We are in a different period where consumers are forced to cut back on their spending. But cycling is a great way to cut down on transport costs and it’s the best time again retail financing tools? We are asking ACT…
Data from Mintel published summer 2021 suggested that the first year of the Covid pandemic led to a 22% increase in UK bike sales from 2.7m in 2019 to 3.3m in 2020. The good news is that, Although society has essentially recovered, the UK’s love of cycling shows no signs of abating, whether as a commuting option, a way of exercising (more adults in the UK enjoy cycling than running, playing football and strength training) or as a way for families to get out and enjoy time together. If you missed the data published on CI.N in Augustrates are said to be up 47% year-on-year (weekdays) and north of 150% in the weeks leading up to the UK’s first national lockdown.
While accommodating and encouraging this growing interest in two wheels is good news for the cycling sector as the cost of living crisis and the threat of an imminent recession loom large, the challenge for the sector remains to make cycling affordable at a time when many things feel that way. This is where effective and creative financial solutions come into play.
The removal of bike shops from the list of retail businesses forced to close during successive Covid lockdowns has really highlighted the important role cycling can play when people’s access to normal modes of transport and recreation, such as gyms and swimming pools, is limited. Cycling became a favorite option for those who needed to travel but didn’t want to sit on a crowded bus or subway train; it has become the preferred form of exercise for those unable to participate in team sports, and with theme parks closed, family bike rides have become a viable alternative for spending time together.
Although this led to increased sales of new bikes, it was clear from the start that, faced with uncertainty, consumers chose to conserve as much capital as possible. Therefore, the percentage of retail financing sales increased at a faster rate than the sales themselves, ie. the percentage of customers willing to spread the cost of a higher ticket has increased.
This increase in the desire of customers to hold on to cash is not limited to the bicycle sector and not only to higher-priced goods. When buyers’ choices are limited and they cannot inspect the goods in person, their willingness to pay for the goods in advance is reduced. This has led to a huge increase in the use of Buy Now Pay Later (BNPL) as a payment method. Deferring payment, often until the product is received, gives customers confidence in their purchase.
In August, the Bank of England announced a 0.50% interest rate hike to 1.75% – the biggest in 27 years – predicting that inflation will top 13% with recession starting later this year, which could be the longest recession since those times. the 2008 financial crash. After the dust settles on the announcement, retailers must process the implications for their customers and adjust their strategies accordingly.
As we saw during Covid, when there is uncertainty about people’s short-term finances and future spending, they choose to hold cash reserves. However, this does not automatically mean that they do not want or intend to buy the goods. Effective retail financing is likely to become an even more popular payment option for customers as the economy enters recession.
Whereas before we saw sales increase because people didn’t want to use public transport, this time we can see a shift towards e-bikes when people can’t afford or don’t want to use their own car as often. Again, with the high average price of an eBike, retail financing is likely to be a very attractive option for customers. It’s also, of course, cheaper in the long run than buying with most credit cards.
Some might argue that this buy-now-pay-later approach only serves to cause consumer debt to grow, leading to more repayment problems down the road. To some extent, although it can never be completely ruled out, it depends on the type of loan, the value of the product and the market sector in question.
Contrary to what you might expect, charities, the Financial Conduct Authority or the Treasury say it’s not the higher-value goods bought through traditional retail finance that are causing the most damage to consumers. By law, access to long-term credit must include an affordability test, and the finance provider must be able to demonstrate that the customer could afford the repayments at the time of the loan application.
However, the huge shift to BNPL as a mode of purchase has left customers in dire financial straits.
TSB figures for 2021 showed a 59% increase in service usage compared to the previous year, with one in five UK residents using BNPL services every month. The largest company, Klarna, already has more than 15 million customers in the UK.
Unlike traditional retail financing, BNPL providers are not required by law to conduct availability checks or share information with credit agencies. The lack of audits and transparency, as well as the general misunderstanding surrounding BNPL, led to the Ministry of Finance publishing its initial proposal on how to regulate the BNPL market and give customers the same protection when using BNPL as when using a credit card or traditional retail financing. .
Much of this is due to confusion among retailers and consumers about what BNPL is and how it works:
- Recent research by Barclays and the charity StepChange found that retailers do not fully understand the lending options they offer customers, with 54% mistakenly assuming that most businesses buy now, pay later (BNPL) before deciding on a loan. money to the consumer. Another 52% mistakenly believe that all BNPL brands report credit to UK credit agencies.
- A survey of 2,700 users of the Buy Now Pay Later service found that more than half of consumers aged 18 to 34 signed up without realizing it, while 35% regretted their debt-related purchases.
- Two in five Citizens Advice surveyed between January and February felt that what they were signing up for was not a ‘proper’ loan, in the same way as a credit card or loan, and 42% did not fully understand what they were signing up for for.
- Some 31% of Brits who have used BNPL services say that lending has led them into problem debt because repayments have become unmanageable, and Citizens Advice found that more than 40% of BNPL customers rely on other methods such as credit cards, overdrafts and loans from friends and family to keep up with repayments.
So, with misunderstandings and new regulations emerging, how can an independent retailer stay on top of things?
In short, these changes in customer habits are here to stay for at least the foreseeable future, so retailers in all sectors need to embrace it and adapt. While large retailers may have the in-house expertise to manage the process for them, IBDs do not have access to such resources within the business.
To compete with some of the big players online and offline, IBDs are encouraged to take the ACT in Retail Finance, an online course that provides a sound understanding of retail finance that can be taken anywhere, anytime. It will show your staff how to effectively promote retail finance, encouraging customers to maximize their spend through methods such as finance promotion, point of sale (POS) and bundling. This can be beneficial for retailers as surveys show that consumers are more likely to spend more when retail finance is marketed correctly, and that for many customers the ability to spread the cost is the main reason for purchase.
ACT members can access a retail finance course from £75, just take a look: indieretail.training
Try a free demo at: demo.indieretail.training
Alternatively, call ACT on 01273 427 700 or email firstname.lastname@example.org.
https://cyclingindustry.news/retail-finance-for-bike-shops/ Responsible use of retail finance as consumers are careful with cash