Remodeling trend holds opportunity
Credit provides tool for consumers to upgrade furniture
By Marc Barnes -- Furniture Today, April 30, 2007
High Point — In this highly competitive market environment, furniture retailers might want to find ways to get to know their closest remodeling contractor, according to observers in the furniture financing industry.
That's because many people are deciding against moving just now, opting instead to fix up the place where they currently live. For some, it's because of a downturn in the real estate market. For others, especially the burgeoning numbers of Baby Boomers facing retirement, it's because they have grown deep roots in their communities and would rather age in place.
Many in the industry are expecting a ripple effect. Where there is remodeling, they reason, there will be new rooms, which will require new furniture. And new furniture can be had — and new customer relationships built — with private-label credit cards.
The downturn in the real estate market is real. The National Assn. of Realtors reported recently that the median price for existing homes is expected to fall for the first time in 40 years. Recent turbulence in the subprime mortgage sector has also cut the expected number of new homes to be sold this year by 100,000 units, 2% below the 6.48 million homes sold in 2006.
At the same time, remodeling is expected to increase by 2%, in part because the housing stock continues to age and need repair. The Harvard University Joint Center for Housing Studies found that one-third of owner-occupied housing is now 45 years old; one-third is between 25 and 45 years old. Half of all homeowners perform do-it-yourself projects, but increasingly use professional contractors as they age.
According to American Assn. of Retired Persons (AARP) research, 79.4% of those surveyed over the age of 50 want to stay in their homes into retirement. In a separate study, which surveyed 30,000 Americans over the age of 50, 77% feel that their home is an important part of who they are — and 65% plan to remodel or make improvements.
Other factors also are in play. Mark Pregmon, executive vice president of SunTrust Bank, whose responsibilities include consumer lending and call center operations, said that a combination of increasing interest rates and decreasing home values means that home improvement will pick up.
Second-home activity
Jon Giles, a senior vice president for Wachovia, said that in addition to those factors, a "good-news, bad-news" scenario is continuing where furniture retail is concerned.
New home sales have indeed decreased, Giles said, but much of the growth in new home sales over the past several years was for second homes. That means that in many instances, homeowners are still working on furnishing those secondary residences.
How to finance? Giles said that for short-term and low-dollar purchases, in-store private-label credit makes sense. But for larger purchases — say for putting together a package to furnish an entire vacation home — it might make more sense to take out a home-equity line, which carries the advantages of a locked-in interest rate and a tax deduction.
At G.E. Money, Bruce Christensen, general manager and vice president of the home improvement industry segment, said that his company has come up with another option.G.E. Money has financial products in place, for example, that will give up to a 25% allowance for home furnishings in addition to what is loaned for a home improvement project.
Popular remodeling projects include outdoor swimming pools, new kitchens, room additions and master suites. That can translate into patio furniture, appliances and den, dining and bedroom furniture.
"All across the board, anytime there is remodeling, it has a significant impact on home furnishings," said Christensen. "People want to remodel not only the space but their furnishings, as well."
He added that retailers would do well to take a page from the remodeling industry. Four or five years ago, the industry began holding classes about the benefits of aging in place — paving the way for remodeling projects that enable homeowners to stay in the homes they bought decades ago.
"There's really an opportunity there for a furniture chain or for one location to reach out to remodelers to let them know what they have," said Christensen. "A lot of remodelers have very solid Web sites that let you know what they specialize in and what types of products that they are working with. Guys who are doing $250,000 projects know that their customers are going to be buying some very nice furniture to go along with it."
During the planning of a remodeling project, consumers can take advantage of private-label credit so that they can budget for furniture purchases, according to Cindy Savio, public affairs manager for HSBC North America.
"Whether they are looking to refresh their homes or have purchased new homes, their needs have changed," said Savio. "We have financing options that give them a way to purchase what they need at the time they need it."
Savio said that one of the current trends that she is seeing is that furniture retailers are increasingly looking for ways to add more value for their customers overall. Similarly, HSBC is looking for ways to enhance its relationships with retail partners by customizing financing products. She added that HSBC works hard on training furniture salespeople so that they are knowledgeable about financing programs and can explain them to their customers.
Building loyalty
"It helps out the retailer and helps out his customer as well," said Savio. "We can help the retailer focus on looking at the customer over a lifetime and determining a way to attract new customers as their lives and needs grow, to help them become (more) loyal."
Vern Eliason, director of retail at American General Financial Services, said that his firm focuses on building the retailers' business.
To that end, American General has upgraded some of its application processing to allow different methods of submitting credit applications, easing the way for customers to apply online.
"They can get the application out of the way, in their homes, in private," said Eliason. "It can direct you over to the Web site and submit the application and get your approval without having to tell the salesperson what your income is. The salesperson wouldn't have to see the application."
Eliason said that American General differs in a couple of key areas. He said the firm has the flexibility in how it allows the merchant to submit applications on how it wants to be funded — and it allows the retailer to go to their local American General branch for assistance, if need be.
At Citi Financial Retail Services, Jim Warrington, director of client management, said that the latest trend has been to offer hybrid financing programs, such as 12 months same as cash, to be followed by 24 months interest free.
"Those (programs) really seem to be picking up speed in the marketplace," said Warrington. "Merchants are very sensitive to discounts right now, especially with the price of oil and gas. They are sensitive to discounts, but we are still giving them aggressive promotions within their margins."
Warrington said that direct mail is still working well, especially with "open to buy" promotions, in which customers are reminded that there is credit remaining on their account that can be used for new purchases.
"On mailings we do work with them, strategically, to get the customers through the door, on special events like midnight madness and breakfast sales," said Warrington. "There are all kinds of things that we do in promotions to tie in with the open-to-buy campaigns."
Warrington said that another trend is that many retailers are increasingly taking a whatever-it-takes kind of approach to stay competitive.
"Merchants are trying to get one up on other terms of promotion," he said. "They try to be at the right price point and the right promotion that will draw that customer through the door. They all want the best program out there in the marketplace — there are a lot of different variables there and we work with them to be open to what they think they need in the marketplace."
Warrington said that the furniture industry is recovering, but it has been a slow process. In a lot of cases, success in furniture retailing is the same as in other sectors. It depends on your competition and on your location.
"There are certain segments of the country where we have had merchants pull out because of competition in those markets, or because the economy has been in so much of a downturn," said Warrington. "In other regions, merchants are blowing the doors off and moving into new markets."
