This has got to be one of those win win situations and not a lot like what Wal Mart wants to do at all. Home Depot is not actually trying to become customers’ banker; they seem to be trying to ensure that purchases from their store, for the sole purpose of what the store does i.e. home improvements, are more likely to be affordable through their own financing. They are not offering to lend money for any other purpose or to hold it until customers want to use it. It seems to be purely a loan company, not a bank at all. Perhaps I’ve misunderstood. But, if I have got it straight, then they will be making it easier for customers to choose what they want to buy and ensure that they can pay for it. At the same time, Home Depot is ensuring that they, too, will get paid and probably even make more money on the deal than if the customer handed over a pile of cash.

When I was a kid growing up in the South, one of our local grocers would take grocery orders over the phone, fill the order and deliver it to our home. At then end of the month he sent us a bill which my father promptly paid. This same grocer provided groceries to many small farmers and “kept them on account” until they harvested their crops. Because of his SERVICE he maintained most of the local business even after chains like A&P and Piggly Wiggly moved in. I don’t see any real difference between Home Depot expanding their service to their customers and the local grocer I grew up with. In each case, the retailer is providing a service for their customers. It is up to the customer to determine if the service is something they wish to use. It would be in Home Depot’s interest to make “home improvement” easier. My guess is that interest rates may be lower and loans easier to get if Home Depot gets into the finance business. Can’t blame… Read more »

The impact for HD seems clear. In many ways, this would qualify as vertical integration through the demand chain. In Mexico, there is a retailer who provides loans to a segment of the population which would otherwise not receive them. The loan consumer is captive to the retailer, and can only use the loans for purchases at the retailer. While the consumer would not be captive at HD, it is very, very, very likely that the proceeds of the loan would be used in HD. The benefits are obvious. Is it the same as WM? Maybe. WM can’t be as obvious though! HD doesn’t carry the same negative stigma that WM does in the eyes of community activists and monopoly-fearing folks. However, the scope and nature of the banking services being supplied are pretty limited for HD. It’s unlikely that HD will suddenly start opening checking accounts, offering low cost savings vehicles, and making car and education loans. This is very different from the concerns about WM. WM, conceivably, could use their bank to provide… Read more »

Retailers who own finance businesses sometimes discover larger profits in finance than merchandising. For many years, Sears’ credit card profits were more lucrative than its merchandising profits. The math is easy: retailer borrows money at 8%, has 3% overhead and 4% losses, while lending at 18% to 21%. The profit can be 3% to 6%. If the equity is 15% of the debt, the return on investment is 20% to 40% before taxes. There are 2 simple keys: (1) keep the average balance high (finance furniture, appliances, and installations, not small ticket items) and (2) keep the losses reasonable. Not many merchandising businesses earn 20% to 40% ROI before taxes.

The wall between commerce and banking will fall. The regulatory interference with this is just another illustration that the vast majority of all regulation is instigated and guided by one business group trying to protect themselves and interfere with their competition. Later, other business groups, other places and times, may prevail to change the calculus. Citizens are not directly represented in this process, as their elected representatives are largely bought and sold, whether by businesses, trial lawyers, or other moneyed parties. The reason the system really works quite well, over time, is that citizens vote with their own dollars over time, for those who the citizens feel serve them best. Although this angers and frustrates nearly everyone, in the long run, competition, whether for our dollars or our votes, moves society forward. Pluralism, the multiple competitive parties, is our very best hope to vouchsafe a peaceful and prosperous future. I wish the bankers well. The good ones will survive and thrive (and adapt.) I appreciate the past efforts of the others, but the future is… Read more »

Home Improvement is a big ticket item. The barrier to selling a big ticket item is often the ability to pay.

By offering loan services, Home Depot – as the finance arms do for the auto companies – solves a purchase objection. By owning the finance solution they also add to their profit on each transaction.

Home depot has evolved from making money on the products it sells to making money on the installation of those same products (a service offering which also removes a home improvement purchase decision objection), to making money off the money used to finance the purchase. The result should be more business for Home Depot by removing purchase decision barriers and the capture of more value from that increase in business.