Comments on: Avoid These 10 Retail Rip-offs http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/ Wise Choices. Improved Finances. A Better Life. Thu, 29 Jul 2010 22:31:27 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Ron http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11814 Ron Thu, 01 Oct 2009 00:49:23 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11814 It could potentially be a win-win for the retailer and the customer, but not for the finance companies and they're the ones that would pull the plug if a majority of customers paid within the 12 month period. What most customers don't realize is that 12 months same as cash has a steep cost to the retailer. Very few retailers actually offer financing, it is generally done through a third party (such as GE Capital Credit). These finance companies charge the retailer anywhere from 8% to 14% for offering that type of financing (depending on the customer base and it's history of defaults). The finance company's money is tied up and they have to get a premium for waiting that long to be repaid (would you let our money be used without a premium?). That means the retailer, who is operating on say 20% margins, is only getting 6% to 12% gross margin on their products. Furniture has a HUGE gross margin (50% to 75%) and they can absorb the high premium charged by the finance companies. The reason I believe the offer would disappear if people ALL began paying within the 12 month period is this: the premium charged to the retailers isn't the only profit center for the finance companies--it's also the large number of consumers that let the 12 months elapse without paying the debt. If that portion of their profit disappeared, the finance companies would have to charge more than the 8% to 14% to keep their profits coming in on the money they lend out. How much of a premium would retailers accept? 20%? 30%? There would come a point where the offer wasn't profitable to the finance company OR the retailer anymore. It could potentially be a win-win for the retailer and the customer, but not for the finance companies and they’re the ones that would pull the plug if a majority of customers paid within the 12 month period. What most customers don’t realize is that 12 months same as cash has a steep cost to the retailer. Very few retailers actually offer financing, it is generally done through a third party (such as GE Capital Credit). These finance companies charge the retailer anywhere from 8% to 14% for offering that type of financing (depending on the customer base and it’s history of defaults). The finance company’s money is tied up and they have to get a premium for waiting that long to be repaid (would you let our money be used without a premium?). That means the retailer, who is operating on say 20% margins, is only getting 6% to 12% gross margin on their products. Furniture has a HUGE gross margin (50% to 75%) and they can absorb the high premium charged by the finance companies. The reason I believe the offer would disappear if people ALL began paying within the 12 month period is this: the premium charged to the retailers isn’t the only profit center for the finance companies–it’s also the large number of consumers that let the 12 months elapse without paying the debt. If that portion of their profit disappeared, the finance companies would have to charge more than the 8% to 14% to keep their profits coming in on the money they lend out. How much of a premium would retailers accept? 20%? 30%? There would come a point where the offer wasn’t profitable to the finance company OR the retailer anymore.

]]> By: Eric J. Nisall http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11813 Eric J. Nisall Thu, 01 Oct 2009 00:06:04 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11813 I tend to agree with you that it takes discipline to execute the plan, but I have to disagree that the offers would disappear if a majority of the people took advantage of it properly. It is a win-win for both parties when executed properly. The stores get their sales, and thus the profit from any mark-ups on the items and the consumers get to purchase their desired items while maximizing their money by obtaining both the item and the interest. Granted, most people are (obviously) not able to execute but those that can benefit greatly from such offers. I tend to agree with you that it takes discipline to execute the plan, but I have to disagree that the offers would disappear if a majority of the people took advantage of it properly. It is a win-win for both parties when executed properly. The stores get their sales, and thus the profit from any mark-ups on the items and the consumers get to purchase their desired items while maximizing their money by obtaining both the item and the interest. Granted, most people are (obviously) not able to execute but those that can benefit greatly from such offers.

]]> By: Ron http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11811 Ron Wed, 30 Sep 2009 21:07:56 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11811 I don't disagree, but those are big IF's for most people and statistically, those who make promises to their spouse or to themselves to diligently make those interest free payments never really do. It's the old gap between a great strategy and great execution. Here's another way to look at it: why would a store make this type of offer? It's because in the broader picture, the average person accepting the offer winds up paying interest because they DON'T pay it off with their high yield savings account. Once people start doing those things regularly, you'll see 12 months same as cash offers disappear! It won't be worth it to the retailer. I don’t disagree, but those are big IF’s for most people and statistically, those who make promises to their spouse or to themselves to diligently make those interest free payments never really do. It’s the old gap between a great strategy and great execution.

Here’s another way to look at it: why would a store make this type of offer? It’s because in the broader picture, the average person accepting the offer winds up paying interest because they DON’T pay it off with their high yield savings account. Once people start doing those things regularly, you’ll see 12 months same as cash offers disappear! It won’t be worth it to the retailer.

]]> By: Ron http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11810 Ron Wed, 30 Sep 2009 20:58:20 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11810 Unless it's something you truly need, me either! Buy one get one free on a gallon of milk? Sure, but good luck with that one! Gallon of gas, same thing. Finding a real buy one get one free is becoming rare in my personal experience, but I AM seeing more buy one get the next at 50% off. In most cases, those "bargains" are designed to move inventory and little else. Unless it’s something you truly need, me either! Buy one get one free on a gallon of milk? Sure, but good luck with that one! Gallon of gas, same thing. Finding a real buy one get one free is becoming rare in my personal experience, but I AM seeing more buy one get the next at 50% off. In most cases, those “bargains” are designed to move inventory and little else.

]]> By: Eric J. Nisall http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11809 Eric J. Nisall Wed, 30 Sep 2009 20:35:30 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11809 Most of the things you mention, I would agree are scams. The same-as-cash offer, however, I am completely on the opposite side of the fence. Interest-free offers are great ways to make purchases while continuing to have your money work for you, and here is the imortant part: if you have the money up front and you have the discipline to pay it all off by the end of the term. And, its not just 12-month terms; Best Buy sometimes goes up to 3 years, and the furniture stores you mentioned sometimes go even longer than that. If you already have the cash and a high-yielding savings/checking account, then why would you possibly consider losing the earnings power of your money? You can easily take the interest-free payments, and pay the absolute minimum while maximizing the compounding interest that your cash earns daily. It's not a new concept, but it certainly makes a lot more sense than paying for the purchase in full just to say that you didn't take on debt or whatever other reason. Most of the things you mention, I would agree are scams. The same-as-cash offer, however, I am completely on the opposite side of the fence. Interest-free offers are great ways to make purchases while continuing to have your money work for you, and here is the imortant part: if you have the money up front and you have the discipline to pay it all off by the end of the term. And, its not just 12-month terms; Best Buy sometimes goes up to 3 years, and the furniture stores you mentioned sometimes go even longer than that.

If you already have the cash and a high-yielding savings/checking account, then why would you possibly consider losing the earnings power of your money? You can easily take the interest-free payments, and pay the absolute minimum while maximizing the compounding interest that your cash earns daily. It’s not a new concept, but it certainly makes a lot more sense than paying for the purchase in full just to say that you didn’t take on debt or whatever other reason.

]]> By: Fiona Regan http://www.thewisdomjournal.com/Blog/avoid-these-10-retail-rip-offs/comment-page-1/#comment-11806 Fiona Regan Wed, 30 Sep 2009 15:04:25 +0000 http://www.thewisdomjournal.com/Blog/?p=876#comment-11806 I don't understand why people buy something just because its buy one get one free when they don't even need it. I don’t understand why people buy something just because its buy one get one free when they don’t even need it.

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