In the current economy, people are doing a lot more with a lot less, but this seems to be good news for the credit industry. Despite some widely held, pessimistic assumptions, there is still plenty of credit to go around. With consumer confidence on the rise, mirrored by a cautious increase in spending, enough time has passed since the implementation of the CARD Act to assess its affect on the buying climate.
So what has the consumer protection legislation done to the private-label credit industry? According to Glenn Marino, CEO of GE Capital’s Sales Finance business, it has actually highlighted the need for private-label availability with consumers. “The way I think of the CARD Act, like with any new regulation that sets new and different boundaries, is that it creates a level playing field over time.”
With general purpose credit card availability declining as it has over the last two years, he said contraction of that available credit coupled with housing environment plays into the greater need for retailers to look at private-label availability to fulfill her buying needs.
Private-label credit could be the missing link for a strong finish to the fiscal year. Store traffic is down in many parts of the country, and the need to convert each visitor to a sale is more important than ever.
“Dealers should evaluate their business and address any obstacles preventing a consumer from buying, from buying more flooring for additional rooms, or upgrading,” said Scott Humphrey, director of Shaw Flooring Network. “Offering credit is still a good way to encourage a purchase or encourage a larger purchase.”
In addition to an already extensive list of options from Shaw, including 6- to-18 months deferred interest with minimum monthly payments and 24-to-60 months equal pay plans, the mill has been very aggressive with buy downs during its fall and spring promotions, Humphrey said.
There is also a business-to-business program through Blue Tarp as well as an in-store kiosk, an option for many stores that allows the consumer to apply for credit then and there. “If denied, it is a private matter and not an embarrassing or awkward situation for the sales associate or buyer,” Humphrey said. “If approved, it encourages the consumer to make her purchase at that store.”
A testimonial to the in-store kiosk is that approval rates have remained high when credit is applied for on-site, he added. Conversely, online approval rates have dropped because of less accountability and greater risk.
While private-label credit in flooring is not as popular as other industries such as home electronics and furniture, it doesn’t necessarily mean the floor covering industry is behind others. Marino said it has to do with the selling cycle, explaining that people have learned to compartmentalize their spending and the need for end users to have access to credit is different than it was three years ago. “The expectations are still there, even with changes in the market, and availability is still a significant part of purchase penetration.” Differentiation is the key and that adaptation will continue to grow over time.
In general, approval rates have remained steady but it depends mostly on the demographics in what Mike Zoellner, Mohawk’s vice president of marketing services, called a micro-level of approval. “When you read newspaper headlines during the recession about credit approvals falling, that was true for the most part, but today we generally see a return to approval rates from before,” he said. “For stores that have rates of approval changing it was their customers that changed.”
More program options
With that understanding, Mohawk continues to offer a full menu of credit offerings that exist in the industry. Faced with a myriad of options, the best solution is to educate the sales associate as to how private-label credit cards can help them, Zoellner said. With a focus on selling in retail stores, Mohawk has a number of different classes that teach skills like introducing a private-label credit card into the selling process. “‘The Systematic Business,’ is a three-day course for store managers and owners that talks about how to advertise the option and engage your sales staff.”
While 6- to 18-month no interest payment options are standard offerings, lenders are differentiating themselves in various ways to do the most for their customers. As part of its private-label credit program, TD Retail Card Services offers equal payment promotions with no or low interest options like 24 equal monthly payments at 0% or 5.99% interest, said Marc Sczesnak, president.
There are a host of opportunities for specialty retailers here as well. Larger dealers can partner with a private-label credit program while smaller retailers have non-branded options like TD’s Renovate card, where independent merchants can benefit from the aggregate volume of all stores signed up for the program, Sczesnak said. “These umbrella programs allow smaller merchants to compete with their larger counterparts by being able to offer their customers promotional financing at a competitive rate.”
Credit options are available down the line all the way to buying groups. With Abbey Carpet & Floor, 12-month interest free and 24-month equal payment programs continue to be lucrative, said Ted Dlugokienski, vice president of finance. “[Those] programs deliver average purchases in excess of those made using cash, checks, or traditional Visas and Mastercards as the method of payment.” He said though approval rates aren’t what they were in the heyday, Abbey’s program is still experiencing an 82% approval rate, allowing its members to utilize the program with confidence.
Alliance Flooring, parent group of CarpetsPlus Colortile, Carpetland, Colortile and Floorco, also reported a stable approval rating and has not experienced any problems with the tightening of credit from its provider, said Jon Logue, co-CEO. “Opportunities for specialty retailers in our group include being able to use our Wells Fargo programs and receive great approval rates, along with numerous credit promotions and better discount rates.” The group’s Fall Flooring Sale with no interest minimum payment until 2012 is an example of one of those opportunities.