Who: Laura Egeln, PhD, is a professor in the College of Business at Johnson & Wales University Charlotte, as well as an online faculty member.
Agree or Disagree with Article: Agree
Her Take: Considering the current retail climate, retailers are looking for new ways to boost sales and expand their businesses. One way to do that is to enter the world of consumer finance where the retailer offers credit services to customers as a way to generate revenue in addition to the physical products they offer. Retailers make money on the interest and service fees associated with the credit/financing services available.
A recently published article by the Wall Street Journal reported that mega retailer Wal-Mart is exploring options to offer additional financing services to offer to their customers. In theory, it is a good business decision on the part of the retailer to find additional sources of revenue outside of their traditional business streams. One of the many challenges with this is that one business stream compromises the other business stream. If customers are only able to purchase physical products because of the financial services being offered, then there is a point where they will no longer be able to purchase products because of the limitations of the financial services.
In the past, retailers extended financing when merchandise was a higher price which allowed the customer to spread out payments over a short period of time (purchasing a sofa but taking typically 90 days to pay). As consumer spending patterns have evolved and more merchandise is purchased on credit, the time period of paying off the merchandise has increased. Now it is possible to purchase a sofa and take five years to pay for it. If spending patterns continue in this direction, it isn’t unreasonable for consumers to finance regular purchases such as shampoo over longer periods of time. Considering that interest rates for these types of financial products range from 10 percent to 30 percent, the additional finance charges can easily surpass the original price of the product.
While I agree with the business decision by Wal-Mart to explore additional revenue streams, I don’t agree with the impact on consumers.
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