Sell it to the broke

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Too much stock, so many brands, and shops everywhere… certainly, it is good news for the choosy consumer, but also a competition alert for retailers. Ranjan Kaplish examines how finance options are getting re-designed to amplify sales.

In an effort to get out of clichéd selling schemes, sales, discounts and add-on benefits, retailers are now cashing in on interest-free finance options, an alternate agent to increase walk-ins.

You may not necessarily carry loads of cash or those swiping cards to buy your favourite mobile phone or a leather sofa. Just walk into the store with your identity, residence and income proof, fill in a form, and walk away with your esteemed product. The maximum retail price of that product goes as minimal instalment, that too with negligible or zero rate of interest.

The concept that was primarily being used for lifestyle essentials such as cars and extended to refrigerators, washing machines, televisions and computers, now also includes the niche needs of consumers for purchase of furniture, furnishings, mobiles and suchlike. Retail chains have finally started tapping into the real needs of consumers.

Industry experts who are closely monitoring the modern retail chains believe that offtake of goods from easy zero-per-cent finance schemes is set to increase from the current five per cent to over 20 per cent by the end of this fiscal itself. Mobile retailers have already seen commendable increase in sales through consumer loans.

Certain industry experts are of the opinion that credit is in fashion as the present generation with their high incomes prefer buying through finance schemes. The trend is beneficial for both customer and retailer, and such offerings will only get better as innovative financing schemes start coming forth.

Recently, on the sidelines of India Retail Forum 2007, Kishore Biyani of Future Group had announced the launch of Future Money, a consumer credit and financial supermarket format, with plans also to offer insurance products through a joint venture with Italian insurance major Generali.

Future Group-owned Home Town, Reliance Retail’s Digital outlets and Subhiksha’s mobile stores all offer consumers zero-per-cent equated monthly instalment (EMI) finance schemes through strategic tie-ups with national and multinational banks. In fact, Future Group even uses its financial arm, Future Money, for the purpose.

With micro families becoming an emphatic societal trend and incomes going high, modern consumers do not hesitate to get their homes financed. However, with real estate costs more on the prohibitive side, they may not be able to furnish a house at one go. Home Town, the home solution format of Future Group, offers services to fulfil this requirement as well. The store offers finance schemes for a year or two, on a minimum purchase of Rs 10,000 – good enough to furnish a home!

Mahesh Shah, CEO, Home Town, had said that five per cent of the format’s overall sales emanate from easy finance schemes, and the expectation is that easy financing will contribute over 20 per cent to sales in the next six months. The company currently has two Home Town outlets and plans eight more by the end of December.

Subhiksha is another company using an easy finance scheme for mobiles. The company offers direct finance schemes to people who do not possess credit cards, through a tie-up with Citibank.

R Subramanian, managing director, Subhiksha, said, “There is a fast-emerging market for buying on credit as interest rates have declined on loans as well as credit cards. There is also a greater awareness on the usage of credit cards.”

When observed closely, it was learnt that mobiles that cost over Rs 5,000 are mostly bought through credit cards, and over 50 per cent of sales happen when mobile companies or the retailers offer finance schemes, where the customer has to pay in instalments.

The best example of credit boosting retail sales comes from Europe. Retail sales growth in the continent has slowed in September, led by the sharpest drop in Italy since June 2005.

A gauge measuring retail sales slipped to a seasonally adjusted 50.5 from 51 in August. The index is based on a survey of more than 1,000 executives compiled for by NTC Economics Ltd. The survey indicates that European consumers are more reluctant to increase spending because of the rising credit costs.

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