Columnists George Prout Applied Marketing 101: A credit program that competes with the malls

Applied Marketing 101: A credit program that competes with the malls

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For the past year, I’ve been investigating a new way of offering credit in retail jewelry stores that potentially represents an enormous breakthrough. The implications from the data we’ve been collecting in test stores are staggering, particularly in the Bridal sector. Just imagine how much your sales and profitability could increase if almost anyone who entered your store could obtain financing. For any student of jewelry retailing, universal access to credit represents the Holy Grail, and it looks like we have actually found it!

The breakthrough methodology we’re using is an evolution of systems currently being used in the retail Furniture and Flooring industries, and involves the use of a standing or tabletop Kiosk for inputting consumer data. The Kiosk provides two very important advantages. First, it makes the credit application process private, so that consumers who know they have blemishes on their credit histories will be more comfortable giving it a try, and wealthy consumers will feel more comfortable applying (without your staff discovering how much money they make). Second, it removes the impact of ‘Adverse Selection’ on the consumer pool (for an explanation of this phenomenon, and the lethal impact it has had on many prior private label credit programs serving independent jewelry stores, please see my November Article, “In Search of an Effective Private Label Credit Program” at www.southernjewelrynews.com/columnists/george-prout).

What we’re doing is unlike anything that has been tried in the jewelry business before. In order to understand how it works, consider the multi-lender model of a company called Lending Tree. You may have seen their advertisements, where multiple lenders compete for the consumer’s business. One of the advantages of this model is that the consumer only fills out one application, which is then submitted to multiple lending institutions.  Imagine this scenario utilized in an engagement ring sale, but optimized so that you have primary, secondary, and tertiary lenders who specialize in different levels of consumer creditworthiness, and then round out the assortment of lenders with a lease/purchase lender who takes almost all of the consumers who fail to qualify with the top three tiers. In practice, the kiosk processes a single application and routes it to a vertical list of potential lenders, working down the list until it finds one who will approve the application.

One of the hurdles we had to overcome was to convince lenders to work in our industry, since many normally avoid jewelry because of intrinsic idiosyncrasies in jewelry lending that yield inherently high write-offs.  There are many different kinds of jewelry retailing scenarios in the US, and given the fact that Gems One typically sells better independents, we were able to show prospective lenders that the potential pool of retailer participants would match the operational retailing environments that the l enders wanted. By limiting the retailer group to our customers, we cleared an enormous hurdle. Furthermore, since we typically work exclusively with our customers on a market by market basis, we will also be giving our clients an enormous advantage in their local markets.

What we’re seeing in stores that are testing the system is an approval rate exceeding 80 percent. Perhaps just as important, the individual credit limits being offered are high enough to allow consumers to get the ring of their dreams, which means huge increases in the average retail sale.

Even better, we’ve cloned methods the other retail industries are using for getting the consumer to the Kiosk before they start shopping, so your store personnel will know on the front end which tier lender has approved each consumer, and therefore what the discount rate for the sale will be, as well as a relative gauge on how important access to credit will be in the consumer’s personal list of purchasing benefits. We can even set the system up so that you or your store manager will receive a text message that the application has been approved, and what credit limit has been assigned, while the consumer is still standing at the Kiosk! Best of all, each lender fulfills the sale (meaning they wire the money to your bank account) on a non-recourse basis, so regardless of whether the consumer ultimately pays for the jewelry, once they approve the sale, collection from the consumer is the lender’s problem, not yours.

The potential impact on your store’s revenues and profitability is enormous. For many years, I’ve been looking for a way to level the playing field for our customers in the increasingly bitter battle they face in competing with the chain stores for Bridal business. I have always believed that the store owners I know will beat the chain store manager to the sale every time, but only if the deck isn’t stacked against them. Access to credit has always given the chains a huge advantage. Fortunately, with the Gemstar system, it looks like we can make that advantage disappear!

The cost for the programming, the software, and the kiosk rental ranges from $239 to $289 per month, depending on the model you select.  Fortunately, since we started the development process almost a year ago, we’re now ready for an avalanche of requests for the System, so we should be able to have you up and running in about 30 days.  Plus, we’ve developed a comprehensive marketing program designed to let consumers in your local trading area know that you can finance their purchases. You can even put the credit application on your website, so that potential customers will know they can get credit from you before they walk into the mall.

Here’s how I would encourage you to think about this: Ask yourself why consumers in your trading area might choose to shop somewhere other than your store for engagement rings, especially if they are choosing to shop at a large chain mall retailer. I suspect there are two primary reasons. First, they may think that they can’t afford to shop in your store. Unfortunately, that’s a perception that many younger consumers have about upscale independents, and it’s unintentionally confirmed every time you reach out to affluent baby boomers with ads that show your fancy, expensive brands. Second, they may think that they can’t get financing in your store (which is probably true, if all you can offer is financing to individuals with FICO scores over 695, which is the case with many large primary lenders).

Now, imagine if you could reach out to potential engagement ring consumers with a financing offer, knowing that you can get at least 4 out of 5 of them approved. Can you see how this would alter the balance of power for jewelry retailing in your local market?

I don’t usually use this column to engage in any type of selling activity, but since no one else in the industry is offering anything like this, I’m going to take this opportunity to suggest that you owe it to yourself to take action and contact us. In choosing a life as an Independent Jeweler, you take huge risks every day, not only with your working capital, but also with your personal safety. You deserve more than just a six-figure income.  Isn’t it time you became wealthy for your efforts? If you’d like more information, give us a call, or send us an e-mail. We’ll be glad to show you how you can start offering credit to people who need it!

Class Dismissed!

George Prout is Vice President of Sales and Marketing for Gems One Corporation, and can be reached via e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or at Gems One’s New York office at 800-436-7787.

 
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