Data from the world of retail finance thus far in 2020 been quite startling and, arguably, the sales tool is only to become more relevant for the remainder of the year. CI.N talks to the industry’s leaders on the subject to understand the opportunities and risks…
Utilised as a sales tool against selected sales, retail finance can be an additional string to the bow of the bicycle retailer and one that can ultimately lead to higher ticket and indeed a greater volume of sales nudged over the line. While the current levels of demand might not put it front of mind, there is an argument that going forwards all shop floor staff should have some knowledge of this subject, how and when to bring the topic to the sales discussion.
In tandem with the onset of lockdown the ACT released some interesting data attached to its partner V12 and its Ride It Away scheme. April 2020 saw a new all-time high of £60 million in applications within the cycling market. Not only was that a new record, it actually more than doubled the prior record set in July of 2019. At the time of writing, May’s data was set to post a further growth.
“The average Ride it away basket value has increased by 9% since the start of March,” the ACT’s finance leader Chris Hall told CI.N, adding that “consumers no longer want to wait to make a purchase.”
The demographic of users has changed over time, we’re told, as has the nature of the product. With a generally higher ticket price, the electric bike is increasingly featuring on receipts.
“We are seeing an increase in the number of under-35 users of finance, we think because many are budgeting month to month; their generation is perhaps more used to subscription style payments. Two years ago, this age group accounted for approximately 45% of all applications. In May 2019 this had risen to almost 50% and this demographic now accounts for just over 65% of all applications. Over the same period applications by women grew by 25%.”
The Ride It Away data aligns well with a spike in cycling levels on the ground. In fact, a study of 2,000 parents in Britain conducted on behalf of Black Mountain Bikes placed cycling as the number one most popular activity for families during lockdown. 35% of respondents said cycling was the most common activity, ahead of walking at 29%. In a further indication of why the interest has spiked, 82% of parents felt more confident to cycle much thanks to the environmental changes during lockdown, which presumably indicates quieter and safer roads.
It is somewhat likely that, while roads are undoubtedly returning to normal, cycling’s modal share will have benefited from this boom in sales and indeed any semi or permanent changes to road layout. People will be less likely to opt for public transport for the foreseeable future and cycling stands to be a big winner in taking up the slack.
“Now comes an opportunity for retailer to sell in a responsible way,” says Steve Garidis executive director at the Bicycle Association and cog in the team that ensured bicycle shops where permitted to remain open for the duration of the pandemic.
“Retail finance stands to grow in importance. If you look at the behaviour attached to Covid-19 it’s made people realise how vital cycling is as a mode of transport. It was obvious to us, but not to everyone. Getting key workers to work and latterly avoiding public transport became a theme of the Coronavirus. While this is not just an opportunity to stick plenty on finance, because tougher economic conditions are expected, there is quite likely to be a serious recession now, so this tool makes sure people can access the products that they need to get by in order to change and to reduce the cost of their transport habits,” says Garidis.
The Bicycle Association has utilised the collective strength of its members and associates to bring a new finance product to the cycling market, but one that many will be familiar with from outside of our trade; that’s Klarna.
“Klarna is very interesting as model differs to traditional finance, a bit like PayPal it’s very consumer focused. In UK we already have seven million Klarna users. The consumer is therefore already quite familiar with the process and the brand identity is strong. What this has done is bring a younger demographic in to the businesses as a result and much more female users, incidentally. We didn’t foresee that benefit when we struck a deal on behalf of our network,” explains Garidis.
The deal he refers to is one forged from collective strength. Klarna typically only strikes up a relationship on its best rates with businesses with revenues into the hundreds of millions, but with the Bicycle Association acting as a representative for the bike industry’s retailers a deal was struck for the collective.
“The BA started with the advocacy perspective in mind, but I really felt that the BA needed to represent whole industry with most credible voice with Government. In order to do that – we needed a deeper representation of the industry and the independent sector is the big gap we had to fill. So, we wanted to achieve better representation and have done so with the setup of the Trade Network. The feedback from those shops approaching us was that they wanted better tools to turn a profit. The BA is now two-pronged with advocacy and business support working in harmony.”
With the industry’s buying power leveraged the BA negotiated a rate with Klarna for shops that, according to Garidis, is a few percentage points ahead of the what the finance provider is known to offer. With bike shops increasingly frustrated by third-party businesses nibbling at their sales margin “that’s huge, it levels the playing field against the bigger businesses out there,” says Garidis.
Though initially a reserve of the Trade Network, the BA is now opening access wider with the view to having a two-fold benefit on both business and its advocacy work, the latter of which has shown its worth lately.
“Retailers initially had to be part of the Trade Network to take advantage of our Klarna partnership; that’s those that contributed to advocacy fund to date. What we are now looking to do is to open the network up to others. If you make a contribution to our advocacy effort you can access the services of the network without further charge. This strengthens our work to rally Government to improve conditions for cycling and thus sales,” explains Garidis.
As a tool retail finance uptake among retailers appeared flat toward the end of 2019 and start of 2020. CyclingIndustry.News’ own annual Retail Channel Study had 24% of retailer stating they would utilise retail finance more in 2020 and 25% stating they would rely on it less.
So, will the former camp’s perseverance pay off in the future? Hall suggests so.
“According to research undertaken by V12 Retail Finance 28% of customers report spending more because finance is available,” he says. “Ride it away retail finance is a payment method and having it available at point of sale allows the retailer to give the consumer choice. They can break their purchase down into smaller monthly instalments and is applicable to any sale over £250 with a participating retailer. So, Ride it away is not just for bikes; it also offers customers the opportunity to spread the cost of parts and accessories on their own or in a bundle. By spreading the cost, higher quality items become affordable and additional products can be added to the transaction for only a few extra pounds per month.”
Aside from offering up training to all carrying V12’s platform in store and online, retailers using the firm’s Retail Finance will have a ‘Finance Calculator’ (seen right). This allows them to speak to the consumer about their purchase and how that breaks down to monthly payments, which gives the consumer the visibility of how increasing their order value impacts their monthly payments.
Echoing Garidis, Hall says that the retailer does carry some responsibility in ensuring they are using the tools correctly.
“It is important that the customer is fully informed before, during, and after the finance application process. The Retailer should ensure they are advertising finance correctly, explain it to a customer fully, and ensure they follow the guidelines set out by V12 Retail Finance. This keeps any risk to a minimum and keeps both the retailer and the customer safe.
“When the customer is approved for finance, V12 handle any queries relating to finance, and provides support for the customer if they are experiencing financial difficulty. If this is the case, the retailer will never know; there is no clawback or exposure to the retailer.”