The last generation of savers is dying off, says Steve Ruscigno, general manager of Oregon Hot Tubs, which has six locations in the Portland metro.
“The consumers coming of age to be our prime demographic are payment consumers,” Ruscigno says. “People who are buying their homes for the first time or starting families have been payment people. They might have paid off their car, and now they’re going to replace that payment with something else. That could be a hot tub, it could be a Jet Ski, a boat or a motor home. But they’re going to always have that payment-type mentality, which is fine. But that’s something the hot tub industry hasn’t seen, and we’re starting to see more of that now. That’s why financing is important.”
Pre Recession Financing
“Back in the mid-1990s, there were not a lot of big primary providers,” says Bob Maisel, regional vice president of business development for Fortiva, a second-look financing company. Maisel has worked in financing for more than 20 years, and specifically with the hot tub industry, first at GE Capital and now at Fortiva. “Most spa retailers would have a relationship with a local bank or maybe a credit union, and they would direct the customer to that relationship. In the mid-’90s when GE came out with a national program, that’s where larger players started to get involved with prime financing.”
Manufacturers started to develop relationships with these large banks and finance providers, who at that point could approve more customers, or “buy deep,” as Maisel puts it.
Home-equity lines of credit were also a popular way to purchase a hot tub. “Before the economic downturn we saw a lot of home equity lines of credit used to purchase swimming pools, above-ground pools, spas, many things,” says Donna Williams, chief marketing officer at Poolcorp. “And after the economic downturn, most of those credit lines went away. People were not able to get them, or they just didn’t have any equity in their homes.”
As the country, industry and consumers have dug their way out of the Great Recession, there are anecdotes of home-equity deals coming back, but as Ruscigno pointed out, the type of consumer hot tub retailers will start seeing looks at their home and finances differently than the generation before.
Financing Options Available to Dealers Now
There are several national programs where dealers can find financing. Many OEMs still have relationships with the big banks where they can put together 0 percent financing promotions.
“If [the customer] can play with someone else’s money, i.e. the bank, they’ll do that,” Maisel says. “Those are popular promotions and are still very prevalent in the industry.”
But the cost can be high for dealers. “If you want to offer 36 or 60 month interest-free financing, [the finance company] is charging us upward of 16 to 17 percent,” Ruscigno says. “The manufacturers will step in and buy it down, but they’ll only buy down 5 or so percent and you’re still looking at 10 to 12 percent it’s costing that dealer to use that 0 percent financing.”
Oregon Hot Tub has a relationship with a regional bank, and Ruscigno says customers often choose to go with the local institution, even though there aren’t 0 percent APR options. “[The regional bank] offers five-year term financing with interest, which brings the payments lower,” Ruscigno says. Almost 35 percent of Oregon Hot Tubs deals are financed. “What we’re finding is with the lower payments people are buying more hot tub. And they’re not caring about the interest-free financing as much as they did before the recession.”
Through HotTubs.com, Poolcorp makes financing available to consumers through LightStream.
“What dealers love about the program is they don’t have to be involved at all,” Williams says. “If someone can’t qualify it’s not [the dealer] saying no. It’s a seamless process. We’re using SwimmingPool.com and HotTub.com as the venue to help find those customers and then help them find a way to get the financing so they can buy the product.”
Some dealers will pull the HotTub.com website up and have interested customers go through the process in the store. “Those retailers who are very engaged and trying to help the consumer quickly, they keep them right in the store,” Williams says. “So when they get the approval, they get the money before they change their mind and do something else.”
Financing is especially important to South East Spas in Florida, which has an event-heavy business model. It uses GreenSky as its primary prime lender. But if a customer has less than prime credit, it turns to second-look financer Fortiva, which offers financing to people with sub-prime credit scores.
“We’re at about a 45 or 40 percent save rate with Fortiva,” says Phillip Giles, who runs the business with his father. “Basically, it’s picking up almost half the business that we lost from GreenSky.”
The Deal
Presenting financing options takes skill to know when and how to bring up forms of payment without alienating the client.
Giles says to get it out of the way early in the presentation. “ ‘Hey, we have financing options available if you want to finance this thing or if you want to take advantage of our cash incentives, we have some cash discounts available,’ ” he says. “We take all forms of payment, but we do want to make sure that the customer is not catching us off guard.”
Instead of putting a price tag on a spa, Oregon Hot Tubs signage will say “Payments starting as low as $X.” “And then you talk in terms of payment when they come in,” Ruscigno says. “If they don’t want to finance, they’ll say so. Then you get that out right away. It’s actually a better way to do it than have a salesperson try to remember to ask in a good way later in the presentation. It could ruin a presentation if you bring it up at the wrong time.”
When you get the customer to say yes, moving them to the finish line without any extra time or trouble with financing is important. Dealers and customers want a quick, transparent, seamless approval process. Fortunately, most lenders offer relatively short forms the customer can fill out on a computer or mobile device so the dealer doesn’t have to handle personal information or worry about entering something incorrectly.
Giles says it’s rare for someone to be surprised if the prime lender turns them down. “People know if they have bad credit, and they’re used to being declined,” he says. And when they are declined, he says to be blunt and move them to the second-look option. “The spa sales at shows are so fragile. Somebody just came in, they saw a road sign and now they’re spending $9,000. You have to explain it and keep them excited about doing the financing, but also giving them the reality of the situation.”
What Does the Customer Want?
The hot tub industry has been all about baby boomers, but that will come to an end. Millennials, who are 36 and under, have recently overtaken baby boomers in population — and their financial prospects are more limited. Consider what Young Invincibles, an advocacy group, found when it analyzed the Survey of Consumer Finances, which is conducted by the Federal Reserve Board of Governors. They compared the survey when taken by 25- to 35-year-olds in 1989 and the same age group in 2013, taking into account inflation.
Young adult workers today earn $10,000 less than young adults in 1989, a decline of 20 percent
1989: $50,910
2013: $40,581
Young boomers owned homes at higher rates than millennials
1989: 46%
2013: 43%
Boomers accumulated double the assets of today’s millennials
1989: $61,277
2013: $29,350
Millennials’ wealth is half of boomers at same age
1989: $25,035
2013: $10,900
Fortiva has found 51 percent of U.S. consumers and 43 percent of millennials have less-than-prime FICO scores. They also say millennials will represent about 46 percent of the U.S. income generated by 2025.
“It’s important that the retailer do provide options to a consumer,” Maisel says. And most hot tub retailers do offer some form of financing, but if your business is still running on the personal checks of baby boomers, it is probably time for you to analyze your financing options.
“We’re seeing some things come back now with home-equity lines, but I would tell you people are very comfortable using this method rather than putting any kind of equity against their home,” Williams says. “People are probably a little more cautious about that now. You need some options that they can at least look at. Otherwise they’re on their own. They may leave the store to shop their financing options and change their mind.”
Maisel says his first rule of financing is to make no judgments. “Hot tub retailers shouldn’t look at the consumer and assume they don’t need financing,” he says. “Or, ‘Gee they won’t qualify for financing.’ Retailers should always offer financing because it makes it affordable for that customer.”
Giles says there are some customers you need to walk away from, “But if somebody is sitting at the table and they’re trying to get financed for a hot tub, it’s absurd to not be willing to go through the process.”