SHOPFLOOR ANALYSIS | Consumer fi nance


But let’s pause for a moment to look at how a retailer can offer their customers finance. “There are three ways to get access to a finance offering in the KBB industry,” says Jordan Burns, group services director at Simon Acres Group. “The first is through a referral partner (such as a buying group), the second is by going direct and getting FCA authorisation, which costs around £1,000 a year. This means your business becomes the broker and can pitch lenders to your customers. The third way is to partner with a broker who will take the hassle and bureaucracy away from you.” But borrowing money costs though, doesn’t it? So, who’s paying? The most popular and attractive finance options – Interest-free Credit and Buy Now Pay Later (BNPL) – almost by definition come at no direct cost to the customer, and therefore it’s the retailer that foots the bill. Mike Skelcher, retail sales manager at Rossendale Interiors in Bacup, tells me that his deal costs him 4.25%, and a 24-month interest-free deal costs 9.65%. He even revealed that he had a quote for five years interest-free, which came in at an eye-watering 17.9%. Depending on starting gross margins then, for many KBB retailers this could easily result in a halving of gross profit, and depending on net margins then, could easily bring them to zero. So how and why do the nationals do it? There’s no doubt that they can achieve high gross margins to start with, so the finance fees make less of a dent in their bottom line, and their turnover enables them to leverage better deals with lenders.


“Many of the nationals are leveraging interest-free credit, especially during peak promotional periods,” says KBB-specialist marketing consultant Hayley Simmons. “It plays a big role in advertising and probably will more so going forwards given the market conditions.


“‘By offering flexible payment options, you’re removing another reason for the consumer to shop with the nationals over a local independent.”


Experiences Let’s now get the views of some retailers as to why they do, or why they don’t, offer finance packages. “If your rates are competitive, credit can help your buyer stretch their budget, explains Lord at Used Kitchen Exchange. “Some businesses use it very successfully and it is often the reason the buyer goes to them in the first place. Finance works in a number of ways for us. It’s a great marketing tool; it gives us a narrative, a reason for buyers to look; it offers options to buyers, and it expands budgets.” Rossendale Interiors is another retailer that offers finance deals. Here’s why, according to


retail


sales manager Mike Skelcher. “We’ve got a few ex-Wren sales designers here who are used to pitching it, and so that made me take a serious look at


avoiding this ordeal would make such a difference. Skelcher points out there is a solution for this. “Our finance proposition allows us to do a ‘soft search’ on a customer,” he explains. “This leaves no record on their credit files and gives us an indication as to whether finance will be offered. In fact, it’s 99% accurate, and great for upselling.”


But what about the experiences of those retailers that don’t offer finance? Unlike


the


We know we have lost sales in the past and it will help us unlock the lower end of the market that we don’t currently have much


footfall from Mark Jenkins, showroom manager, Elliotts Living Spaces


the business model,” he explains. “According to those designers, 90% of their sales [at Wren] were made using finance, mostly the interest-free option. “I also did some research on social-media and noticed that a lot of Wren customers listed finance as a reason for their purchase.” The delivery of creditworthiness checking some- times leaves a lot to be desired though. As someone who has used finance before in KBB retail, I can remember spending many an excruciating half-hour running through questions with customers, such as their date of birth, credit history, outgoings, etc; only for the finance deal to be rejected for many. So,


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nationals, independents seem less inclined towards offering finance. In posting a poll on LinkedIn with the question “Does your KBB retail business offer finance to its customers, and if so, how often is it used by them to pay for a purchase?”, the response was overwhelming. Two-thirds of the respondents said they didn’t offer finance to their customers. Wanting to know why this was the case, I contacted many of the voters to see whether it was something they had ever considered? “I don’t see much of a need as I might have two customers a year that ask for finance,” explains Stephen Atkinson of Waterloo Bathrooms in Cheshire. “And, in each case it hasn’t been a deal-breaker, as cheap credit is easily available for most people, and I don’t want to feel I’ve ripped them off.” In speaking to Dan Broadbent of consumer finance specialists Consumer Credit Solutions (CCS), he does accept that finance offerings have mostly worked only at entry-to-mid-level sales, but says that savvy consumers at higher price points


are beginning to seek out finance offerings because the credit is free at the point of use, and can help with cash-flow – particularly when handling bigger projects, such as complete house renovations. However, in researching this topic it seems many of those retailers who don’t currently offer finance are starting to consider it, with some rethinking required. “We have looked at finance options before and it is something we will need to look at again in the near future,” explains Mark Jenkins, showroom manager at Elliotts Living Spaces in Lymington. “But, because our merchant clients sometimes purchase on behalf of retail clients, it’s a balancing act and we need to


figure out a fair way of making that work. “We know from client feedback that we have lost some sales in the past, [and] it will help us unlock the lower end of the market that we don’t currently have much footfall from. ”


An interesting point is made by Mark Strachan, creative director at Laings, saying that although finance is something that they are exploring, they “wouldn’t want to risk diluting our current cash customers by introducing finance if it wasn’t necessary. If we were to introduce finance, it would require a switch to our current business model, as there would be an additional cost and risk for the business to bear”.


So as the boom time of the Covid era for the


industry abates, how might this affect the demand for finance in the KBB industry?


Broadbent at CCS again sees growth potential going forward, stating that “with a contraction in disposable incomes already happening, we are expecting an increase in requests for finance solutions from across the industry”. With current macroeconomics seen to be having an effect then, there might also be a bigger long-term trend at play. Will the next generation of customers in future start to expect a monthly payment option? As a millennial himself, Burns of Simon Acres Group says: “Attitudes are changing to financing the purchase of big-ticket items, and all of my generation and friends pay for things monthly.” KBB marketing specialist Simmons backs this up


saying: “Companies like Klarna and ClearPay are becoming popular with furniture retailers. I read that younger consumers are using these payment platforms instead of credit cards. If it’s true that credit cards are becoming less popular, then more finance options need to be available at the point of sale.” These thoughts are echoed by Strachan of Laings, who tells me: “Finance is much more accessible to our new customers. I think the future generation of purchasers, will be more expectant of retailers to offer finance, regardless of the size of their purchase”. Attitudes may be changing among the general


public. But still, minimising the cost of finance to the retailer looks to be a really important factor going forward. With my experience dealing with buying groups, I wonder if they hold the key to unlocking the mega-deals negotiated by the nationals.


· November 2022


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