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Retailer Uses Credit, But Not From Us!
May 1, 2008

I was struck by Haverty’s announcement today followed by GE Capital’s announcement.



FURNITURE Today reported Retailer uses credit to stimulate sales rather than discounts.  Haverty’s  reported a 24% increase in earnings for the latest quarter even though sales dipped 3%.  The company said one reason for the increase in margins was an emphasis on credit rather than price cuts and second, the shift of  “more of the long-term, no-interest credit promotions from in-house financing to third-party financing.”

I take it from that statement that they have resorted to factoring a bigger part of credit for purchases.  Factoring, basically gives you the cash today for your accounts receivable that get paid out over time.  For that convenience, factors discount the future value by some interest rate to arrive at present value, which is paid to the retailer.  It may increase the revenue turn.

Haverty’s also announced that last month they began selling on the Web.  We’ll see if their margins continue to improve with the advent of web sales.  Many companies have seen their margins suffer.



FURNITURE Today reported

GE Capital Solutions confirmed today that it is cutting back its inventory financing program to the furniture industry.

Effective immediately, GE is no longer offering new credit lines under an unsecured inventory finance program, the company said in the e-mail.

The problem for any factor is collection.  With so many holders of  sub-primes and soon Alt-A mortgages walking away from their debt, and worries mounting that credit card companies may experience much higher delinquencies, it appears GE Capital doesn’t think factoring is such a good business, tied to the housing and consumer as it is.

One side note, some time ago, Bev and I purchased a new mattress.  The deal we were offered was 12 months the same as cash.  So we were able to spread $1,200 out over 12 months with no interest.  I asked how many pay off their mattresses that way.  I was told that not many have the thing paid off after 12 months.  In good times that’s the way a factor makes extra money.  Incredible!

Thoughts? Email me at landfair3554@comcast.net

Posted by Mike Landfair on May 1, 2008 | Comments (0)