Private Label Credit Cards Equal Higher Tickets, Better Profits Article Number : 1148

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Date	6/22/2006 9:53:25 AM
Written By	LGM & Associates Technical Flooring Services
View this article at:	//floorbiz.com/BizResources/NPViewArticle.asp?ArticleID=1148
Abstract	Hicksville, N.Y.—There are various reasons why a floor covering retailer should take on a private label credit card program, but the most important points include larger ticket sales, more frequent purchases and better margins...
Article	Hicksville, N.Y.—There are various reasons why a floor covering retailer should take on a private label credit card program, but the most important points include larger ticket sales, more frequent purchases and better margins. Additionally, these programs allow dealers to focus on who their customers are thus allowing them to better market themselves to those people. For example, Carpet One Floor & Home’s average financing ticket is $2,700, while it’s average credit line extended under it’s private label card exceeds $6,500, noted Evan Hackel, president of CCA Global Partners, Carpet One’s parent company. “In short, consumer financing leads the customer to feeling more comfortable with purchasing more flooring for her home, and/or purchasing better quality flooring. From a member’s perspective, the added gross margin dollars mean a significant boost to their bottom line. “By having a Carpet One Floor & Home private label card the customer is reminded of our location every time she pulls out her purse or wallet and sees our card with our logo and graphics,” he continued. “In addition, customers have become accustomed to receiving a discount when shopping for flooring. When a finance offer is associated with a sale, she is less likely to bargain due to the value offered by having no payments for 24-months, or receiving zero interest for five years. It removes the emphasis from price and places it on the finance deal, which we can then structure from three- to 60-months.” “Offering a private label credit card is a great way to build your own brand,” agreed Greg Pittman, GE Consumer Finance’s vice president of sales for its Retail Sales Finance unit. “It’s like having a sign in the consumer’s wallet, and monthly statements further build brand awareness. Also, a financing program helps floor covering retailers capture more customers because they are giving homeowners additional buying power. Our company works hard to offer financing to a wide credit spectrum so dealers can capture more sales.” Private label credit cards offer a much better deal to shoppers than a national credit card such as Visa or MasterCard. This is because during any day of the year, a store can choose to extend “no payment” terms from 90 days all the way out to five years, explained Hackel. “Think about it: buy today and make no payments until July of 2008—that’s a powerful advantage that not only ensures a sale, but enables the consumer to feel more comfortable with buying a better quality product.” “With a traditional credit card, if she buys today she has to pay for it in 30 days,” he added. “The fact is, even thier rewards equate to only a value of 0.5% to 1% of the purchase. The extended time is very important to most customers. For the retailer, processing a private label sale for a four-month, no payment term costs him 0%. However, process that same sale by swiping a Visa card and it costs him 1.81%. As a result, private cards are cheaper.” Pittman pointed out that there are still some dealers who remain skeptical about private label credit programs. “Some retailers are reluctant to accept any kind of change to their existing systems because they fear a steep learning curve, either with paperwork or technology. Fortunately, our application processes are extremely simple. Once they see how easy it is to transition, they usually do. “On the other hand, there are some who may not have taken the time to consider all the benefits,” he continued. “In their opinion, there is little difference in the various financing options, so it is our job to show them how beneficial these programs are. Controlling the sale, enhancing the store’s image, expanding their customer base, and increasing single-ticket sales are some of the advantages of a private label credit program. Here are just a few points he said dealers should consider: • Customers are often an influencing factor—they are asking for flexible financing and can go elsewhere to get it, especially with a flooring purchase; • Homeowners often want a dedicated line of credit, so they don’t tie-up their bank card which they use for day-to-day purchases, and • E-statements and e-payment capabilities are something a retailer doesn’t need to focus on. Having a financing provider manage the credit program enables him to concentrate on the business. “Our members are very attuned to marketplace/ retailing trends and have been using our consumer finance program for years,” said Hackel. “When the financing program was new, there was a learning curve in offering our private financing credit card to customers. “Over time, we’ve invested a great deal of time, money and energy in creating and presenting credit-training modules through our University and online training system,” he explained. “At conventions, in member stores and across the Internet, we constantly train and emphasize the advantages of consumer financing not only for our members but for the customer as well. The end result is that almost all our members offer consumer financing and we have over 998 processing machines in the field. From our estimates, the group has created the largest credit portfolio in the flooring industry with over 230,000 accounts. “When our sales professionals discuss financing with a customer it is always approached as an added benefit,” Hackel concluded. “There’s a world of difference in approaching a customer and saying, ‘So, do you need credit?’ versus, ‘Did I mention we can finance your whole house purchase for 60-months at 0% interest?’ Obviously, the first approach guarantees a ‘no’ answer and may even insult the customer (not to mention a possible lost opportunity for a larger sale or even the sale itself), whereas the second approach almost always ensures a ‘yes.’” —Kathlene Vercellino -I understand that higher sales are typical when using a private label credit card vs. a national card, why is this true/what is the reason for this? Some of the reasons were listed above (credit lines) but additionally, we find that customers like to link credit card use to smaller, rather than larger, ticket items that are less durable; i.e. airline tickets, entertainment, dinner, etc. When a purchase like flooring is made it becomes an investment in the customer’s home. The psychology of an investment in flooring is very different than that of buying an airline ticket. The end result is that the consumer likes to link the payment of a good with the life and use of that good. Flooring is a large and durable purchase and consumers are very willing (and desirous) to match the payment of the purchase to life that floor will be in the home. Financing ensures our customers can truly afford and purchase their “perfect floor.” -How do you overcome a consumer who objects to taking out a private label credit card? Consumer financing is, more often than not, a product that sells itself. Consumers, and our society in general, are/is very accustomed to using credit appropriately. We proactively promote, market and advertise our consumer finance offers through the Carpet One Floor & Home Card. Our circulars, direct mail offers, in-store displays and even our in-store music/messaging almost always mention consumer financing. The result is that our customer is almost always aware of our latest finance promotion and is usually levering that promotion to make a larger purchase. When our sales professionals discuss financing with a customer it is always approached as an added benefit. There’s a world of difference in approaching a customer with, “So, do you need credit?” versus “Did I mention that we can finance your whole-house purchase for 60 months at 0% interest?” Obviously, the first approach guarantees a “No” answer and may even insult the customer (not to mention a possible lost opportunity for a larger sale or even the sale itself), whereas the second approach almost always ensures a “yes.” -What financial company does your group use and why? Carpet One Floor & Home, through CCA Global Partners, has partnered with Citi Financial for the last 8 years for a number of different reasons, but primarily because of the close relationship we’ve developed with one another. They’ve taken the time to not only understand the needs specific to our members but also the needs of our members’ customers. The result has been that rare combination of aggressive discount rates coupled with generous credit lines and really fantastic approval ratios.