Think strategically about financing programs in an uncertain economy

There’s no question that continued inflation, rising interest rates and economic uncertainty is weighing heavily on retailers’ minds. At TD, we confirmed as much during our visit to the Las Vegas Furniture Market, where we conducted a survey that found more than a third of furniture retailers considered an economic downturn to be their biggest concern over the next 12 months.

While the Fed continues to use its levers of interest rate increases in an effort to curb inflation, many retailers are looking for ways to fuel spending and sustain their business in the meantime. In this environment, furniture retailers should work closely with their financing partners to determine how adjusting their offerings may help them prepare for a potential pullback.

Customer-driven financing

In TD’s survey, three in four furniture industry leaders said they have raised their prices in light of the inflationary environment — and more than half of that group said price increases have in turn reduced their sales volume. This slowdown is echoed in the September retail sales figures, which found continued flattening across the retail sector and small losses in furniture. Following a record year, a flat growth scenario would realistically be a very good outcome this year.

As inflation persists, some retailers are refining or expanding their financing programs to drive sales and support near-term profitability. For example, some are leaning into shorter-term financing options that are attractive in the current environment. This could include tightening loan terms from 48 to 36 months or looking to deferred interest loans, which have lower monthly payments but come with a balloon payment requirement for customers to avoid interest charges. To that end, there is also the potential for a move from 0% loans to low-rate loans, where a low customer interest rate will also support the availability of financing.

Especially during these periods of uncertainty, it’s more important than ever for furniture retailers to ensure they understand how their customer base engages and spends, so they can offer financing products that speak to their needs.

As an example, take the millennial generation — now about 26-41 years old and in a prime position to be furnishing their spaces. Last year, TD surveyed 1,000+ consumers about their shopping and spending preferences and found that millennials were outspending all other generations when it came to making major purchases (over $500). Depending on a retailer’s brand, this is likely an important target customer base.

The survey confirmed some things we know about millennials: They like to shop online (with 33% making their last major purchase from a retailer’s website), and the ability to finance their purchases affects the amount they’re willing to spend (said 81%). With inflation undoubtedly impacting price sensitivity while consumers comparison shop online, it’s as important as ever for retailers to keep their websites updated with the latest financing offers and ensure they mirror what shoppers can secure in-store.

Millennials were also the generation most likely to report they’ve paid for a retail purchase using a point-of-sale installment loan in the past three years. This isn’t necessarily surprising, as these loans come with predictable payment schedules that can be readily built into a monthly budget. Historically, we’ve seen this generation gravitate toward products that minimize risk, reaching for debit cards before adopting general-purpose credit cards or store cards.

As shoppers of all ages feel the strain of inflation and rising interest rates, retailers may consider expanding their current offerings to include both revolving and closed-ended financing products, keeping in mind that card programs continue to be more favorable for fostering long-term loyalty through an open line of credit.

Monitoring consumer confidence in uncertain times

While millennials will continue to represent a large portion of furniture customers, it’s important to remember that many younger shoppers are experiencing their first market downturn — which introduces even more uncertainty as we try to predict whether consumer confidence may waver in the coming months. Generally speaking, the American consumer has been in a strong financial position for the past two years with high savings rates. Now, though, we’re starting to see consumers’ savings depleting as inflation hits household budgets.

To that end, furniture retailers should prepare for a pullback in spending and consider how adjusting or expanding their financing programs may fuel sustained activity throughout uncertain market cycles.

Mike Rittler is head of Retail Card Services at TD Bank

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to our Newsletter for breaking news, special features and early access to all the industry stories that matter!

Sponsored By: