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Shops Bolster Sales Through Finance Plans

Published May 30, 2008

BY NICOLE FORMOSA

HOUSTON, TX—At Houston’s Bicycle World and Fitness, sales processed through the shop’s consumer financing program spiked 100 percent in March and April compared with the first two months of the year, according to owner Chris Holmes.

In April alone, financed sales accounted for 27 percent of the shop’s overall business, Holmes said.

Holmes thinks the reason behind the sudden interest in his credit program is a combination of factors—better promotion of the program through the store’s Web site, coupons and in-store posters, as well as consumers becoming more cash-conscious, even though the Houston area has thus far been shielded from the nation’s economic woes.

“I don’t think people are hurting, it’s just they’re conservative,” Holmes said.

If buyers pay for their purchases with a 12-month, no-interest credit plan and stash away the $3,000 they would’ve spent in a 3 to 4 percent interest savings account, they’ll actually make money on the transaction, Holmes said.

“I think in general once people understand it, there’s no reason not to use it. It’s a no-brainer,” said Holmes, who offers financing through The Biking Solution.

The growth Holmes is seeing may be indicative of a larger trend.

The Biking Solution, which offers financing to its 350 or so members through Citi Financial, has noticed an upswing in retailers selling its 12-month, no-interest plan to customers. Currently, about 85 percent of its financing volume comes from the 12-month plan compared to six months or 90 days, said Tim Leaver, director of marketing for The Biking Solution.

Tom Jones, owner of Around Town Bicycles in Wilkes-Barre, Pennsylvania, began offering financing through GE Money about a year-and-a-half ago. Sales through the program now make up 1 to 2 percent of his business.

Some of Jones’ customers prefer in-store financing to other forms of payment, while others may be stretched thin.

“I have seen a single purchase using multiple cards. That indicates to me that one or more of their credit cards may be close to maxing out. We’ve had one sale use three cards to make the purchase. Those consumers may need more options,” Jones said.

GE Money entered the bicycle marketplace two years ago and has seen steady growth, said Dennis Murphy, vice president of sporting goods sales finance.

Murphy thinks the interest in credit has just as much to do with bike prices rising rapidly in the past few years as it does with the current economic situation.

Either way, offering the customer another option at the cash register can be enough to close that big-ticket item, or to add to a sale with accessories like new pedals or an upgraded saddle that the customer otherwise might have passed on, Murphy said.

Rick Gurney, owner of Plano Cycle & Fitness in Plano, Texas, said oftentimes people charging their purchases will spend more than they would when paying with cash.

“I think people will step up to a higher-end product if they’re able to get it for no additional cost to them (at the time of purchase). It’s easy to justify. They could find $50 or $25 a month where they might not be able to find $600,” Gurney said.

The Biking Solution backs up Gurney’s observations.

In 2005, the average sale at a specialty bike shop was $500 according to the NBDA Cost of Doing Business Survey. The Bicycle Solution says the average financed sale in 2006 was $1,300, and that the average dollars financed per location was nearly $85,000.

With fewer customers coming through the door in a down economy, retailers can get the most out of those who are shopping with a financing option, said Mark Charpentier, who oversees The Bicycle Solution’s financing program.

“[Retailers] need to figure out a way to make each bicycle sale on average more expensive than a year ago otherwise their business will go backward,” Charpentier said.

Retailers already pay a nominal fee to transact sales on traditional credit cards, and some may be deterred by the costs of an additional financing program. The fees for third-party financing vary, but average between 3.5 and 4.5 percent of the total sale.

For Holmes, of Bicycle World and Fitness, who trains his employees to use financing as a sales tool, the added cost pays for itself. He realizes a 30 percent increase in his average ticket price when a customer chooses financing, and he has a built-in advertising mechanism because the plastic is customized with his shop’s logo.

“I would rather pay a little more than with a credit card and have my card in their wallet all the time,” he said.

So far, the credit crunch that’s causing lenders across the nation to grapple with higher default rates hasn’t been a deal breaker when it comes to borrowing for bikes.

Both Murphy, of GE Money, and Charpentier, of The Bicycle Solution, said the majority of customers pay off their loans before the promotional period is over.

“We are not seeing these helter skelter bought-these-bikes-now-can’t-afford-to pay-for-them situations,” Charpentier said.

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