Zero Financing Masks Retail Sales Problems

Sep 17, 2002

Zero percent finance offers on cars is one thing, but quite another on $149 vacuum cleaners, according to Todd Kuhrt, an analyst with Midwest Research of Cleveland, Ohio.

“If consumers need to be induced to make a $149 purchase with a 0% financing offer (advertised by Best Buy),” then there’s trouble ahead for shareholders according to Mr. Kuhrt. Lower prices and zero financing equate to depressed margins, said the analyst.

Both Best Buy and Circuit City have cautioned investors that upcoming performance is going to be weak compared to past results.

Moderator’s Coment: Will special financing offers have
an intermediate or long-term negative effect on overall retail performance?

There’s no doubt that consumers are creatures of habit
and zero percent financing is an easy habit to develop. That said, low finance
rates are all the more important when unemployment and economic uncertainty
are clear and present dangers. Put people back to full-time work at pay scales
where they can afford to buy and they will. Now, if only our ‘so-called’ business
leaders would stop waiting for the government, consumers or divine intervention
to bail them out, we could get on with reviving the economy. [George
Anderson – Moderator

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