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Credit: The importance of offering financing to consumers

February 5/12, 2018: Volume 33, Issue 17

By Rose Burke

 

When consumers shop for big-ticket items such as new flooring, they are likely to use some kind of credit to make the purchase. What’s more, some credit experts believe people are far more compelled to commit to bigger purchases when they can see their payments broken down into monthly installments instead of seeing the total amount. For example, a $7,000 purchase might not be affordable for most people, but a $400 monthly payment can appear more manageable.

While it is important for retailers to consider offering credit terms to their consumers, it is also crucial they’re offering attractive financing that will actually bring people into their store. What makes credit terms attractive differs from dealer to dealer, industry members say.

“Our financing programs are available on all purchases in the showroom, not limited to just one display or manufacturer,” explained Keith Spano, president of Flooring America. “This gives our retail sales professional the ability to move a customer up and down through the trade-up process without fear of losing the favorable payment terms.”

Other retailers are providing their customers with several credit options in order to make them more attractive.

Ari Ziskin describes the credit terms at Mesa, Ariz.-based Flooring Inc., as transparent, saying, “Our goal is always to make the purchase process as easy and stress-free as possible. One way we do this is by offering several financing options. As a company offering high-value items, we believe this is incredibly important to both the customer experience and continued sales growth.”

When customers walk into a jewelry store or car dealership, they’re often provided with credit terms that lead them toward making a purchase, and flooring retailers should be no different. “Offering credit lets our customers know they can get the flooring they want on good terms, which opens the door to other parts of our business,” said Bob Pireu, president of Bob & Pete’s Floors, Canton, Ohio. “Customers know they are getting a competitive price, plus they can be comfortable with the quality of our services and installation.”

Other retailers have also learned to leverage consumer financing to their advantage. “We have always been a huge proponent of consumer credit financing and the benefits that come along with that,” said Eric Langan, president and owner, Carpetland USA (Langan Group), Davenport, Iowa. “This includes larger average tickets, reduced accounts receivables and differentiation among competitors.”

In addition to being a proven sales tool, credit is something customers have come to expect and is almost no longer an option, Spano said. “Retailers need to look at financing costs as a marketing cost and a cost of doing business in a competitive retail landscape.”

As a recognized sales technique, retailers who have trained their sales staff on the appeal of their credit terms have seen a significant increase in sales. “We’ve spent considerable time training our members and retail sales professionals to discuss financing early and often in the sales process.” Spano said. “Through our training and aggressive buy-downs for our members, we’ve seen our financed sales grow to three times that of the industry while also seeing our average ticket grow almost three times our average credit card sale.”

The most common credit terms offered by flooring retailers is 12-month financing. This breaks down payments into a few hundred dollars a month, but still, retailers hope to see more attractive credit terms for their customers in the future.

“Can you imagine advertising putting hardwood in your whole house for $149 a month?” said Adam Pace, CFO at Metro Floors Inc., Lancaster, Calif. “This would be possible if we had 48- or 60-month financing. It would be a huge boom for the industry. We can offer 36-month financing as it is now, but the cost to the dealer makes it a no-go. The manufacturers need to set-up their own credit unions, especially those that are multi-billion dollar companies.”

Synchrony Bank is a popular option for retailers seeking to offer appealing credit terms to their customers; they offer over 100 different kinds of credit cards and work with dozens of major retailers. With a specialty program specifically designed for flooring retailers, Synchrony  can offer solutions that other banks cannot.

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Armstrong Flooring to close two wood floor facilities

Armstrong Logo 2016Lancaster, Pa.—Armstrong Flooring released its reported financial results for the second quarter, which ended June 30. The company also announced the planned closing of two wood floor facilities.

“Second quarter 2017 results were disappointing to us and fell short of our expectations, with the main driver soft demand in our legacy categories, primarily residential sheet and wood flooring,” said Don Maier, CEO. “Our LVT sales continued to grow at a double-digit rate, although they did not fully offset the declines in other areas. In response to the challenging results, which we expect to continue through year end, we are taking active steps to transition our company to deliver our medium term financial goals.”

Maier continued, “We are intensifying our efforts on innovation-based growth initiatives, taking a harder line on costs and rationalizing our manufacturing footprint. [For example] we have completed our previously announced organizational realignment, which we continue to expect to generate annualized SG&A savings of $6 million to $7 million. In June, we completed the acquisition of Mannington’s VCT assets, which improves our capacity utilization as we increase sales in this attractive category using our existing production facilities. Additionally, we have announced the planned closing of two wood flooring facilities, which we expect to improve our cost position in the future. These announced actions, along with other planned initiatives, reinforce our commitment to achieving a 10% EBITDA margin by 2020, under a range of growth scenarios.”