Marc Barnes
Other financing options needed
JAMESTOWN, N.C. — For Furnitureland South, it isn’t that there aren’t any tools available to help consumers finance furniture.

It’s just that the tools in the marketplace right now don’t fit its specific needs — and a better alternative is needed.

Jason Harris, executive vice president, said that Furnitureland South implemented a private-label credit card program with Household Finance about three years ago, offering six months-same-as-cash. Right now, the card only accounts for about 15% of the firm’s business.

“We started the program when interest rates were low and it didn’t cost us anything to allow customers to finance through HFC,” he said. “Now rates are going up and it costs us and we have begun pulling back from it.”

Furnitureland South bills itself as the world’s largest home furnishings retailer — and with more than 1 million square feet in the same location, the billing is justified. The company specializes in high-end furniture and markets its merchandise through catalogs, advertising and its Web site.

Harris said the credit card program has never functioned as a way to drive customers into the store; rather, it serves as a tool to help close the sale. Consumers can be told on the spot that they don’t have to pay anything at all that day, but can borrow money for six months for free. And Harris said that rarely will a customer let the debt go beyond six months and face having to pay a 24% interest rate that is calculated from the first day.

Six months-same-as-cash can work for a sofa, a bedroom set or a home office. But what happens when a customer with good credit and a good income wants to furnish an entire house?

What about giving her a furniture payment, like a house payment, car payment or student loan payment?
Harris envisions a true low-interest loan, tied to the prime rate, with a monthly financing rate below prime for a longer term, perhaps for as long as 10 years. That would enable consumers who have already spent much of their savings on a down payment for a home to be able to budget more effectively so that they can furnish it.

Other recommendations are being floated around, such as the new proposal by City Furniture in Florida that an allowance for furniture be tied to the first home mortgage. But Harris said that some banks have signaled their opposition to this type of approach, given that the furniture — and therefore part of the home’s value — can be easily moved away.

A home equity line might work — and Harris actually considered offering that himself as a way to help customers finance furniture. But the idea was abandoned as unworkable, because it couldn’t be done on the spot: A deed to the house and a title search would have to be done, and that process could take as long as two weeks.

“That really doesn’t work in the retail world,” he said. “Anything that prevents you from closing (the deal) on the spot won’t work.”

Part of the challenge that retailers face is a change in consumer priorities. Similarly, part of the solution may be to educate consumers that qualifying for a house alone — coming up with the requisite down payment and making enough money to make the payments each month — isn’t enough, unless they enjoy sitting in empty rooms.

“I think that people are willing to go out and spend every dime they can get their hands on to put down payments on as much house as they can,” he said. “They get in and they realize they don’t have any furniture — that anywhere from 15% to 25% of the value of the home is the furnishings in that home.

“People are really getting house-poor, by buying too much house. They want to know, ‘what can my lowest monthly payment be to live like this?’ In our society, we want immediate gratification and we have gotten so accustomed to financing everything now. We as an industry really haven’t synched up extremely well with that.”

Harris said the answer may well be to look at a new model that takes that into account.

“If we could offer easy access to come into the store and sign up for buying this $50,000 in furniture and pay for it in five or 10 years and pay for it at prime or below, that would be a winner,” he said.