted pricing on Shaw’s brands, as well as bulk purchases, since cards can typically be used on all goods at a participating retailer,“ helped us increase program adoption and use ”.

Hundley notes that the growing pool of financial partners has increased overall competitiveness. “We found that flooring retailers really weren’t using this as much as other retailers like mattresses and furniture were using it, and we felt that cost was one of the reasons,” he says of Shaw’s decision to use it Synchrony to Wells Fargo for its 2019 funding program. “There was a major supplier in the industry at the time, and we just didn’t feel that this would give the industry enough competitiveness in terms of pricing. So we brought another competitor into the mix. “

Dal-Tile’s sales director Tony Wright also cites affordability as a potential hurdle to using the program – but on the consumer side, which prompted Dal-Tile to launch a new funding program through Service Finance earlier this year bring. Synchrony expands Dal-Tile’s (and parent company’s Mohawk) existing revolving credit option.

Modeled on installment loans, which are often used for car purchases, the new program offers a relatively low fixed interest rate (6.99% to 9.99%, depending on the program or loan product used) and a longer payback window. Traditional consumer revolving loan promotions like six or twelve month deferred interest can still be unrealistic for many shoppers, he says, and the cost to the retailer “increases significantly” if revolving loan terms are extended to make them affordable to the consumer close.

“A revolving loan typically offers a 12-month deferred rate in the flooring industry,” says Wright. “But think about it, $ 10,000 divided by 12 months is $ 833 a month. Most homeowners don’t have that in their budget. ”By giving buyers up to ten years to pay back the cost, which can be as high as $ 15,000 for tiles -“ the most expensive flooring option retailers sell ”, Wright says customers may spend even more on this one-time cash purchase, which, unlike a car loan, is unsecured, making it easier for buyers to qualify for funding.
Wright says customers often have a set budget that is too low based on their desires and end up pulling off items or switching to cheaper products to keep that budget on track.

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

In Dal-Tile’s pilot of the new program, ticket sales were up to ten times higher, although he expects the longer-term effect to be three times higher on average than unfunded purchases. Currently limited to the brand’s 300 or so Statements Elite partners – but not to Dal-Tile products – the program, combined with the company’s established revolving credit financing through Synchrony, provides another tool for qualified retailers that a customer may get started with an installment loan and then transfer your balance to your Synchrony account. Synchrony’s promotional terms – pay / deferred interest, equal payment / no interest, and fixed payment / interest – can range anywhere from six to 60 months, Farmer says.

“Many, many, many studies have shown that consumers spend significantly more money when they pay longer,” says Wright.

In some cases, however, it will always depend on the seller and his pitch. Both Synchrony and Wells Fargo offer onboard training and ongoing resources.

“We are working with the vendor to provide marketing materials, advertising, training and technology to integrate the program into our customers’ sales process,” says Hundley. “I have been extensively involved in all of our individual customer incentive programs over the past five or six years, and I believe that this program is by far one of the best tools we have for our customers to grow their businesses and increase their profits to enhance.” .”

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