Talk about financing early, often in the process

Home Inside FCNews Talk about financing early, often in the process

October 27/November 3, 2014; Volume 28/Number 10

By Ken Ryan

When Sam Chesher, owner of Carpet Wise Flooring America in Longmont, Colo., first joined the flooring industry, he was shocked at the resistance to offer financing; his previous field embraced the concept wholeheartedly.

Today, Chesher said he makes credit financing a major component of his selling strategy. “Rule No. 1 is you must mention financing early and often during the sales process. Most of the time you will be told ‘no’ at first.”

Just last month Chesher met with a customer who had a $1,500 budget for a job that had been measured by a big box store. “She did not seem interested in financing,” he said.

Undeterred, he discussed the quality difference between samples and started the cushion selection process by introducing Tempur-Pedic—a high-priced pad option. “Once again I mentioned financing. As we moved forward with the sales process and she asked the dreaded ‘How much?’ question—we charge $2,500—I once again mentioned that she could have 18 months, 0% interest, and she agreed to it. She was approved for $1,500, and she will write a check for the balance at the time of installation.”

Chesher said he did not lower any prices on the customer’s order. “By being closed minded about financing, most dealers would have had no choice but to lower the pad and lower their margin, maybe getting the order to $1,800, and then complain about how they can’t compete with a box center and, more embarrassing, how they can’t sell upgraded padding, or that only cheap pad was in the customer’s budget.”

Consumers do not only spend more when they finance their purchases, but they are also more likely to return to the same store for future purchases, studies have shown.

For flooring dealers still unsure or wary of the process, there is help out there. In flooring, Synchrony Financial, formerly GE Capital, provides financing for Mohawk, Shaw, Carpet One, Flooring America and others. Mohawk, a long-time partner of GE Capital, offers its retailers a private-label, store-branded card that is a separate line of credit for the cardholder. This card allows the customer to pay for her flooring over a period of time—from one to four years, for example.

Mike Zoellner, vice president of marketing services at Mohawk, said the company negotiates special low rates for MasterCard and Visa processing with Chase Paymentech. “Most retailers just pay for MasterCard and/or Visa processing through their local banks and consider it an operating expense. If we can save a retailer 1% in fees, that goes straight to their bottom line as profit. All these benefits include supporting in-store merchandising and POS-like signage, special offers coordinated with Mohawk sales and kiosks through our partner, Versatile.”

Zoellner added that Mohawk provides its retailers the opportunity to offer extended financing to their customers on any product in their stores, extending to non-Mohawk branded products. A retailer that buys from Mohawk can also take advantage of the same promotional offers at a discount. “In addition, we occasionally offer rate buy-downs on the purchase of Mohawk-branded product,” he said. “This further lowers the net rate retailers are paying for the extended financing offer, oftentimes below the rate they pay to process MasterCard, Visa or American Express.”

Why is this important? Because these programs benefit retailers by helping them compete in their local markets, at competitive rates that are usually only available to large chains and home centers. In effect, these rates level the playing field by allowing retailers to advertise and promote at the same level as the larger home centers.

“Our programs are differentiated from others in the market because of the initial discounted rates paid by the retailer,” Zoellner said. “In addition, the number of customers who get approved in-store is higher due to our partnership with Synchrony Financial. We believe the rates Mohawk retailers receive from Synchrony are superior overall to any other national program or bank offering.”

The partnership with Synchrony and Chase goes well beyond discount and approval rates. Between the Synchrony Business Center and Mohawk University’s training program, there are many opportunities for dealers to learn how to sell with credit and successfully advertise their current credit incentives.

In its research, Synchrony has found flooring shoppers spend an average of 102 days researching their purchases, and 78% of these buyers begin the research process online.

“For the third consecutive year, our Major Purchase Consumer Study has tracked the importance of digital tools and the role of financing in making a major purchase,” said Ronda Slaven, senior manager of research and analytics for Synchrony Financial. “Financing plays a critical role in driving choice of retailer and delivering value, as indicated by the 76% of cardholders surveyed, stating they ‘always seek promotional financing options’ when making a major purchase, and 56% would choose another retailer or not make the purchase if promotional financing was not available. This is especially true in flooring, where 81% of cardholders ‘always seek promotional financing.’”

During the 2014 fall promotional period, Shaw Floors said it is equipping its dealers with what it calls “the tools necessary to succeed,” including promotions focusing on consumer credit. “Many stores in like-category merchandise, such as furniture and specialty paint stores, offer consumer financing to their customers,” said Heather Yamada, director of national advertising and consumer merchandising for Shaw Floors. “In fact, for most large purchases, consumer financing is available. This allows consumers to purchase bigger-ticket items with the ease of smaller payments.”

Yamada said special financing might enable consumers to upgrade to higher quality items if they can pay it off in smaller amounts. “Financing promotions are especially great for those who are doing a total renovation to their homes, or young couples making their first flooring purchase. We have seen higher dealer participation with a finance-focused program and have heard positive feedback from our dealers.”

Not all flooring dealers fully embrace consumer financing, in some cases because they are in an affluent market where credit purchases aren’t as necessary; others may not want to invest the time and effort. But for those who do see the benefits, the rewards are bountiful.

Ed Cross, owner of Ed’s Flooring America in Plaistow, N.H., is one retailer who understands the value of financing, and he makes sure every customer who walks into his store sees the various offers through in-store signage and web advertising. “Customers are already aware of [financing options],” Cross said. “We try and talk about it in the beginning of the sales process. When we do that right, we have better success.”

In his store, 18-month terms work best because customers tend to buy more often and spend more.

“When we look at our finance purchase vs. non-finance purchase, it is about double the ticket,” said Keith Spano, president of Flooring America. “People will buy more or buy better product when consumer financing is introduced.”

Last month, Flooring America brought down the rate dealers pay to less than that of a Visa or MasterCard. The result was a 20% pickup in sales in one month. “We think we are onto something,” Spano said. “We talk about credit early and often in the sales process; it makes the sale easy for the salesperson.”

While many flooring dealers advertise their promotions in-store and online, few are as bold in their messaging as Miami-based Dolphin Carpet & Tile, a National Floorcovering Alliance dealer, which declared in a recent full-page ad: “Never before has any flooring company offered financing this outrageous.” The offer read: “Buy two rooms of quality installed flooring for as little as $15 per month (up to 350 square feet),” as well as “Buy a whole house of quality installed flooring for as little as $59 per month,” based on at least 1,400 square feet.

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