Retailers offer credit through specialized firms
By Marc Barnes -- Furniture Today, December 23, 2007
High Point — Several Top 100 furniture retailers have recently extended their consumer finance agreements with private-label card companies, which industry observers say signals a trend toward retailers offering their own lines of credit through specialized firms, instead of carrying balances on their own books.
Some of the more prominent examples include G.E. Money inking multi-year deals with Ethan Allen Interiors, Danbury, Conn., and City Furniture, Fort Lauderdale, Fla., and Alliance Data signing a deal with Gardner-White in Warren, Mich.
Steve Wholley, director of finance for Boston-based Jordan's Furniture, said that his company's relationship with private-card issuer HSBC Card and Retail Services has worked well, because each side understands the other's business.
"There are times when we will utilize the card to reach out to customers who have not made a purchase in quite a while," said Wholley. "It's a good way to get their attention. We may only see them once every three years but Wal-Mart will see them three or four times a month. We have to make a great impression on that customer when we do see them."
Wholley said that Jordan's use of credit kiosks in its stores works particularly well, because it saves time and preserves the customers' privacy. More important, if the customer is declined, a store employee doesn't have to deliver the bad news.
"Anyone who is not doing this today is putting themselves at a disadvantage," said Wholley.
At G.E. Money, Paul Boeckman, vice president of strategic accounts for home furnishings, said that the use of private-label credit is becoming more of a way of life across the retail landscape.
"Retailers, not only in furniture but in consumer electronics and other industries, are concentrating on their core competencies," said Boeckman. "What they do best is to sell furniture.
"At smaller businesses, they are not only selling the merchandise, but they are doing everything: they are doing the hiring, they are doing the IT, they are shoveling the snow in the parking lot and they might be doing consumer financing."
Extending the brand
Boeckman said that many major retailers, including Ethan Allen and City Furniture, recognized years ago the value of leveraging the capabilities of an outside finance provider, almost as an integrated department in their own company.
"We go to market as Ethan Allen Credit Care, or we answer the phone as, 'Welcome to City Furniture, how can we help you?' Our goal is to complement the marketing efforts of the retailer," added Boeckman.
G.E. Money offers features such as providing messages in billing statements; delivering voice messages so that customers can receive offers from retailers on their answering machines; and telling customers about upcoming specials when they call in for information on their credit balances.
Bruce Leider, vice president of client sales for Alliance Data, said that private-label card companies offer much more than lending money and making collection calls.
"What we want to do is help the retailer not only make the sale but build the relationship with the customer," said Leider. "What differentiates Retailer A from Retailer B? That's important in where the consumer chooses to spend money over an extended period of time. Furniture is a different kind of purchase than most purchases you make."
Leider said that Alliance Data helps with relationship-building between consumer and furniture retailer in three ways: Convenience, commitment and communication.
Convenience means coming up with a plan that will work for that specific consumer, whether it is for a term of payments without interest or providing a kiosk in a store in which consumers, who have found something they want, can find out for themselves whether they can finance it.
Commitment is giving a consumer additional purchasing power, so they can make purchases they hadn't planned on making.
And communication means finding out what customers want, to help the retailer discover their own unique value proposition.
"If all you have to look forward to is a single transaction, then there is not a bright future for that business," said Leider. "Those who are successful are those who can find ways to get that longer-term relationship."
That's especially true now, given the challenges of the U.S. economy.
"Consumer confidence levels are at their lowest point in years," said Dan Abbott, president of Wells Fargo Financial Retail Services. "Current economic conditions have caused a tightening of credit availability, particularly in the home equity lines that many people use to renovate and furnish their homes.
"As a result, we believe private-label credit cards will become a more desirable payment option for consumers, many of whom require longer payment terms to meet budget constraints caused by the recent economic downturn."
Abbott said that those retailers that partner with private-label card companies see bottom-line benefits.
"Retailers who offer private-label credit cards see significantly higher average ticket sales (20% to 40%), greater shopping frequency, enhanced customer loyalty and deeper brand awareness," said Abbott. "Wells Fargo Financial Retail Services gives retailers an unparalleled opportunity to leverage cross-selling and marketing opportunities within the Wells Fargo enterprise. We recently gave one of our retail clients marketing exposure to 500,000 Wells Fargo ATM customers."
Building relationships
At HSBC Card and Retail Services, Brian Hughes, managing director of marketing, said that retailers need to remember the advantages to outsourcing their credit to private-label card companies.
Hughes said that card companies have the expertise to do the research to make smart lending decisions and, likewise, to use some of the same data to define who the retailers' existing customers are and who the new customers might be.
In addition, billing statements, Internet sites and customer service call centers all can be used to enable customers to find out their balance, and for retailers to deliver messages on upcoming sales or discounts on certain items. Then, there is the balance sheet: it's usually more advantageous for retailers to outsource lending to someone else than it is for them to use their own funds.
"We have started working with many furniture partners right now to implement the full spectrum of credit solutions," said Hughes.
Instead of declining a customer with credit troubles, the retailer can go back and offer a lower credit line or a shorter term of payments with no interest.
"The merchant likes it, because it allows them to get buying power, and the customers like it, because an option is better than a 'no,' " said Hughes.
At American General Financial Services, Vern Eliason, director of retail, said that his firm is enrolling more merchants — and the trend toward private-label cards is spilling over from furniture into other kinds of retail, all of which are serviced at American General branch locations nationwide.
"We don't differentiate private label from our other branded products," said Eliason. "If it says the furniture store, they can still go to the local (American General) office and get information or make payments."
Eliason said the focus is on relationships and research.
"It is a benefit to get those credit cardholders back in the store to make additional purchases," said Eliason. "With a private-label program, with revolving credit programs, it is easier to obtain customer data for marketing purposes and demographics. It is easier to market directly to those cardholders."
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