How can luxury brands offer retail finance without harming their image?

Despite the rising cost of living and the impact of the pandemic, consumers are spending more than ever on luxury items. High-end retail grew between 19% and 21% in 2022 according to a Bain and Company report.

But the way customers choose to pay is changing, and luxury brands must be mindful of these trends if they want to maintain their growth.

Like other consumers, luxury shoppers are looking for flexible ways to spend their money. In a February 2023 survey, Divido found that 63% of households earning over £100,000 per year had made a purchase with retail finance in the last three years, with 55% agreeing that it was a useful way to help them manage their finances.

Issues of image

The question is: How can luxury brands offer retail finance without impacting their brand image?

It is true that Buy Now, Pay Later (BNPL) has given the retail finance sector a reputation for offering finance for cheap items such as fast fashion and takeaways. Many luxury retailers would (quite rightly) turn their noses up at such associations.

But not all retail finance is BNPL. Offering customers an interest-free finance payment plan for their latest aspirational or high-end lifestyle purchase is not the same as ‘splitting the cost’ on a cheap pair of trainers.

While BNPL is typically provided by a fintech company with only a soft credit check, retail finance is a much more secure loan, underwritten by a reputable bank or financial institution. And while BNPL allows no flexibility, with the balance scheduled to be paid in three months, retail finance offers payment plans extending up to several years, with the option of both interest-free and interest-bearing finance.

From the merchant’s perspective, there is no harm to their brand or business processes. Retail finance does not not lower the price nor devalue the items being purchased. All that changes is the customer’s purchasing power.

Trust your customer

Luxury shoppers are a discerning demographic. Because they are typically drawn from wealthier households, they tend to be much more financially aware, which means they approach shopping with a well-defined budget in mind.

In our survey, we found that 40% shoppers with a household income exceeding £100,000 disagreed when asked if retail finance could incentivise them to spend more. This consumer profile is unlikely to consider retail finance a promotion – rather, it represents a means to make a financially savvy choice. 

Indeed, this demographic was far more likely to use retail finance to make purchases over £1,000 in value, showing that they consider it a means not to fund the ordinary cost of living, but to invest in big-ticket items.

Our survey found that 79% of wealthier households said they would choose to pay for large purchases with a credit card. Well, retail finance offers the same major benefit in the form of deferred payments, but without hefty APR on top. 

It seems, therefore, that retail finance is a vastly underestimated means of payment in the luxury sector – were it more readily available, we could expect to see much greater uptake.

Luxury retailers must have faith that their customers will benefit from having more choice. And they must act to fill this needs gap – luxury customers may be actively seeking retail finance, only to find that it is not available.

Generating growth

Retail finance offers a great opportunity to grow with younger consumer bases.

Much of 2022’s luxury retail growth can be attributed to young people. Generations Y and Z are set to be the biggest consumers of luxury products by 2030. In other words, they’re not a group the luxury market can ignore.

Gens Y and Z also happen to be the biggest users of retail finance – the market for which is expected to grow 26.6% year on year, as adoption increases and young people enter the workforce and become the dominant home-owning demographic. Luxury brands that focus on generating lifetime value should consider the benefit of appealing to younger consumers today by offering their preferred payment type.

Our survey found that younger people are greatly overrepresented in all aspects of retail finance spending. 75% of people aged 35 and below have made at least one purchase using retail finance in the last three years, with 44% saying they are planning to make another retail finance purchase in the next year. 

Young people are actively looking for retail finance, which is fast becoming their preferred payment type. Around 50% said they actively look for finance at the checkout while shopping, and younger consumers were also more likely to say they would fund the cost of expensive items with retail finance rather than credit cards.

Careful with collaborations

Finance alone will not cheapen a luxury retailer’s brand, but partnering with the wrong provider might. 

It’s important that a retail finance partnership reflects the retailer’s values, visual identity, and tone of voice. That is easier said than done, particularly when most providers insist on projecting their own brand identity throughout the retail finance journey.

What’s more, some providers will attempt to ‘steal’ your customer after taking their data at the checkout, in an attempt to re-market to them and even signpost them to other retailers in their portfolio.

The solution here is quite simple: choose a white label retail finance solution that allows your business to offer finance under your own brand identity. 

That way, instead of your customer taking finance out from an unknown third-party, they will get the sense they are dealing directly with you, the merchant. Of course, the loan will be underwritten by a reputable finance provider – but you, the merchant, get full control over the customer journey, giving customers the immersive shopping experience they would expect from a brand of your calibre.

A retail finance partner fit for the luxury market

Divido is one of Europe’s leading white label retail finance providers. Our cutting-edge platform offers a best-in-class user experience, making the process of applying for finance quick and painless. And, our portfolio of mature Tier One and specialist lenders ensures your customers will benefit from the most secure finance options available.

Retail finance represents an enormous opportunity for the luxury market. Don’t miss out – speak to us today to discover how we could help your high-end brand offer finance.