Have You Performed a Finance Exam?

February/March 2018—

In the movie Ferris Bueller’s Day Off, Ferris reminds us that “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” When’s the last time you stopped to look around the life of retail financing in your store? Just as Web 2.0 signified dramatic changes in how the internet was being used; I dare say Financing 2.0 may have snuck up on many retailers as they’ve been building their business and running their stores.

Let’s stop and look at some of the aspects of financing in recent times, then you can decide what may be passing you by and more importantly how you might adjust.

Do you have a primary financing partner? If so, is it the right one? If not, what do you need? Having a primary private label revolving credit partner is foundational to the success of any retail furniture financing strategy. In today’s world, long-term financing promotions are still critical tools for driving customers to your stores and important to increasing average order size while maximizing marketing dollars.

A primary financing partner should have the ability to extend credit term promotions of six to 60 months including deferred interest promotions or equal pay, no-interest promotions. Sixty months used to be the maximum term offered by primary providers; recently promotions up to 100 months are creeping in. Just as your customers need financing and flexibility to make large purchases, you need a primary provider that is flexible to offer promotions and services that mesh with the changes in your market place.

Today’s tech-savvy consumers will expect the ability to register and monitor their accounts online. You as well should have the ability to gather selling statistics online to see how the financing is working and more importantly what you may need to adjust to maximize the selling process. The good news is most primary providers offer all the above, but the question remains, do you know what your primary provider offers? Are you taking full advantage of the services? Groups such as the Home Furnishings Association have existing relationships with primary providers that may provide the benefits you need.

What can a secondary or even a tertiary provider add to your retail financing life? This element of financing has exploded on the field of retail financing like dandelions on a spring day. There are many secondary providers that offer terms such as revolving credit, installment loans, lease-to-own options or reasonable interest rates. These are designed to appeal to those lesser credit-worthy customers turned down by primary lenders.

Choosing the right partners depends on the credit demographics of your customer base and your marketing goals. Is one secondary provider sufficient or should you have two, three or more that are positioned to capture a broader range of financing customers?

In days gone by, customers with weak or no-credit bought furniture at rent-to-own stores. The growing awareness of this secondary tier of credit customers has spread across all types of businesses including tires, jewelry and even sporting goods so consumers have a much greater awareness of the financing options that exist. The providers you choose may allow target marketing specifically to the consumer’s needs.

For example, if secondary providers offer items such as “reporting to credit agencies to rebuild credit” or “simple interest rates” or 90-day pay off options like “90 days same-as-cash” then you may choose the best partners to extend an appealing marketing message. As a finance consultant working with large, small and now online retailers, I find establishing this secondary space is a critically important area. Unlike the relatively small number of primary providers, there are many choices now available to offer to your customers. Stability, reputation and experience are important considerations. Once again you will find some of these providers associated with groups like the Home Furnishings Association. It is wise to stay in touch and in tune with a variety of providers in the event you need to change a provider who fails to deliver as promised or expected.

Is technology your friend or your foe in your retail financing life? This one can catch you off guard if you haven’t stopped to look around. Incorporating financing on your website or social media sites is no longer a good idea—it’s a must. Today’s customer wants to research all aspects of the purchasing process. Communicating finance options and requirements in advance of the store visit or while on a website helps move the customer through the sales process and enhance the shopping/buying experience.

Now more than ever, customers can rely on others’ experiences to make those critical decisions on where to shop and how to buy. Investing in cascading technology that electronically moves a credit application from primary to secondary or tertiary providers may be a way to smooth the credit process for the customer, but represents additional cost considerations for you as a retailer. Faxing over a turned down application to another provider sure feels like yesterday’s news at this point. Recently secondary providers have been developing the ability to send a customer a text link to apply by phone. They recognize the move to mobile finance marketing. Have you?

What’s next? Perhaps financing providers will soon be marketing directly to the public then directing them to their retail brick-and-mortar or e-tail partners? A lot can and has changed in the world of retail financing over the last 20 years. Unfortunately, we cannot run the car in reverse to take off miles like Cameron tried in the movie, but we can stop, look around and see what we might change in our retail financing life going forward. Anyone? Anyone?

3 financing takeaways from the holidays

During the critical Black Friday/Cyber Monday holiday weekend last year, more shoppers took advantage of financing big-ticket items rather than paying up front or using credit cards.

1. Shoppers pre-qualified for financing before checkout

  • 73.6% of Black Friday shoppers applied for financing pre-checkout
  • 69.0% of Cyber Monday shoppers applied for financing pre-checkout
  • 42.5% of Black Friday applicants were Millennials
  • 43.3% of Cyber Monday applicants were Millennials

2. Offering financing increased the Average Order Value

  • Average Order Value on Cyber Monday was 19.1% higher than AOV for October 2017
  • AOV on Black Friday was 10.9% higher than AOV for October 2017

3. Consumers preferred longer-term financing options

  • On Cyber Monday, 90% of shoppers chose financing term lengths of 12 months or longer, with 46.6% of shoppers choosing term lengths of 24 months or longer.
  • On Black Friday, 87.1% of shoppers chose term lengths of 12 months or longer with 48.3% of shoppers opting for term lengths of 24 months or longer.

Learn more at www.thefinancingpro.com

About the Author

Marty Grosse
Marty Grosse, an industry veteran held executive positions across 6 top tier furniture retailers. His company Furniche LLC operates Furniche.com a consumer furniture research website & Furniche Finance Consulting providing a full range of retail financing services. Email martygrosse@furniche.com. Learn more at www.thefinancingpro.com