Retailer Forum: Dealers Discuss Their Use of Financing
These “roundtable” discussions will focus on a specific topic, in this case the use of financing by specialty dealers. For the story, we interviewed owners, managers and other executives of retail operations around the country. These businesses are of all different shapes and sizes, but in each case the retailer has found success using financing options to generate sales.
The idea of this series is to put forth a set of best practices, and while there are certainly a variety of answers that came from the different retailers we encourage readers to pay attention to both the similarities and differences—and more important the reasons given—to give you a better perspective on how these companies handle financing compared to how you currently do.
For this topic we asked a range of questions, from percentage of sales that are financed to best—and worst—financing offers to how financing is used in a sale, and even ventured into finding out if these companies noticed any difference in the amount a sale produces if it gets financed compared to one that doesn’t.
Here’s what they had to say:
• How often do you use financing in your selling process?
Casey Dillabaugh, Dillabaugh’s Flooring America: We use it quite frequently. We’re always offering it in advertising, and 12 months financing is always available. We make sure our clients know that financing is always an option.
The downfall of financing to the business owner, though, is that it costs the company more money.
Kurt Duitsman, Floors for Living: We mention financing 100% of the time. I would consider myself as one of the top retailers when it comes to using finance in his everyday business.
Rob Elder, Hiller’s Flooring America: We collect in one way or another, 100% of the order up front. Every sale we make, with the exception of commercial or apartments are paid for up front. In this way, it is an easy transition to financing.
Kevin Frazier, Frazier’s Carpet One: Everyday, all the time.
Stacey Pape, SP Floors and Design Center: Under 25%. Our store is located in a fairly affluent area and we never used to see a lot of financing being done. However, lately we have been placing some more emphasis on the financing options and incorporating them into our builder program and we are starting to see some success in higher sales because of it.
Jeff Stephens, Dolphin Carpet & Tile: Our staff is trained to use financing throughout their sales process. We use it as the customer walks in, use it to overcome price objections and use it to close.
Steve Weisberg, Crest Flooring: Almost all the time since early 2014 when we did a 36-month program. It was a huge success and made a believer out of me that we need to do this.
• What percentage of your sales comes from an industry financing offer; from the customer using their own national credit card; from cash or check?
Dillabaugh: Based on 55% of our business being from retail, 4.7% is through financing, which is right in line with the national average.
Credit card sales on the retail side of the business accounted 41.1%. Check or cash is the remainder. Check or cash is preferred. Credit card fees are less expensive than financing fees.
We do a couple of things to promote check or cash, such as asking for a 75% down payment, while we require 100% down when paying with a credit card. If they finance, we require 30% down. But it’s really whatever works best for the client.
We will also run the ticket at the time of order so [we] get funded immediately.
Duitsman: We finance 40% of our sales. We use credit cards in most of our sales for the initial down payment and 40% of our sales are on credit card.
Elder: In a typical, non-promotional month our sales would break down as follows, 20% to 25% come from 12-month financing, 65% come from a credit card (American Express, Discover, Visa and Master), and the balance of sales is paid by check.
In a promotional month, the 12-month financing goes up to 35% to 40%, while the credit card drops by about 20%.
Frazier: 22% comes from financing and 35% are put on a normal credit card.
Pape: Under 15%, but 75% of all sales are put on a credit card.
Stephens: We average around 20%. Obviously it is more active around the larger finance promotions.
In terms of an actual breakdown: 5% cash, 15% check, 20% financed and 60% credit cards.
Weisberg: As of now I’d say 5%, although that number changes dramatically when we run a 36-month program. Otherwise, about 85% of our sales are on a credit card.
• Do you offer a private label credit card?
Dillabaugh: Yes, it is a Flooring America branded card that can only be used at Flooring America stores.
Duitsman: We don’t have a private label finance program.
Elder: We use Synchrony through Flooring America. It is available seven days a week, which is invaluable for one- or two-day weekend letter sales. They have a very small turn down rate in terms of giving consumers a credit line and, quite frankly, if a person is turned down by Synchrony, it is usually for good reason.
Frazier: We do; it is a part of all the financing we offer but it isn’t a driver for us.
Pape: Yes, we offer one through the Wells Fargo program through our buying group, CarpetPlusColorTile.
Stephens: Yes, through Synchrony.
• What is the best financing offer that works for your business?
Dillabaugh: The longer financing offers draw the customers into the store such as 24-month payment options just to know that it is available.
Duitsman: Four year free financing.
Elder: We generally use only 12-month financing, as it seems to be the best fit at the best rate. If we can get buy downs from Flooring America, then we will use extended financing.
Frazier: No money down and free financing for an entire year. This is our constant go to, as it offers the best cost-to-return ratio.
We also offer 36 months a few times a year and the customers like it, but the cost-to-return ratio is less than a winner.
Pape: 12 months, no interest. It provides our customers with an option to spend more on a higher quality product and allowing them to extend the cost over a period of time without interest.
It doesn’t leave them with a payment for longer than a year and it’s relatively cost-effective for us the dealer that we don’t have to build a large number fee into the overall price.
Stephens: We promote typically any offer with date extended terms. For example, the current ‘Mohawk Love Your Floor Sale – No Interest Until 2018.’ It seems that consumers like the draw of a date way out in the future over the typical six- or 12-month financing options.
We also will promote financing as $59 a month for your whole house installed until 2018 or $15 a month for two rooms, etc.
Weisberg: Without question it is when we do a 36-month promotion. We did two of these in 2014 and each provided an amazing return.
All you hear are cars for three-year leases, furniture for three- and four-year offers, so consumers are very comfortable having three years to pay for their flooring.
During a six-week period this past fall, we did 180 transactions with 36-month no money down financing. That’s 180 sales we probably would not have gotten if we didn’t run this promotion.
I hear retailers complain about the additional percentage fees some of these promotions cost them but to me even at 10 points more for example, it is still worth it based on the number of sales we got compared to what we would have got without the promotion. Even when you adjust for the extra fees the number of sales is still very profitable.
• Which financing offers are the least attractive?
Dillabaugh: We never promote anything less than 12 months as anything less is not attractive to consumers.
Duitsman: I feel every financing offer is good. Customers want to take advantage of free money. I will run one year free financing with a 10% instant manufacturer’s rebate.
Elder: We have tried financing offers through [a mill], but have found they are a pain to use and just not worth the effort.
Frazier: Financing is attractive, period.
Pape: Ninety days same as cash. Most of our customers were already planning on spending a certain amount on their flooring, and once they look at [all] their options, for a small amount more they can generally get a much nicer product.
Stephens: Basic six or 12 months. Consumers see these everywhere, so they are not necessarily attractive to them. Plus, the paperwork and approval takes time. Many people have low interest credit cards and want the miles or points [rather than this kind of promotion].
Weisberg: Six months is probably the least because the term isn’t long enough to make a difference. We have not offered anything less than 12 months in more than two years.
• Do you take advantage of any national industry financing deals?
Dillabaugh: We take advantage of the financing offers through the Flooring America cooperative. Flooring America makes it relatively easy for independent retailers to take advantage of the deals.
Duitsman: We take advantage of manufacturers’ special offers.
Frazier: Yes, Carpet One negotiates stellar rates for us.
Pape: Yes. We use the Wells Fargo credit program. It is planned out through our buying group with preset promotion dates and special rates that coincide with supplier sale events or in-store sales and promotions.
Stephens: Being a larger dealer we have been able to tailor many finance promotions to our needs. The National Floorcovering Alliance (NFA) and Mohawk have also been very helpful in attaining the right rates and length of time we require.
Weisberg: Yes, from our major supplier, Shaw. We will also make sure to promote the HGTV brand in all our offers. To me this is the best private label brand in the industry. Consumers watch the channel so it’s a brand they know and trust because they see the results of how homes get transformed into beautiful living spaces and they want the same thing.
• Is there a specific time during the selling process when you bring up financing? Is it something just used as a trade-up tool?
Dillabaugh: The best time to bring it up is early and often in the sales process as a point of differentiation between the competition. Consumers see it as an option.
Duitsman: We use financing to get the sales. I also use financing in all of our advertising. Every month I send out 1,200,000 inserts and there is always a financing offer included.
Frazier: Financing is ubiquitous in our advertising and in our showroom via P-O-P. And hopefully our salespeople bring it up when they ask our initial qualifying questions. We also use it to help customers trade up.
Pape: It is mentioned throughout the sale. We generally talk about financing if somebody is on a budget but would like to purchase an upgraded floor, as financing enables them to buy something more performance oriented that suits their lifestyle but gives them a little extra time to pay without interest charges.
It is absolutely used more as a trade up tool so the consumer is able to create the look she wants and get the performance she needs even if she is on a limited budget.
Stephens: Yes, before, during and after. Financing mustbe part of our sales staff’s presentation.
To help with trade-ups, our best sales professional is able to calculate the difference in monthly payments when upgrading to the floor they really want. For example, ‘For only $12 more a month you can have this flooring that your wife really likes.’
Weisberg: When we are running a finance promotion, the offer is generally mentioned at various times, but generally at the beginning.
Once a client is interested, we get the application processed so we and the customer both know what they are dealing with.
During non-financing sale times, we always mention financing and generally weave it in to our presentation.
We do set up our products into various categories. We do a 12-month financing on our good products, an 18-month deal on better goods and our best will be 24-months. We generally leave the 36-month offers for the major promotions.
We’ll point out to customers the ability to pay for an upgraded product is within their reach with financing because the pad is the same, the labor is the same, so for an additional $20 a month, for example, they can get a higher-grade product that looks and performs better, thus giving them more peace of mind.
Interestingly, you’d think financing would be a good trade up tool but that is the wrong way to think. People just do not have the funds available for larger purchases and the financing allows them to get what they want and pay on a monthly basis.
• Do you provide specific training on selling financing?
Dillabaugh: We talk about it consistently with our sales team. It’s always a part of our training. One of the main things we discuss is how they should be offering financing to customers.
Duitsman: We train on it all the time. I do train our people on financing in person, through videos and my training web site. Our people practice and use a script on every presentation.
My business turned three years old in March, and during this time I have opened up 16 locations in the Texas area. I couldn’t have done this without the help of Synchrony Finance. It even flew three people to one of our locations to do a story on my business and what I have accomplished though financing.
Frazier: Yes, we train on financing at least four times a year and it is enumerated as one of our Top 10 in-house best practices.
Pape: We have been very limited in our training, however we have been looking at different sources through our buying group and the credit company to help improve the process and make it more easily assessable to our customers.
Stephens: Yes. We will hold annual seminars and also do online Webinars with Synchrony.
Weisberg: Absolutely. The entire staff goes through the online training available through Synchrony. We’ll also do roll playing and do what we can to make it a comfortable thing. I also give out a gift card to the person who processes the most apps.
As a result of our training and the success we’ve found with it, using financing is now part of our selling DNA.
• History says the average sales ticket is larger when an industry financing option is used. Have you experienced that?
Dillabaugh: This hasn’t been my personal experience but it could be geographically driven.
Duitsman: The average financed ticket is about 33% larger than a cash/credit card ticket. But, like financing, people will spend more with a credit card than a check.
Elder: I totally agree that the average ticket numbers are up with financing, as can be seen with the spike in financing when we are having a promotion.
Frazier: Yes, at least 10%, sometimes as high as 30%.
Pape: Yes, we have experienced that when financing is involved typically the overall cost of the sales is approximately 25% higher.
Stephens: I don’t necessarily agree. Even though we will offer the suggestion of adding the additional room or area, most people have done their research and generally know what they want for what area before ever visiting a store.
Weisberg: Only about 10% to 15% of the sales are higher. It’s not as high as you’d expect.