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Credit Check
May 14,
2012 by in UnCategorized 
By Home Furnishings Business in on May 2012
In October 2010, in the midst of one of furniturelands toughest couple of years, Citigroup unloaded $1.6 billion in consumer financing business to GE Capital, much of it for home furnishings.
It was a sign of the times: Not only were retailers having difficulty maintaining their own lines of credit, but some lenders had drawn a red circle around just about anything related to the home, including financing of consumers home furnishings purchases.
Citis interested again, though, inking a credit card deal with home furnishings, electronics and appliance retail buying group BrandSource that offers qualifying customers 0 percent interest, 24-month financing for a six-week promotional period that began April 22 and lasts through the end of this month.
Citis also back at High Point Furniture Market, shopping for home furnishings business through its Retail Services group.
While some retailers report a mixed bag on credit approvals, more consumer caution in the wake of the recession when it comes to their debt load has more lenders looking more favorably overall on financing purchases for home furnishings and other goods.
BEST IN YEARS
Industry analyst Jerry Epperson said shoppers ability to finance purchases continues to improve.
Credit for consumers is the best its been in five years, hands down, Epperson, managing partner with Mann, Armistead & Epperson in Richmond, Va., said during an interview at High Point Furniture Market. You always look at the marginal credit when youre talking about availability. People who need it least can always get it.
He noted that car companies expect to sell 16 million vehicles this year with auto sales up 20 percent; SUVs, 3 percent; and trucks, 7 percent.
Thats all done with credit, and the banks are coming back in and financing, Epperson said, adding that credit availability is spreading for furniture as well.
The NHFA negotiating rates for members, buying groups, the large retailers, they can always get the good rate, he noted. The Wells Fargos, GEs are going after larger independent retailers as wellthey want that business.
Just before April Market, Home Furnishings Independents Association (HFIA), whose membership includes lots of smaller independents, announced a deal with TD Bank to bring TDs Renovate private label credit card program to member stores. HFIA President Mary Frye pointed out that the groups retailers now offer credit along the lines of their larger competitors.
THE FINANCERS VIEW
Lessons learned during the recession have made many consumers better credit risks when it comes to financing big-ticket purchases such as furniture.
The economy is improving, and consumers are saving at a higher rate than they were before the recession, said James Seger, general manager for retail and home furnishings at GE Capital's Retail Finance business. Were confident with the direction our business is going. Consumers like our product, and they see it as a great tool to help them finance big ticket purchases.
At Wells Fargo Retail Services, Terry Fuller, senior vice president, has seen significant change this year in the increased utilization of longer-term (24-, 36- or 48-months) no-interest, equal-payment special-term promotions.
Our retailers have experienced the advantages of these longer-term promotions in higher average transactions, stronger customer approval rates and we have been able to provide these promotions at attractive costs to our retail partners, he said via e-mail. It is our opinion these types of promotions are strong incentives to the customer and provide an attractive sales option for our retailers.
Seger said GEs decision to maintainand growits position in consumer financing for home furnishings will stand it in good stead as the economy improves.
Our business model has been predicated on doing business with all sizes of retailers, bringing big-box solutions to small independent retailersthat has not changed, Seger said. We managed through this cycle, some of our competitors have exited. Weve found during the recession that theres a significant amount of loyalty not only from GE to our partners, but also from our retailers to us. Its a significant differentiator.
He added that GE has been in this segment for more than 80 years.
(Our product) is a key component of our furniture retailers strategy, since it helps their customers spread payments and manage the financing of big ticket purchases, Seger said.
Fuller also emphasized that its home furnishings retail client list includes a wide range of retailers, sizewise.
Wells Fargo Retail Services has always approached the home furnishings market from a broad industry perspective, he said. It is one of our core markets, and one in which we have a tremendous amount of experience and expertise. It is our goal to form a relationship with every one of our participating retailers and to provide them with the best possible marketing and sales solutions to move their product(s) and create loyalty with their customers.
While we certainly have credit programs for buying groups and manufacturers, we have always supported the independent home furnishing retailer and thousands of independent retailers are enrolled today in our home furnishings credit program.
A MIXED BAG
Consumer credit might be loosening overall, but retailers we contacted reported a mixed bag when it comes to approvalsand the amounts approved for home furnishings purchases. Results varied region to region.
Customers at Hillside Furniture, a contemporary retailer in Bloomfield Hills, Mich., which uses Wells Fargo for consumer financing, could get credit even during the worst of the recession, but CEO Bruce Selik believes thats largely due to the stores higher-end clientele.
We didnt see the approval rates fall, but the amounts being approved came down, he said. Where a customer might have financed $15,000 to $20,000 before, its now more like $10,000 to $12,000 without further negotiation.
In South Florida, Pedro Capo, COO of Miami Gardens-based El Dorado Furniture, another Wells Fargo retail partner, sees definite room for improvement.
We had hoped that by this time, the overall approval rate with our external retail finance company for our customers would have been higher but actually has gone down a bit or stayed the same compared from store-to-store, year-to-year, he said.
And while the store itself was able to maintain its own credit facilities throughout the recession, Belfort Furniture in Dulles, Va., reported consumers still have a tough time getting credit.
Their ability to obtain financing is more difficult than a year ago, noted Rick Petry, senior director of finance and administration. Weve seen approval rates go down a little. ¦ It seems fewer customers are trying to obtain credit, theyre trying to pay down their debt.
Capo reported a similar trend at El Dorado: Customers coming in with more cash, or using their own credit cards to buy furniture more than they did than in the last 10 years.
Customers are being more frugal in their decisionand once they decide to purchase, they know that if they have the money instead on relying on credit that is going to be best for them long term, Capo pointed out.
Verona Mair, owner of The Emporium, Ponca City, Okla., and HFIA board chair, says her customers credit remains tight, and could stay that way for a while.
Consumer credit is still pretty hard to get because consumers credit scores have been adversely affected by the last few years activity, she said, adding that in her small town, there are few signs of improvement, fewer jobs, and people moving to where employment opportunities seem better.
ON THE OTHER HAND ¦
Stephen H. Kidder of Superstore Furniture Sales of Williston, Vt., said his shoppers are finding financing more easily.
Consumer credit has gotten easier in the last year because there is more competition for business from consumer lenders, he said. Kidder noted that in his part of the country, approvals are always high and vendors are pushing credit with promotions as long as 60 months.
The same is true at Starcke Furniture in Seguin, Texas.
Consumer credit is better or slightly better because lending agencies are less restrictive than a year ago, said Hilmar Starcke, owner. There are more consumer loans and fewer business loans being made. Consumer spending is expanding because banks want to make money and the rules of the game allow for that now.
Randy Greengus, owner of Sun City Furniture, Shreveport, La., and a board member of HFIA, says banks are competing for financing again.
Consumer credit seems a little bit better than a year ago because of competition for consumer business from finance providers, he said, but added that could tighten again depending on how the economy shakes out.
Dodd Home Furnishings also reported increased credit for its customers in Guin, Ala., for the same reason.
Consumer credit is more available because of a new provider, said Owner Dale Dodd, also an HFIA board member. Increased competition for consumer financing has made it easier.
OUTSIDE FACTORS
Government regulations controlling no-no-no financing are good for most retailers in the long run, in the opinion of Selik at Hillside Furniture.
That put everyone on the same playing field, he said, since the big boxes couldnt offer terms smaller retailers couldnt meet.
Again, I can definitely see an easing of the credit requirements as 2012 progresses, he said. People with reasonable credit, scores in the high 500s, low 600s, can get the minimal amount; people 650 or higher, they can get more than a year ago.
Hes actually understanding of constraints on banks willingness to finance consumer purchases of furniture versus something like automobiles.
You buy a sofa for $3,000, and in five seconds its worth $1,500; and because this product isnt registered, you dont have to have a title like with a car, he pointed out. If you skip out on a car payment, they can trace the vehicle. Skip out on a furniture payment, and its gone.
Starcke at Starcke Furniture believes consumer credit will improve marginally because the rules lenders are operating under now promote consumer lending.
Dodd believes market forces will help improve consumer credit availability.
It will improve because there is pressure to loan money to consumers, he said. Theres pressure on banks to put money to work.
Fuller at Wells Fargo doesnt anticipate any restrictions or major changes to the availability of credit to consumers throughout 2012.
It has been a top priority of Wells Fargo Retail Services to maintain a stable and consistent approach to the granting of credit throughout the economic downturn and the current recovery, he said. We have been providing access to credit to home furnishings customers for nearly 50 years and are constantly looking for ways to increase credit access to support consumers and home furnishing retailers. HFB