Stores combine discounts with financing
By Jay McIntosh -- Furniture Today, August 29, 2005
High Point — Consumer financing remains an essential lure for retailers fishing for customers, but these days it's usually not the only bait in the water.
More and more, stores are combining financing with other promotions, like discounts or tax-free days.
"I think the big message is that you don't allow your financing program to be the only way of promoting your merchandise," said Joseph Zuber, who works with furniture retailers as a client manager for credit provider CitiFinancial.
A recent promotion by Kittle's Furniture in Indianapolis offered a summertime 10%-off sale combined with a one year no-payments, no-interest offer, for example.
Executives at financial service providers say the combination offers are just one branch of the evolutionary tree in consumer financing. Retailers and credit providers continue to tinker with the duration of no-interest financing offers, the terms attached to such offers, and how the use of credit is promoted.
"We have seen favorable results with longer-term promotions, which allow cardholders to spread their payments out over an extended period of time, such as 12, 18 or 24 months," said Terry Fuller, senior vice president of business development for Wells Fargo Financial Retail Services.
Financing offers are aimed at giving a consumer the confidence to buy a new bedroom or living room set on the spot, without worrying if she has the entire purchase price in her bank account. Fuller noted that Wells Fargo offers its clients a range of marketing materials, including eye-catching hangtags, to promote that product is available for a low monthly payment.
One relatively new way to spread the word about credit is the in-store kiosk (see related story below). One company working with retailers on the devices is HSBC, which has test models in Bellwood, Pa.-based Wolf Furniture and Rockville, Md.-based Marlo Furniture.
Dick Klesse, managing director, client relations for HSBC's retail finance business, said the number of credit applications has increased in the stores that are using the kiosks. The rate of consumers approved for credit may decline slightly, but the dollar amount of credit purchases has gone up.
The reason, he said, is that shoppers use the kiosks to quickly find out their credit limit before they choose what to buy, rather than the traditional process of making their choice and then arranging for credit. When the consumer knows the credit limit from the get-go, her total purchases tend to be closer to the limit.
"Net-net, the store has done better because the quantity of applicants and the average ticket have both increased," said Klesse.
While the terms of some free financing offers are stretching out as long as 24 months, the most popular period is still 12 months with no interest, and often with no payments. On longer offers of no-interest financing, more stores are requiring payments, Klesse said. The customer benefits by having no interest for a longer period of time, but the requirement of payments reduces the risk of default.
Flexibility also is key to financing offers. Many stores have a menu of options. Lombard, Ill.-based Harlem Furniture/The Roomplace, for instance, recently was offering free financing until January 2006, July 2006 or July 2007 depending on the amount purchased, with longer terms for larger buys.
Also remaining popular is the store-branded credit card, which establishes a credit line and encourages repeat purchases. Wells Fargo's Fuller said the private-label cards can yield a "higher average ticket amount, greater shopping frequency, improved customer ratings of their service level, value and convenience, and increased brand awareness and loyalty."
He said Wells Fargo continues to do well with its dual store-brand and Visa card, which has one credit line for the store and a smaller Visa credit line, and can be used anywhere Visa is accepted.
