How to tell if a particular program has the right fit for your business.
Financial Management by Marc Sczesnak, TD Retail Card Services
While consumers will always need furniture, retailers cannot depend on that need—or on the appeal of their merchandise alone—to remain firmly in the black. Rather, they must find other ways to bring customers into their stores, and to keep them coming back. For some furniture merchants, introducing and properly maintaining a private label credit card program ranks among strategies for doing so.
Most major furniture retailers have already jumped on the private label credit card bandwagon; these include value-priced chains, such as Bob’s Discount Furniture, as well as mid-priced and upscale operations, among them Ethan Allen, Furniture Row, Raymour & Flanigan, Rooms To Go, and Thomasville. Smaller operators and independents whose prices fall at every end of the spectrum have also gotten on board, including two-store operators like Howell Furniture and Jerry’s Home Furnishing.
Some merchants are seeing a high percentage of sales charged on their private label credit cards, while for others, the percentage is more modest. In the furniture category, we have seen this figure range from as low as 3% to as high as 45%, with major retailers typically experiencing a private label credit penetration of 20% to 30%.
How do private label credit card programs work? No matter a merchant’s size, the structure is rather simple. Customers can submit applications at the point of sale, with their information then securely submitted electronically to the third-party program provider for immediate review and credit decision.
Once an application is approved, the provider assigns and shares with the retailer an account number and the maximum total dollar amount that may be charged using the card. Some furniture retailers—Thomasville representing a key example—also offer consumers the option of applying for a private label card online.
Providers’ approach to actually ringing up sales transacted with their private label card varies. Some issue special terminals exclusively for this purpose, while others have designed payment processing software programs that are either Web-based or integrated with merchants’ existing point-of-sale technology. With either method, funding for private label card transactions usually arrives from the provider within 48 hours. That funding covers the cost of the merchandise or services the consumer has purchased, less a transaction fee of 1% to 9% (with the upper end of that range typically tied to the terms of special long-term financing programs). The line of responsibility for merchants is drawn here, as the provider, not the retailer, holds all loans, manages all customer accounts, issues monthly cardholder statements, and shoulders the financial risk should customers fail to pay their monthly bills.
Given the recent recession—and consumers’ lingering tendency to limit credit card usage, avoid assuming extra debt, pay down existing debt, and use fewer credit cards in general— furniture retailers that have not introduced a private label credit card program may question whether it is a good idea to do so now. So, too, might merchants that have attempted to finance their own consumer credit options as a profit center or have regarded themselves as too small to implement any kind of private label credit card initiative. These are all valid concerns, but the benefits can outweigh the drawbacks in most cases.
Admittedly, retailers—furniture and otherwise--will always have certain customers who prefer to pay for their purchases in cash and/or will not make a purchase unless they already have the money to cover it.
However, there are many consumers out there who need or want furniture and would buy it if they could make the purchase without incurring high bankcard interest rates, had a credit line dedicated for big-ticket purchases or had not already reached their bankcard credit limit. A private label credit card program lets merchants accommodate many of these consumers, while simultaneously giving retailers ammunition to set themselves apart from the competition and yielding a better shot at making a sale.
Indeed, while some consumers seeking alternatives to bankcards might turn to home equity lines to finance big-ticket furniture purchases, a private label card program offers the most convenient option to provide qualified customers an additional line of credit that does not interfere with the spending caps on their bankcards. Offering consumers an opportunity to leverage “zero percent interest” and other special financing deals brought to the table by private label providers—and unavailable from bankcard issuers—can convince them not only to visit their local furniture store, but to go ahead and buy whatever they had their eye on because the store’s financing was too attractive to pass up.
Just as significantly, having a private label credit card program in place boosts customer loyalty. For one thing, consumers are more inclined to regularly patronize those stores where they can enjoy additional purchasing power. Seeing a specific merchant’s name on a credit card whenever they open their wallets has a similar effect, as does experiencing a less stressful, more pleasant shopping trip because there is no need to be concerned about the spending limits imposed by bankcard issuers and the absence of promotional financing. And promotional mailings—in the form of “statement stuffers” intended for all cardholders or customized, highly targeted mailings that mine purchasing data to inform specific customers about previews of special furniture collections, private sales, and similar “perks”--can take that loyalty to the next level.
Moreover, although there are other factors retailers must consider when deciding whether to introduce a private label credit card program, the merchant’s size—and the ability to shoulder the cost of such a program based on that variable--is not a criterion that comes into play here. Program pricing varies from provider to provider; the cost merchants will pay per transaction differs in accordance with such factors as the transaction volume and specific parameters and financing deals each provider sets.
Larger companies can always drive down their costs with scale—and it is no different with private label credit card programs. In general, the larger the size of the retailer, the lower the cost of any customized program. Beyond that, many providers allow larger retailers to take advantage of such options as loyalty programs tied into spending on the store’s card, with rewards typically sent to participants in the form of gift certificates that will, ideally, lead them back to the store.
However, private label credit card providers have put together consortium or umbrella programs that operate under a common brand name. TD Retail Card Services, for example, offers the Renovate private label credit card program for independent furniture retailers. With consortium and umbrella programs, individual retailers can leverage the economies of scale created when multiple merchants process transactions as participants in a shared program, thereby reaping lower transaction processing fees, access to special marketing endeavors and a variety of other benefits.
Additionally, while medium-size and larger retailers may enjoy more opportunities than their smaller counterparts when it comes to the degree to which a private label credit card program can be customized, providers frequently work with merchants to customize as much of their private label credit card program as possible. For example, in the Renovate program, the individual store name is embossed on customer credit cards. Once on a private label credit card program, whether individual or consortium, merchants can run any special financing or marketing support programs offered by their provider; they need not be of a certain size or scope to participate.
Not surprisingly, furniture retailers will be able to maximize the benefits of a private label credit card program if they exercise best practices in a number of areas. For starters, it is imperative to examine whether a private label credit card program is the right “fit” for a particular operation. Merchants must determine whether their clientele can comfortably accept the terms and conditions of any given program. For example, beyond purchases made under “zero percent” or other special financing deals, can their clientele who carry over balances accept interest rates that are typically higher than what they would incur on their bankcards? Merchants must also carefully weigh whether they are comfortable with the applicant approval rates and credit limits quoted by providers (these do vary).
Exercising equal due diligence is essential once a definitive decision to join the ranks of retailers offering a private label credit card program has been made. In assessing prospective providers, inquire how quickly customers can obtain a decision on their application. A long, time-consuming process at the point-of-sale will only aggravate shoppers who are prepared to make a furniture purchase on the spot, but cannot commit to doing so until they have ascertained the availability of a new credit line.
Retailer service and support should also be examined closely, because at some juncture or another, store associates will need to contact the issuer’s credit department to get answers to general questions or resolve issues in order for a transaction to be finalized. While the provider is indeed responsible for stepping up to the plate here, consumers invariably associate their experience in having queries answered or problems solved with the merchant whose name is on the card, not the provider. The more positive that experience and the faster difficulties are ironed out, the better customers’ impression of, and continued loyalty, to a particular store.
The evaluation of providers’ support should also extend to marketing. Ideally, private label credit card issuers should render retailers with assistance in marketing those programs to potential and existing cardholders. Such assistance can run the gamut from training store personnel to properly “selling” the card to customers, to providing in-store materials promoting the card, creating mailers and email blasts to send to individuals who might want to apply for a store card, and to designing “statement stuffers” and other promotional inserts and messages mailed or emailed to customers (for example, information about preview sales or other special events for cardholders only, information on new pricing deals and the like). Retailers should also be able to partner with their private label credit card program providers to receive mailing lists that can be used to drive incremental sales for their business.
Cardholder service is another critical piece of the evaluation puzzle. There is no getting around the fact that one potential disadvantage faced by retailers that implement a private label credit card program is the accompanying loss of control. Once consumers open an account, they become a customer of the provider, whose customer service operation shoulders responsibility for assisting them with credit- and payment-related issues. However, consumers will continue to believe that when they pick up the phone in these situations, they are calling the retailer whose name appears on the card in their wallet or the billing statement in their hand. Positive and negative encounters with issuers reflects on merchants, so choosing a partner that offers high-quality customer service and whose customer service philosophy aligns with one’s own is key.
For a better idea of how a given private label credit card provider approaches retailer service and support as well as customer service, merchants should request references and ask these sources to share their experiences—positive or negative—in as much detail as possible. Customers and retailers that have a positive interaction with a private label credit card issuer may mention it in the course of conversation with someone, but few will spend time finding a Web site where they can post their happy experiences.
As for promoting a private label credit card to customers, furniture stores must, at all costs, avoid using the program as a final resort to “save” a sale. In my experience, such tactics appeal most to the least credit-worthy customers. Far better is to align the manner in which salespersons broach the topic of applying for a private label credit card with the store’s overall approach to working with customers.
Retailers who use value pricing as a primary draw might train sales associates to mention the program up front. For instance, if a couch and loveseat combination is available at a promotional or sale price, the associate can mention that paying for the furniture can be made even easier with the store’s private label credit card. Merchants that carry higher-end products and offer room design assistance may utilize a tack that stresses the ease of application and special features available through the program.
Admittedly, a private label credit card may not be a viable choice for every furniture dealer. However, the myriad advantages such programs offer make such cards an option well worth considering.
Questions To Ask When Evaluating Credit Card Providers
Not all private label credit card providers are created equal. Following are questions to ask when assessing prospective companies:
- What are the minimum application and sales volume requirements?
- Will I need to add administrative staff to run the program?
- How much do promotional finance programs cost?
- Where and how is cardholder service managed?
- What is the average wait time for application decision?
- How are applications and sales processed?
- Do I receive any in-store signage or other point-of-purchase materials?
- Will the program be branded? If not, will my store’s name be embossed on the card?
- How difficult is it for a retailer to enroll?
- Can I run credit-related marketing programs?
Marc Sczesnak is president of TD Retail Card Services (TDRCS), the private label credit card division of TD Bank, N.A. Prior to joining TDRCS in 2008, he was senior vice president-marketing and media services at Federated Department Stores, where he spearheaded efforts to convert over 50 million cardholder accounts to the Macy’s brand while also growing the company’s gift card business.
Previously, he was vice president-credit card products at Sears. He can be contacted at (201) 818-4000 or firstname.lastname@example.org. TDRCS’ programs for the furniture industry include traditional private label cards as well as The Renovate Card, a revolving charge card for retailers with single or multiple locations who may not generate the sales volume to justify a private label program of their own. For more information, visit www.TDRetailCardServices.com.