By Joseph Dobrian
Special to Furniture Today

HIGH POINT — Has consumer demand for borrowing changed over the past few months? How (if at all) has it been affected by the COVID-19 pandemic? How might furniture sales perform over the next few months, and what difference will the availability of credit make?

When asked these questions, several financial services firms generally paint an optimistic picture.

Sales might slow when government relief money runs out, but now that many people have returned to work and are going out more, industry insiders anticipate a slaking of pent-up demand for consumer goods. This might show up particularly in furniture, as families who have been on lockdown for a while might find that it’s time to refresh their homes with a new sofa or table.

Providers of credit, and of lease-to-own programs, seem to agree that the economy is likely to regain strength over the next few months. Consequently, they’re not much worried about a wave of non-payments.

Allowing more flexibility

Ryan Slobodian, executive vice president at Snap Finance, says many furniture retailers were worried six months ago but are feeling better now. The market is surprisingly robust, he adds.

“April was slow, but when the stimulus money hit people’s accounts and there was positive messaging, our furniture partners had a strong sales month in May,” he said. “Sales typically flatten in summer, but we’re pleasantly surprised.

“One of the challenges now is supply chain issues. Manufacturers have streamlined number of lines they’re offering. Shipping, container costs, etc., are going up,” Slobodian added. “The picture is murky now, and there’s still a lot of this game to play.”

Slobodian warns that some consumers may need a little more time to fulfill their payments, and his company is allowing more flexibility in its lease-to-purchase plans.

“We’re taking as empathetic an approach as possible,” he said. “You’ll see some changes in credit models, in flow of data, in consumer profiles. As consumer payment habits change, you’ll see differences in approval rates or approval amounts, both positive and negative.

“As tertiary lenders, we’re seeing people who formerly might have been primary borrowers now using our product.”

More longer-term financing

Mike Rittler, head of TD Bank Retail Card Services, agrees that consumer credit continues to evolve in response to the COVID-19 crisis. One major trend he sees is an increased demand for longer-term financing, along with an increased willingness from lenders to offer it.

“These offers can help people see what’s possible now, being able to spread their purchases out to a level that’s manageable,” he said. “When people are in the store, engaging, they’re buying. Traffic may be lower, all in all, but conversion rate definitely appears higher, partly because of the availability of credit.

“As stores closed and re-opened, we did see a surge in demand; we’re still seeing it,” he added. “It may be driven by people being in their houses so long and realizing what they need or what they’d like to replace. Home office-type furniture is very popular.”

Rittler says his company is doing more work with no-interest or deferred-interest transactions.

“It’s hard to go below zero,” he observed, “although we hear talk of it. What happens when the stimulus money runs out? That question is on a lot of people’s minds. Some people used the money to stay current on debts; others viewed it as an opportunity to go out and get something new and special. A new round of stimulus might lead to similar behavior, but some people worry about delinquency.

“Credit helps people see what’s possible. If you’re looking at spending $3,000, that’s intimidating, but you can get your head around it if it comes to less than $100 a month,” Rittler said. “Offering plans that help customers achieve the possible; that’s key. We ask clients, ‘What are the plans that resonate with your customers?’”

Focus on prime, super-prime

Prime lenders are moving farther upmarket and focusing on prime and super-prime borrowers, reports Matt Zalubowski, senior vice president of business development at Fortiva Retail Credit. This, he says, leaves a significant percentage of the population in need of alternative financing options.

“We see a correlation between mortgage and home furnishing sales trends,” he added. “This comes as no surprise, but the pandemic has dramatically impacted what is being purchased and who is buying.

“Mortgage rates are low, and new home purchases are up for those with the means to buy,” Zalubowski continued. “However, mortgage delinquencies are also up, which points to many Americans not having the same means that they had before the pandemic, especially as stimulus funding has expired.”

He noted that for the past few months, furniture borrowing in the market overall has been flat compared with last year. “The categories for furniture purchases have shifted from luxury furnishings to those that are more practical. Consumers are looking for additional furniture for work- and school-from-home and outdoor living spaces.”

Consumer demand for reasonably priced credit has been constant for decades and will not change, Zalubowski said. However, whom they borrow from will change. Retailers who have aligned with experienced and proven partners that have the technology to support both online and instore will be best-positioned to serve all their customers going forward.

“As with previous economic downturns and increases in unemployment, many consumers will have lower credit scores, and prime lenders will tighten underwriting leaving millions of consumers with fewer options,” he warned. “A strong second-look partner has never been more important. Our experience working with consumers during hardships gives us the ability to accommodate the most impacted consumers of this pandemic.”

Alternatives to credit

Leasing specialists anticipate continued uncertainty and contraction in credit markets, according to Steve Surman, vice president of sales and marketing at Progressive Leasing. He reports that many credit providers have already tightened eligibility requirements or restricted credit availability. Alternatives to credit, such as lease-to-own, can help consumers navigate challenging economic times.

“While neither credit nor lease-to-own services are likely to help drive a recovery, due to the tightening credit environment that generally follows a downturn in economic activity, lease-to-own options are available,” Surman said, “and in a recovery, we expect lease-to-own options to continue to drive incremental sales for retailers by allowing retailers to serve a customer they might not otherwise be able to serve.

“Our lease-to-own service is a simple, affordable option for consumers in both strong and challenging economies. We’re constantly innovating our service to improve availability and make it easier for both consumers and retailers to participate.”

Surman says it appears that stimulus dollars have helped consumers make payments on existing credit and lease-to-own obligations, while providing a greater sense of comfort and security to the market as a whole.

“Consumer demand for our lease-to-own option has remained strong, and we expect demand to continue to strengthen well into the future.”

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