Retailers see consumer credit easing slowly
Heath E Combs -- Furniture Today, June 7, 2010
HIGH POINT - Credit is slowly loosening and retailers are reporting that their lenders are turning down fewer consumer loans than they were last year.
But the rules of consumer finance have changed as the once-common no-no-no promotions have gone out the window.
New federal regulations that took effect in February meant that retailers can no longer offer the no-payment option, although they can still make offers with no down payment and no interest for a specified period. Consumer finance providers say the new rules and a still-challenging economic environment mean finding the right mix of credit offers for a store is vitally important.
Vicki Nelson, general manager of Anchorage, Alaska based Bailey's Furniture, said that last fall the retailer's stores began experiencing more turn-downs and less credit offered by its lender. But she added, "It does feel like it's better this year."
Steve Darvin, who with brother Marty is a partner in Top 100 Orland Park, Ill.-based retailer Darvin Furniture, said approvals for consumer financing are up through its provider, HSBC.
"We're getting a larger percentage of approvals with HSBC than when it started in late 2008 and 2009," Darvin said - although not as many as before the downturn hit, he said.
The most popular credit deal now offered by the retailer is a 12-month, no-interest offer with minimum payments, he said.
With the new federal rules under the Credit Card Accountability Responsibility and Disclosure, or CARD, Act, credit offers are less effective as a promotion than in the past, he added. A credit offer is no longer the driving force influencing consumers to buy.
"It's a good addition to other things you have going on in the store," he said.
He said that absent a more effective credit offer, stores are more likely to add other value options -such as discounts - to draw consumers. Shorter-term finance offers, like the 12-month program at Darvin's, have also become more attractive to retailers because they are less costly than long-term programs, he added.
"Are long-term finance offers as effective as they were in the past? My answer would be no. But we offer it just to try to get every sale we can and give every customer every advantage we can get," Darvin said.
Mark Stenson, advertising director for Marshalltown, Iowa-based McGregors, said that the retailer is offering more incentives to purchase, such as gift cards. But the ability to offer financing terms for consumers is still vitally important, he said.
"You've got to have some sort of finance offer or they don't even want to talk. But (we're) not setting any sales records because business is still tough," Stenson said.
Greg Pittman, vice president and general manager of GE Money Home Furnishings Industry, a General Electric unit that offers packages of consumer credit used at stores, said his company's retail finance approvals are up.
"We've actually been in a position now to be able to loosen credit and adjust strategies with the new realities we're seeing," Pittman said. "Certainly I think things are better than they were nine months ago."
He said he's seeing more retailers with 12 months to 18 months deferred interest with minimum payment programs. Those programs are less costly for retailers to offer than the former no-payment plans, he said.
The financial crisis has also helped spur a greater emphasis on education at GE Money. For about a year, the company has put information about its financing processes online in its business center. Those educational tools train store salespeople on how they should use credit, how to overcome objections from consumers, and how to estimate payments, among other items.
"When everyone was in survival mode, I think one of the things that we constantly talked about is that every individual in your store (should) focus on how to be a better salesperson," Pittman said.
During the recession, retailers with a more sophisticated consumer financing strategy - which could include a variety of short, medium and long-term financing offers - tended to do better, he said.
"The guys who survived the cycle and the ones who are coming through - the people who effectively use these programs and other tools - it's just part of what they do," Pittman said.
"From our perspective, credit is still a key part of what many consumers want when they come into a furniture store. They still want to compartmentalize that spending for that big-ticket purchase and not use that general bank card," he said.
Lonnie Davis, president and CEO of Harlingen, Tex.-based F&I Systems, which helps retailers offer consumer finance programs, said he has been encouraging stores to develop in-house programs to purchase consumer credit that isn't bought by major finance companies. Small Business Administration loan programs can help with the cost of setting up in-house consumer credit, he said.
With in-house credit, retailers can keep some sales that might otherwise be turned down, possibly winding up with rent-to-own merchants, he said.
"You have to put skin in the game these days," Davis said.