Approvals, limits increase in credit programs

Heath E Combs -- Furniture Today, February 20, 2012

HIGH POINT - Credit sales are back.
     Retail furniture sales have shown signs of life in recent months, thanks in part to finance companies loosening up on consumer credit.
     "There is no question that it is changing and it's changing for the better as far as we're concerned," said Eric Easter, president and CEO of Top 100 retailer Kittle's.
     Easter said that while the Indianapolis-based company promoted credit over the past three years with varying success, it kept trying long-term offers and got little traction. But about halfway through 2011, the company began to see more consumers take advantage of credit card programs.
     In December and January, those programs had their highest penetration at Kittle's since the early 2000s, Easter said. Credit lines are also increasing and approval rates are as high as they've ever been, at 90% plus, he said.

Credit limits rising
     While during the recession it was difficult to get approvals for totals over $5,000, that's becoming more common and lines are going above that, Easter said.
     "More and more people are taking credit. So that's a good thing for us. It gives us one more arrow in the promotional quiver," he said.
     Extended terms also are available for longer periods, up to five years, but two-year terms are generally the most popular, Easter said.
     "Our percentage of penetrations of Kittle's credit card is not quite back to the levels of the early 2000s but it's within spitting distance. At the nadir of this recession we were literally one third of where we were before," he said. "You couldn't get approvals and when you got were approvals there was no credit line.... It was obviously an incredibly difficult time for everybody."

“Our percentage of penetrations of Kittle’s credit card is not quite back to the levels of the early 2000s but it’s within spitting distance. At the nadir of this recession we were literally one third of where we were before.” Eric Easter, Kittle’s
	“There are a large number of retailers and a significant portion of the independents that depend on third-party credit sources because they just don’t have the resources to comply with the ever increasing regulatory scheme themselves.” Mike Price, Badcock Home Furniture & more

     More credit approvals also means that the company can mix up its offers and not be as reliant on price promotions, Easter said. He said that with more focus on long-term finance, price promotions become more valuable because they're not used as frequently.
     Mike Price, president of Mulberry, Fla.-based Badcock Home Furniture & more, also said business has been better in the past few months - partly because of financing offers.
     Badcock got back into third-party promotional finance in mid-2011, he said. The company had gotten out of that business in 2008 when HSBC left the consumer lending arena. Price said there were few traditional finance companies offering economically viable terms, and the retailer decided to focus on in-house financing programs.
     About seven months ago, Badcock began working with Wells Fargo on private label credit card programs of 18 and 24 months, Price said.
     "We had several (lenders) approach us and that's good news for consumers and retailers in general," he said. "The fact that they've gotten more aggressive I think speaks to the fact that they've gotten more comfortable with financing furniture over a several-year period of time and our customers have certainly responded."
     Price said that finance providers, typically a pretty risk-averse lot, pulled back during the recession. But now they have a better feel for the economy and are re-entering "bread and butter" programs that made them money over the years.
     "I think it's critical to the industry. There are a large number of retailers and a significant portion of the independents that depend on third-party credit sources because they just don't have the resources to comply with the ever increasing regulatory scheme themselves," Price said.

U.S. consumers purchasing more on credit

r= revised; p= preliminary Source: Federal Reserve Board

Hoping for more
     Carlos Capo, vice president of finance and merchandising for Miami Gardens, Fla.-based El Dorado Furniture, said that he still hasn't seen much change in approval rates and that consumers are still having a hard time getting purchases financed.
     But, Capo said, credit providers have indicated that there should be easing in the next six months, and that this year they should approve at least 20% more applications than in 2011.
     El Dorado offers a credit card through Wells Fargo and usually requires a 10% down payment. Those offers usually range from 12 to 24 months, and don't go over that, Capo said.
     Melisa Miller, president of retail services for Alliance Data, a credit services provider that offers private label credit card and other programs to the industry, said that in the last four months of 2011, approval rates improved and delinquencies were declining.
     "What we don't know is: Is it possible that those that do not have the means to purchase took themselves out of the market? We also think that those who are perhaps more affluent and perhaps were just holding back and had a pent up demand are now out shopping, so we think that's contributing to it as well," she said.
     Miller said Alliance Data differs from some traditional finance providers in that it seeks long-term relationships with clients that won't shift during harder times. During the recession, the company continually tried to use strategies that would retain clients, she said.
     She added that due to the cost of credit programs during the recession, retailers - not consumers - opted for shorter term programs, but deals are being restructured and the emphasis is back on longer term programs.
     "You are seeing a more serious concentration of issuers out in the marketplace now vying for some of this hard goods business. For us it's always been a very important part of our portfolio," Miller said.
     She added that average tickets on purchases are about the same amount as they were pre-recession.
     But "one and done" purchasing is giving way to consumers coming back to the marketplace more often to purchase, Miller said, and Alliance Data is aiming its marketing programs to help its stores retain customers for second and third purchases.