Looking To Its Finance Heritage, Sears Offers First Large-Scale Lease Program

Sears' (NASDAQ:SHLD) foray into leasing appliances—which the chain said marked the first national retailer to offer leasing on such a wide range of merchandise—is raising the usual questions about Sears' strategy. Is it a coincidence that it routinely falls back on financial products, be it Discover, Dean Witter or layaway, when it gets worried about retail?

But the move also raises a far more strategic question: Would an aggressive lease effort be a tactical alteration or a truly huge strategic shift, moving away from a use-and-consume model and shifting to one where leased appliances are routinely swapped for new ones after a year or two?

"Sears and other manufacturers and retailers could provide a continuous flow of household comfort and convenience services, presently satisfied by buying appliances, furniture, etc.," said Richard George, a food marketing professor at St. Joseph's University, in a discussion on RetailWire. "Do we really need to own and then dispose of (mostly trash) these products? Leasing works for automobiles, condominiums, etc. If I were Sears, I would modify the offer from lease to own to delivering a continuous flow of services. This is an area, the Circular Economy, in which Europe is ahead of the U.S."

The lease program, which was tested last September in 10 stores, is being rolled out to all 900 stores starting this week, according to an Associated Press story. Sears is launching the program with leasing service WhyNotLeaseIt.

"Over the last three to four years, it has become difficult for our customers to have access to credit and to get new credit," said Jai Holtz, vice president for financial services at Sears Holding, in an interview with The Associated Press. "The program gives a much-needed financial solution to those unable to purchase on credit, secure credit, or because of immediate need, can't use layaway."

Holtz said that the customer reaction to the test last fall in the three markets—New York, Texas and Florida—was strong.

Candidates won't be subjected to a credit check, but to qualify, they must be 18 years old, earn a minimum of $1,000 a month and have a Social Security or tax identification number when applying. Customers make the first lease payment at the stores, followed by monthly or bi-weekly payments made electronically. The merchandise has to cost at least $280, and how much customers can lease will depend on income, the AP story said.

The program is meant for customers who eventually want to own the merchandise. After five months of making the payments, shoppers will have the opportunity of paying off the balance and owning the product. If they're not ready to make that decision at that time, they can continue to make the payments until 18 months after they sign up for the program.

Holtz said that the company is considered expanding the lease-to-own program at its Kmart stores.

Reaction has fallen along two lines: The first is that the idea, on its own, is a good one. But the second reaction is that this truly depends on Sears' execution. Will it charge over-the-top interest rates or other fees? If shoppers feel taken advantage of by this program—aimed at financially struggling and therefore vulnerable customers—it could easily backfire.

There were also lots of posts questioning whether Sears even has enough of a retail focus to make any of these creative efforts work.

"I'm going to say they will be unsuccessful because they have such a good track record of being unsuccessful at just about everything," said David Livingston, a principal at DJL Research. "Overall, I think it will hurt their reputation even more. I think a lot of consumers will not want to be seen in their stores once they convert to a rent-to-own outlet."

Robert DiPeitro, a product services VP with the Affinion Group, thought the idea was good and again stressed it will come down to execution rules. "On the surface, this seems like a home run. Although the terms are not spelled out, if they can make the financials for the customers fair, this will open up a new branch of customers for Sears," he said. "Based on the shelf life of washer/dryers and refrigerators, I could also see this morphing into an upgrade program for other customer segments: after 5 years, get free upgrade to latest model, etc."

For more:
- See Associated Press story
- See RetailWire story

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