Credit: Benefits of retail financing options outweigh the cons

Home Inside FCNews Credit: Benefits of retail financing options outweigh the cons

April 25/May 2, 2016; Volume 30, Number 22

By Jana Pollack

Financing programs are more than just a vehicle to bring customers into the store. Ultimately, credit options help retailers upgrade consumers and encourage repeat business.

“These programs benefit retailers by helping them compete in their local markets,” said Mike Zoellner, vice president of market development at Mohawk. Specifically, he said, independent businesses can offer extended financing at competitive rates that are usually only available to large chains and home centers. “These rates level the playing field by allowing retailers to advertise and promote at the same level as the larger home centers.”

Another significant benefit of credit programs is it raises the potential for larger ticket items. “On average, a finance transaction is eight times the size of a transaction paid in cash and four times the size when paid with a credit card,” said Aaron John, director of flooring network and retail programs at Shaw.

Financing not only provides opportunities for retailers to sell more products at higher margins, but it also helps sales associates respond to a common consumer objection: price. “When you remove the cost/affordability factor, it really becomes more about an opportunity for the consumer to get the product that they desire,” John explained.

Repeat purchases become easier once a line of credit is open as this often extends to all of the retailer’s cardholders. (This essentially becomes a “referral” system.) This is significant, John said, given the fact that almost one out of every five of transactions today is a repeat purchase.


Options galore

Shaw offers retailers several different financing programs ranging from 90 days to 18 months, all the way up to five-year plans. The most popular program, according to John, is the 12-month minimum paid deferred interest plan. “There’s a cost for the retailers to process any finance transaction so the longer the payment, the greater the cost,” he explained. “At Shaw we participate with our retailers in that cost and offer them a buy-down, which basically means any transaction that they process on our 12-month plan—as long as they’re selling and installing a Shaw product—we’ll buy that down for our retailers every day.”

Another popular plan is Shaw’s 24-month equal payment option. “Obviously for a consumer it doubles the amount of time they can pay down the transaction, and it extends it so it’s less they have to pay per month,” John explained. “Then, during our promotional periods, we buy the cost of that financing all the way down to the same amount that we buy down our 12-month plan every single day. It’s a significant investment on Shaw’s part and a huge consumer benefit as well.”

At Mohawk, the 12- or 18-month financing options are favored by its retail partners. For example, during the Mohawk Love Your Floor Sale, participating retailers offer “no interest financing until 2019,” which means for a purchase of $1,500, the consumer will pay less than $50 per month, or $1.70 per day. Long-term financing options such as these not only drive traffic into the store, but they also serve as effective closing tools, Mohawk said.

Mohawk is working to make the process even more affordable for retailers. For instance, the company occasionally offers rate buy-downs on the purchase of a Mohawk-branded product. 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 charges, Zoellner said.


Overcoming objections

Financing programs come with some inherent challenges, however. Training RSAs to address consumer objections is high on the list. “The challenges are really the retailer and their staff overcoming whatever objections they may have to presenting and discussing financial options with a potential consumer,” John said. Sales associates, he noted, must overcome a common fear that the sales process will go awry if financing is offered to a customer who is ultimately declined.

Mohawk believes these fears are largely unfounded. “The approval rate on our platform is about 85%, so a significant majority of all applicants are approved for financing,” Zoellner said. “From a retail salesperson’s perspective of having a fear of creating a bad experience, I think that’s mitigated by approval rates.”

Shaw agrees, citing statistics that make a strong case for offering credit to the customer. “Fifty-six percent of cardholders who were surveyed said they would never have made their purchase from a retailer if financing wasn’t available,” John said.

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