Financing Options Will Help Furniture Retailers Weather Trade-War Uncertainties
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Anxiety over the trade war between the U.S. and China continues to sweep across business sectors, including the furniture industry, where retailers are already feeling the impact to business. Though steady-to-strong sales are forecasted for the remainder of 2019, many furniture retail executives anticipate that a continuation or escalation of the conflict between the world’s two largest economies could lead to higher prices – and as a result this could lead more customers to explore financing options.
That was the conclusion drawn from attendees at the Las Vegas Summer Market, where 54 percent of respondents to a TD Bank survey of furniture executives said they considered the tariff dispute their biggest worry over the next 12 months. Furthermore, nine of 10 executives predict the duties imposed on Chinese imports will raise furniture prices, which is also a shared concern of retail customers.
If prices do rise because of the trade war, furniture executives expect more of their customers to explore financing options, particularly millennials. Waterfall financing—with a straightforward application, fast point-of-sale processes and coverage across the credit spectrum —could be a viable solution, enabling businesses to increase sales while making it easier for consumers to make a purchase. Despite these proven benefits of waterfall financing, two-thirds of furniture executives said they currently don’t offer a waterfall financing option to their customers.
Market and consumer demand stable amid trade war uncertainties
On top of a trade war, there are other economic indicators that the furniture market may face choppy waters ahead. Although furniture sales numbers in August rose from July, 2019 sales slipped over the same period in 2018, according to the U.S. Census Bureau. Additionally, year-to-date sales (through August) are less than they were over the same period last year, indicating that consumers may be delaying larger purchases, like home furnishings, until economic and trade conditions become clearer.
In a recent survey, a significant percentage of International Home Furnishing Representatives Association members said that furniture suppliers would elect to shift production out of China and adjust prices if duties leveled against the country continue to rise. Meanwhile, consumers mostly remain confident in the face of tariff uncertainties, according to the University of Michigan - but this optimism could quickly turn to caution if the trade war intensifies and the effect is felt downstream.
The trade conflict entered a heightened stage in early August after the U.S. announced an additional 10 percent tariff on Chinese imports that amount to $300 billion, affecting almost everything the U.S. buys from China. While these tariffs have since been delayed until December, the shockwaves continue to reverberate throughout the economy in reaction to the news and stakeholders are paying close attention to the upcoming tariffs as we approach the end of the year.
Furniture retail executives have also been keeping an eye on the trade war and the potential for an economic slowdown that might give consumers pause. In spite of these factors, 46 percent of retailers surveyed expect furniture purchasing to remain steady this year, while 43 percent anticipate an increase.
The need to finance
A majority of furniture retailers surveyed (56 percent) noted a growing demand for financing options to facilitate furniture and home décor purchases. Furthermore, millennials were the group furniture executives found most likely to pursue financing, at 53 percent. As millennials remain a target demographic for retailers, it's important for furniture execs to find ways to promote offers that align with their purchasing habits. Given their penchant for ease and speed, millennials will look for financing options that are seamless, frictionless and add value by serving as a budget friendly alternative to cash and higher interest credit cards.
Waterfall financing increases the likelihood that more customers will be approved, as it opens the door to multiple financing options and lenders to the purchaser. Even as these products demonstrate convenience and simplicity, waterfall financing remains an unrealized opportunity that has yet to be fully tapped.
Used strategically, all types of financing enable retailers to increase sales and stimulate repeat business and loyalty. With the right financing partner, furniture retailers can more closely target customers most in need of select products, increasing both sales and customer satisfaction. Retailers should look for a financing partner known for providing an exemplary customer experience, and with deep expertise in developing successful, customizable offerings. A few things to ask when looking for a financing partner:
- Do you understand the landscape of the furniture industry today?
- How do you enable customer service and customer experience?
- Where do you see an opportunity for my business?
The right partner will not look at your financing offerings alone.
As powerful trade winds continue to blow across international markets, furniture retail executives have been preparing to navigate the uncertainty rising prices may generate. Those who can lean on the financial expertise of their partners are more well-prepared to weather the market successfully.
Mike Rittler is General Manager of Retail Card Services, Unsecured Lending and Business Development at TD Bank
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