Consumer Financing 101: Consumer financing is an even more important sales tool in the current market—if retailers employ it correctly – July 2023

By Jennifer Bardoner

Even in the best of economic times, flooring purchases are often postponed by consumers in light of more pressing needs, notes Keith Spano, president of CCA Global’s Flooring America, Flooring Canada, International Design Guild and The Floor Trader-which makes offering consumer financing all the more valuable for flooring retailers in today’s challenging economic circumstances. “With inflation, relatively high interest rates, waning consumer confidence and dwindling savings accounts, it’s more important than ever to use consumer financing to make buying flooring easier for the average consumer,” Spano says.

Consumer financing is not only becoming an asset in today’s market, but also an expectation amid a society that is used to pulling out a credit card. Yet, it can still be a powerful differentiator between flooring stores. Retailers not aligned with a brand or buying group may erroneously believe that the opportunity to offer financing is not available to them, and some business owners may be wary of the processing fees the services carry.

As vice president of member success for Shaw, Harry Tishler travels the country, visiting dealers to help them understand the value and importance of offering financing options for their customers. “This is a common refrain from folks who don’t offer consumer financing: ‘My customers don’t ask for it, so I don’t really need it,’” he reports, pointing out that customers often choose which stores to shop based on the availability of consumer financing, rendering that refrain null. 

Floors & More vice president Vinnie Virga Jr. says consumer financing is typically part of the buying group’s promotions throughout the year, and notes that Big Bob’s and Floor to Ceiling retailers that advertise the promotions on their websites get around five times the number of leads of those that don’t.

In addition to getting more shoppers in the door-especially important during economic slumps-the option of financing can help close sales and lead to higher tickets. Spano reports that the average credit card ticket at CCA’s member stores is currently around $3,500, whereas the average financed ticket is almost double at $6,800. “The numbers speak for themselves,” he says. “RSAs (retail sales associates) who promote financing are getting almost twice the ticket while exerting the same amount of effort.”

Tishler agrees, pointing to the Shaw Flooring Network’s top-grossing dealers. “There is a correlation between those with the highest revenue and those who leverage consumer financing,” he says. “Retailers who do focus on financing sell bigger tickets and higher-profit products.”

Vince Lowe, Synchrony’s senior vice president and general manager of home specialty and flooring services, says the flexibility afforded through being able to finance a purchase can be critical to closing a sale. It may also help customers afford professional installation, which can be a significant portion of the total cost.

“Our research shows that consumers typically underestimate how much their flooring will cost, so knowing a payment plan can accommodate what they really want helps drive higher purchases,” Lowe says. 

Financing typically enables the RSA to sell better-end goods, moving the conversation from one about budget to one about value and performance. It also provides an opportunity for them to counsel the customer in terms of their overall needs and desires and guide them to consider additional projects, which financing can make more realistic.

“With greater purchasing power, customers may decide that in addition to the new tile they’re having installed, they may also need new hardwoods to complete the look of a room,” Lowe continues. “Similarly, more time to pay could make upgrading to a superior product, such as higher-quality carpeting, more budget friendly.”

Spano says kitchen and bath are an increasingly important part of the mix in members’ businesses. Those who offer kitchen and bath services sell more flooring than those who don’t, and financing the whole project helps make all of it affordable, an important aspect when price tags for such renovations typically stretch into the tens of thousands.

“It’s not just upselling to better products,” Tishler notes. “It’s adding more areas of the home, more products and services, and creating a deeper relationship with the consumer.”

And with mortgage rates rising, current homeowners are incentivized stay where they are in order to keep existing low mortgage rates locked in, meaning the likelihood of such large projects stands to increase.

“Helping the customer make informed decisions, based on payment methods or timeframes, increases the odds of closing the sale,” says Lowe. “This process creates a positive purchase experience for the customer, which goes a long way toward building brand loyalty.”

Virga points to the furniture and car industries as models for building consumer financing into the sales process, noting that they and the flooring industry are essentially lifestyle enhancement providers. “When you think about those other two industries, financing is a significant part of what they do,” he says. “The reason those industries do so well is because it’s so ingrained in their sales process. It’s kind of become an expectation of consumers. If we as flooring retailers can do a better job promoting it like they do, it will provide huge opportunities.”

Simply offering consumer financing can help distinguish a retailer from the competition, but truly leveraging it as a sales tool requires more forethought. Spano, Tishler and Virga agree that there are several key ways to do this-and common pitfalls to avoid.

DO work the opportunity for financing into your marketing and sales approach.

Spano says, “Retailers who are successful in selling finance promote it. They make it part of their unique selling proposition. It’s usually a major factor in why one retailer was chosen over another and should be discussed early and often in the sales cycle.”

Virga notes that the majority of flooring purchases begin online, making financing an important part of a business’s online strategy, as well as the in-store sales pitch. “It should be part of your home page banner, and one of the pages on your website should be about your financing program,” he advises. “If not, you certainly are missing an opportunity to be top of mind for consumers before they even step foot in a showroom.”

Tishler says the successful integration of financing into sales strategy often comes down to the store’s leadership. In order for it to become standard practice and an organic part of the conversation, consumer financing should be a core component and an ongoing part of sales culture and training-a company expectation, not an afterthought. “When an owner is engaged and it’s part of the way they go to market and part of their weekly sales meetings, those are the folks who do the most with it and are often the most successful,” he says. 

DON’T shy away from bringing up financing throughout client conversations.

“Only offering financing to save the sale is one of the biggest mistakes a retailer can make,” says Lowe. Tishler believes this may come from outdated notions that consumers are insulted by the presentation of finance options, when in fact, they appreciate it-if it’s an organic part of the conversation from the get-go.

“A big mistake I see a lot of RSAs make is bringing up financing once pricing becomes an issue; then, it makes it seem like the customer doesn’t have enough money,” Virga says. While he, too, believes it’s important to emphasize the opportunity for financing early and often throughout the sales process, he shares a valuable sales tactic that could even be employed at the last minute. “One great way to do it is quoting it two ways: ‘Today, this is $5,000, or it’s $140 over 36 months. Promoting it in this way helps the customer see the value of financing,” he explains.

Virga recommends having signage and information about the availability of consumer financing prominently displayed throughout the store, as a way of keeping it top of mind for both customers and RSAs. Often, such assets are available through partner financial institutions. He also notes the opportunity that follow-up sales calls, letters and emails hold for making financing an ingrained part of the conversation centered around the benefits shopping with you provides.

DO offer promotional terms, particularly 0% interest for 36 months if you can.

Perhaps the single most important offer you can extend is 0% interest, our sources agree. “Zero percent is the lever for consumers,” Tishler says. “If they think they can make a $15,000 purchase at 0% APR and spread payments over 36 or 48 months, that defines making it easy for the consumer and as painless as possible. It doesn’t cost them anything to do it, so why wouldn’t they?”

Shaw, CCA and Floors & More routinely buy down the rate for their aligned dealers, but financial institutions may extend their own special offers to retail partners that are not affiliated with particular brands or buying groups. Additionally, retailers can negotiate rate buydowns directly with a finance provider. (Unaffiliated flooring retailers can typically still access financing through brands like Shaw and Mohawk, just not the same special terms extended to their preferred dealers.)

While Virga says 12-month promotional terms are the most common today, the sweet spot lies elsewhere. “We’ve done a lot of research and found that if it’s not 24 months or more, it doesn’t move the needle in terms of driving traffic to your store,” he says, adding, “Today, 36 months or more is what is particularly appealing.”

DON’T let concern over rates impacting your margins keep you from offering special terms.

Being able to offer zero percent interest carries costs for the retailer outside of special promotions, but being able to advertise such special terms brings more customers in the door, and Tishler notes that not all of them will take advantage of the promotional financing. “You get a huge promotional lift by putting 0%, because even if they’re not going to take advantage of financing, they think, ‘Here’s a retailer in my market promoting and driving value,’” he says, noting that this helps offset any cost for buying down the interest rate or extending the terms to a longer payback period. 

“I think what salespeople and owners sometimes don’t recognize is, even if you do take a slightly lower margin, you’re probably getting a higher average ticket, so it should work out in the wash,” Virga adds. Special promotions are often applied to more profitable lines or collections, notes Tishler, “so there’s a lift there, as well.” 

Virga suggests building dealer financing fees into prices on the front end to streamline the process and safeguard your bottom line. He also recommends requiring a portion of the purchase as a down payment. “The best practice is to take a third down when it comes to consumer financing,” he says. Not only does this cement the customer’s commitment and make them eager for their new flooring, it cuts down on dealer costs associated with the financing since the amount is less.

DO partner with a reputable finance company.

Well-known institutions like Synchrony and Wells Fargo provide peace of mind for consumers and credibility for retail partners. They also offer a heightened understanding of the needs and nuances of flooring operations, thanks to their longtime relationships with the industry’s biggest brands and buying groups. For instance, Shaw is aligned with Wells Fargo, while CCA and Floors & More partner with Synchrony. 

Both institutions offer a quick and easy application process, multiple financing options, competitive rates and routine special promotions. They also provide support services and literature to help simplify offering financing as part of the sales process.

“The most important thing is how easy they can make it on the RSA, because that really is the point of contact,” says Tishler. “If the RSA feels comfortable with it and understands how it can affect their own income and enhance the experience for their customers, they are miles ahead of the game. If there’s too much complexity, too many steps, technical platform issues, the RSA is probably not going to push it.”

Copyright 2023 Floor Focus 

Related Topics:Mohawk Industries, The International Surface Event (TISE), Shaw Industries Group, Inc.