Consumers slow to bite on financing options, retailers say

There was a time when a person could walk into a specialty fitness retailer, spot the machine of their dreams and take it home without having to make a payment for a whole year. 

Thanks to the Credit Card Reform Act of 2008, those deals are gone as Congress determined it was not in the consumer’s best interest to avoid payment for a whole year and then have to deal with it all at once.

While representatives from GE Capital say they haven’t seen a decline in the number of people applying for financing to purchase fitness equipment since the legislation was passed, fitness retailers tell SNEWS their customers are more reluctant to apply for credit than they used to be.

Caution: Debt ahead

It’s no secret that consumers started tightening their purse strings when the recession hit a few years ago, but in addition to making consumers a bit more frugal, SNEWS has gathered information that concludes it also made consumers a bit more patient and cautious when it comes to expensive purchases.

“What we’re seeing is not so much that people aren’t applying [for financing] but that they’re taking more time to research and decide to purchase bigger ticket items,” said Dennis Murphy, vice president of sporting goods for GE Capital.

GE Capital did a survey of 3,000 consumers, both who used financing options and those who didn’t, and found consumers take an average of 76 days before purchasing something to do research and think about the purchase.

“People are much more methodical,” Murphy said. “Gone is the spur-of-the-moment decision that maybe could have characterized the last decade.”

Bob Lachniet, owner of Fitness4HomeSuperstore, said while he still offers financing in his stores, “It’s not quite as prevalent as it once was.” He added that the results of the 2008 credit card legislation have left customers missing the 90-day “same as cash” option and the six- to 12-month period of deferred payments.

Financing “is not as appealing to customers because they still have to make payments,” Lachniet said.

Murphy explained that it wasn’t just 90-day “same as cash” that got the ax from the legislation, so did the 90-day no payments, no interest options and the deferred payments. While Murphy said GE Capital’s research showed even when consumers took those no-payment for a period of time options, they would still make minimal payments, but explained the reasoning behind the legislation was so people wouldn’t be overwhelmed with such a large payment at the end of the grace period.

Rodney Rice Jr., owner of the Louisiana-based Fitness Expo, said he’s missing the spur-of-the-moment decisions by consumers to get financing and purchase equipment.

“What has built my business is lots of people from 30 to 40 years old who maybe bought a second home that’s a bit bigger than their first,” Rice said. “They didn’t hesitate to use that financing and do zero-percent financing for a year. A lot of that business has all but disappeared for me and it’s not really coming back.”

Lachniet said financing fell out of popularity with his customers back during the height of the recession when people were getting turned down left and right. He said now, however, people are starting to apply again.

“For the last year we’ve been doing well with financing,” Lachniet said.

Murphy said GE Capital has tracked nothing but growth in both the number of customer applying for credit and the number of fitness merchants signing up to offer financing in their stores, but he did not give specific numbers.

To offer financing, or not to offer financing

GE has been invested in consumer financing since the 1930s, when it started offering credit for people to purchase household items like washers and dryers. Slowly that type of financing has spread into the outdoor, golf, bicycle, scuba and fitness markets.

Now, Murphy said, the sport division (which was established five years ago) financing is in more than 2,000 storefronts with all those markets combined. Murphy added that more and more specialty outdoor retailers are signing up for the financing program, which doesn’t cost an enrollment fee but does cost the merchant fees.

While it’s always the cheapest option for retailers to get the cash or check in their pocket right away (effectively avoiding swipe fees and merchant charges), Lachniet said the fees costs his business less than when a customer swipes a credit card.

Plus, GE Capital issues an open line of credit to customers who are approved that works like a credit card for that specific retailer. In that way, it’s designed to bring customers back into the store, which Lachniet said is something that helps keep him connected to his customers.

“It’s a tool for us to reach back out to the customer,” Lachniet said. GE Capital issues customers approved of credit a card to use at that same store and Lachniet said the company also informs him when his customers have paid off their debt. He then reaches back out to the customer to remind them they can come in and use their credit.

Murphy said most people do keep that line of credit open, but don’t generally purchase big-ticket items soon after their first. They do, however, use the credit for accessories like mats or exercise balls.

Another good thing about offering financing, Lachniet said, is GE Capitals swift online application that takes only minutes to fill out and only seconds to approve or deny candidates.

“It’s a very simple, painless, easy process,” Lachniet said.

For the most part, Murphy said, offering financing is mostly a marketing tool.

“It’s designed to help that merchant close the sale and make it more affordable,” Murphy said.

–Ana Trujillo