November 10, 2016
THE FUTURE OF KBB CONSUMER CREDIT POST-BREXIT
First published in KBB Review
Considerable column inches have been given over to what will happen in the coming months and years following the UK’s decision to leave the EU. Even the consumer credit industry, which is firmly contained within the borders of the UK, is not immune to speculation.
Our lenders remain confident and open for business
If you currently offer finance to customers you may be wondering what impact it is going to have on any existing agreements you have with your lenders. While it is true that many banks have seen dips in share price, the message from the biggest and most important lenders is clear – it’s business as usual.
As an example, Jes Staley, CEO of Barclays Group, has stated his commitment to keeping the bank ‘anchored in the UK’. He added that Barclays is prepared for any short-term volatility in the market, and is confident that the current strategy will deliver a well-balanced and successful business that generates long term sustainable returns.
If you are looking to offer or currently offer finance, then what matters most is having a lending partner with a clear track record of longevity, stability and lending experience in the home improvement sector, as well as proven support for retailers even when the market is uncertain.
No immediate changes to lending legislation
Let’s be clear, the Consumer Credit Act is UK law. And while it’s true that much of the recent legislation that supports consumer credit, such as consumer rights and data protection, has come from the European Union, these rules now form part of UK law too and it would require Parliament to overturn them.
So what does all this mean for the consumer credit sector? It basically means that legislative changes are very unlikely in the short to medium term, and retailers will continue to be bound by the rules around offering credit.
This is good news for the industry, which is still getting used to being regulated by the Financial Conduct Authority since it took over responsibility for consumer credit in April 2014. The FCA’s influence has been largely positive, and the last two years have seen a general shift away from high-cost, commission-led finance to promotional credit products such as Interest Free and Buy Now Pay Later, which is better for customers and retailers alike.
Brexit’s impact on kitchen and bathroom sales
The trade press has speculated on whether sales would slow following a decision to leave the EU, and interviews with KBB retailers have highlighted mixed feelings on whether Brexit will ultimately be good for business. Some price increases have already been seen due to import costs, but the full impact remains to be seen. However, the UK is a nation of home buyers and home investors and they will continue to want to improve their homes.
It’s important to stress that we have not seen any slow down so far. Finance sales for our kitchen and bathroom retailers are up in the first half of 2016 compared with 2015, but the next quarter’s figures will be of interest. Even if there is a downturn, and it’s not looking like there is at the moment, then we know retailers with competitive, well-targeted finance options will outperform the market.
In a competitive market, finance is a key sales tool
The KBB sector is extremely competitive, with increasing pressure from ‘DIY’ companies and online retailers. The more sales tools businesses have available to call on, the better. Research highlights why companies that adopt credit strategies see their market share grow. In a recent survey by Hitachi Capital Consumer Finance, 83% of consumers said that finance heavily influences their decision to purchase. The research also found that 53% of customers increase the amount they spend when purchasing on finance.
Our own consumer research, conducted by Opinium & Rigby, found 53% of people said interest free finance would make them more likely to make a purchase if they were planning a home improvement project, while 45% said ‘buy now pay later’ would encourage them to buy. Significantly, 80% of consumers said having a well-known and respected financial institution providing that finance was important or very important.
So when planning a credit strategy, it’s vital to have a tried and trusted lender, with longevity in the market. A good solid credit offering attracts customers who otherwise wouldn’t have come through the showroom door. Finance customers are also more likely to make a faster buying decision, spend more money, and make fewer cancellations.
Finance is an all-year-round marketing message
A well-targeted finance offering can enable a business to differentiate itself from the competition. There is an assumption, by many in the KBB sector, that finance is only for the ‘low end’ of the market, however very few of our retailers operate on price, and many offer bespoke, handcrafted products. It’s a mistake to assume a customer who is reasonably well off is not interested in finance – Aston Martin currently offer 5.9% APR on new car purchases!
Customers are savvy – Buy Now Pay Later and Interest Free allows them to leave their money in the bank, it also allows them to bring buying decisions forward should they wish to delay releasing funds from an ISA, pension or bond. We also know that some high-end customers choose to buy on credit because of the protection it gives them under the Consumer Credit Act.
Finance is a marketing message that’s effective all year round and can differentiate a business from its competition. In an industry fond of offering double-digit discounts two or three times a year, it’s worth noting that subsidies can have considerably less impact on profit margins than sale prices. A well-structured credit strategy that’s worked into pricing models, can have a considerable contribution to business growth and profit.
The headlines around Brexit are likely to continue for some time to come, but the KBB sector can remain strong with the help of a well-structured and targeted finance offer from a strong, experienced and recognised lender.