July 7/14, 2014; Volume 28/Number 2
Why retailers increase sales with financing
By Jenna Lippin
Despite the popularity and widespread usage of credit by consumers and utilization of credit programs by most businesses, there are flooring dealers today who resist embracing these payment options.
Believe it or not, one of the credit myths to which skeptical retailers subscribe is that consumers are no longer utilizing credit. However, Mike Zoellner, vice president of marketing services for Mohawk, refuted this assumption. “Over the last 18 months, consumers have started using credit more regularly as the economy continues to rebound,” he said. “Research shows that a strong credit offer attracts customers. It drives store traffic as well as influences the entire buying process. Additionally, it has been proven that consumers are willing to spend more and upgrade their floors when they know there is a good consumer financing opportunity up for grabs.”
In fact, GE Capital Retail Bank (now operating as Synchrony Bank) reported that 72% of cardholders actually spent more on their purchases as the result of financing. Eighty-three percent of cardholders said having financing available influenced their final choice of a flooring retailer, meaning a credit program is a likely way of attracting more business.
Credit also helps flooring dealers maintain a competitive edge. By offering private-label credit cards, Zoellner explained, independent retailers are able to offer extended financing at competitive rates usually available only from big box retail stores. “These rates level the playing field by allowing dealers to advertise and promote at the same level as the larger home centers.”
Brian Copps, industry vice president, flooring, GE Capital Retail Bank, also noted how credit and financing brings independent retailers to the same level on which larger operations conduct business. “A financing program puts flooring retailers on par with larger merchants, generates top-of-mind awareness and encourages the customer to come back more often and make referrals. When a consumer is approved and makes a purchase, retailers may use this information to cultivate relationships and repeat business with them in the future,” instead of going directly to big boxes.
Another credit myth is that private-label financing is an additive cost of doing business. “In these cases, retailers are forgetting they are already paying MasterCard or Visa to process that card,” Zoellner said. “If a customer uses her private-label store card, then there is no bank card cost. For example, if 6-month financing costs the business 2.5% to process and Visa costs the business 3% to process, it actually saves the retailer money.”
Of course, choosing the right financing provider is a key part of the process. Companies like GE Capital Retail Bank help support retailers who may find themselves in a bind with their private-label programs.
For example, Zoellner noted that retailers mistakenly think they will be responsible if the consumer stops making her monthly payment. “While we cannot speak for all finance programs, Mohawk offers a non-recourse private-label program, underwritten by GE Retail Bank, which eliminates the store’s exposure and puts the risk back on the bank.”
Banks like GE Capital help eliminate the fear that retailers and salespeople will find it difficult to understand and communicate information about stores’ independent credits programs. For example, GE provides a list of all special financing options and required consumer documents, making them easy to understand and follow, and offers detailed training via its online Learning Center. “We also provide loyalty solutions and research and insights on consumer buying trends and the purchase journey,” Copps noted.
Some ideas resistant retails should consider:
•When applying for credit, a consumer provides information about herself such as her name, mailing address, phone number and email address. When a consumer is approved and makes a purchase, you may be able to use this information to cultivate relationships and repeat business in the future.
•More than 46% of those surveyed by GE Capital Retail Bank categorized their flooring purchases as a “need.” Customers who have a retailer’s credit card usually have room on their accounts for future projects, if they have moved or want to remodel an additional part of their home or are looking to upgrade to a better model— all top purchase triggers. Sixty-seven percent of GE cardholders surveyed indicated they are “extremely likely” to use the card again, and almost all GE cardholders are aware and open to using their credit card again in the future.