Private-label credit: Another tool for survival
By Marc Barnes -- Furniture Today, August 25, 2008
HIGH POINT — Private-label financing can be a key part of an effective back-to-basics approach for furniture retailers who are seeking not only to survive but to gain market share in this tough economy, say furniture industry observers.
The challenges of today's marketplace are well-known. They include a downturn in housing, coupled with a ripple effect from problems in equity lines; decreases in consumer financing; and downward pressures on profit margins due to imports. But many stress that the furniture marketplace, like other retail sectors, is cyclical and that business will eventually improve.
Their best advice in the meantime? Focus on the fundamentals in both financing and day-to-day operations, so that when the cycle ends, you'll not only be a survivor, you'll have more market share than you did at the beginning.
Mark Sunshine, president of First Capital in West Palm Beach, Fla., said that those kinds of back-to-basics efforts have been worthwhile, especially in some of the hardest-hit regions.
“In certain areas in South Florida and California, it's been awhile since the market has been in a lot of pressure, and the (stores) that are still standing, that have the financial wherewithal to make it through the market cycle, are picking up share right now and will hopefully emerge,” said Sunshine. “If they haven't been fatally wounded at this point, they will be healthier and will have more market share than when they went in.”
Product, financing key
John Nooney, senior vice president and portfolio manager for First Capital, said that the solution to today's stresses may be two-fold. First, do your homework and seek financing from the best source, which could be a local or regional bank that you hadn't looked at before. Those are less likely to have been caught up in bad lending practices. Second, think about how you can improve the buying experience.
“The thing stores can do is go back to the basics,” said Nooney. “You need good quality products that are attractively displayed and helpful salespeople who make it easy to buy.
“How many of us have gone into a furniture store and, depending on the retailer, found that it is like pulling teeth? Six hours later, you walk out and you want to shoot yourself — and then you find that it is something like a 22-week delivery time.”
The key is to do the best that you can with the hand you've been dealt, said Sunshine. He cited the example of Houston's Gallery Furniture, which promises that if you buy something today, it gets delivered today, even if you want the delivery truck to follow you home. The result is that Gallery is the highest-grossing furniture store per square foot in the United States.
Sunshine said that given the fact that the Houston market area isn't expanding — and that furniture stores don't set monetary policy — the only way to survive and grow in today's tough environment is by beating the competition.
Veteran industry analyst Jerry Epperson, managing director of Mann, Armistead & Epperson of Richmond, Va., said that both strong financing and product selection are needed.
“The guys who carry their own receivables right now seem to be more in charge of their own destiny,” said Epperson. “And the retailers who sell consumer electronics and appliances seem to be doing better than the average furniture store because it gives them more traffic.”
Epperson said that this is a particularly challenging time, in part because many of the banks that service credit cards are pulling in their horns, fearing the exposure that comes with lending out large amounts of money. But, as a result, he said that some retailers have come up with innovative ideas to move inventory.
For example, the Ashley Furniture HomeStores chain is experimenting with rent-to-own options, using outside RTO providers in one-third of its stores. If a customer isn't approved for credit, they can get the furniture on a rent-to-own basis.
“That way, you can make the sale and get the proceeds and someone else gets the risk,” said Epperson.
A program approach
Using private-label credit works well, if retailers work at it. Stan Kreutzfeldt, senior vice president of Citi Retail Services, pointed out that the most successful retailers are the ones that integrate private-label credit into their corporate culture.
“We work closely with our retailer partners to gain a thorough understanding of their performance and concerns and to work through the challenges they face,” said Kreutzfeldt. “Additionally, we work with them and continuously communicate trends in their private-label credit card portfolio. While these processes get more attention and a bit more focus today, it is a discipline that we have remained committed to over the last 20 years.”
Kreutzfeldt said that retailers should plan on communicating the benefits of credit at every turn, from displaying in-store signage and putting monthly inserts into billing statements to promoting credit in advertisements and on Web sites.
In addition, the retailer could offer additional benefits, such as discounts for short-term plans, extra warranty coverage or free delivery — and could educate store associates to offer the card to all customers.
“If the program is effectively promoted and the consumers perceive real benefit by being a cardholder, the rest will take care of itself,” said Kreutzfeldt.
At GE Money, the idea of merchants fully integrating its products into their operations has resulted in the establishment of a Web-based training library, so that retailers can better understand and effectively communicate financing to consumers.
The self-paced educational course was developed in response to client requests. It covers such areas as how to more effectively sell financing, how to help consumers accurately complete applications and how to build customer relationships.
Greg Pittman, vice president and general manager for sales finance retail for GE Money, said that retailers can create opportunities by partnering with companies that can help them build more traffic and sell more effectively.
“A private-label credit program tends to provide a way that really helps them in a lot of those areas,” said Pittman. “And there are opportunities for us to differentiate ourselves and provide a way to provide them with some of these value-added programs.”
Susan Barnett, an industry marketing manager for the home furnishings industry with GE Money, said that the new online training program helps sales associates learn how to listen more closely to the customer and then determine what kind of financing would be the best fit. An additional advantage is that using cards means that the retailer can effectively capture a customer list for later marketing.
Retailers can “develop a simple piece of direct mail to drive the customers into the store,” said Barnett. “They can move away from the mass market to target the right offers to the right people at the right time.”
Pittman said that the simplest idea is to adopt a blanket approach — and not limit financing options to those who you think would most benefit from it.
“There are very savvy people who buy stuff on promotional credit and don't pay any interest, because they pay it off beforehand,” said Pittman. “To offer that value proposition to everyone who comes in the door is one of the most fundamental things that you can do and it's what we see with the most successful retailers.”
