New Delhi: No loan is too small, no purchase too unnecessary. Not even for a pair of shoes. Not those fashionable Manolo Blahniks at Rs50,000 a pair, but a made-in-your neighbourhood work-wear costing a few hundred rupees.
In a bid to get customers hooked to purchases, some that they can afford and others they can’t, retailers are offering a helping hand — with loans that are small and interest-free.
Baby steps: The Reliance Footprint shop in Mayur Vihar, New Delhi. The shop offers zero-interest loans to consumers for as low as Rs5,000 on buying shoes, though the concept is yet to catch on.
At Reliance Retail Ltd’s footwear store, Reliance Footprint, which opened in New Delhi in January, consumers can help themselves to zero-interest loans for as low as Rs5,000 on buying shoes.
Eye anything pricier, like the Rs18,000-a-pair Gecco shoes, and the firm will promptly finance it through the company’s tie-up with ICICI Bank Ltd — also at zero interest. Consumers should have a banking relationship with ICICI Bank or HDFC Bank Ltd. Recovering the loan is the task of the bank.
The plan, in its early stages, has had very few takers, though. Hardly 10 people have already purchased shoes through financing at the New Delhi store in the last five months.
While loans that run in the mid to high thousands for home furniture to consumer electronic items are fairly common, retailers say the loan size could go so low that consumers could fund even their monthly grocery purchases with loans. “The ability to convert a one-time investment into an over-a-period-plan always improves the purchasing capability of people,” says Muralidhara Kadaba, president and chief executive for finance and travel, Reliance. “You make customers aspire for things they otherwise may have postponed or might settle for something that maybe compromising.”
Pankaj Rana, a catering service business owner, hasn’t bought his groceries on loans yet, but he isn’t shy about taking a loan for the odd indulgence. On a grocery shopping visit to Big Bazaar in Wazirpur in north Delhi earlier this month, he ended up buying an LG television set through finance. “I was walking around the store and saw the TV on display… Store staff explained the finance option and I liked it,” says Rana. “You pay Rs700-800 per month as instalment and its doesn’t affect your pocket much.”
But not everyone is as easy to convince as Rana, and Reliance is finding out that the mindset is hard to change.
“People don’t want to take EMI (equated monthly instalments) on shoes,” admits R.K. Azad, manager for the Reliance Footprint store in Mayur Vihar in east Delhi. “Rather, they would use plastic money,” he says, referring to the consumer mindset that prefers to pay through credit and debit cards rather than taking small loans.
Credit card loans attract an interest payment, but the concept has been widely in use in India for well over a decade now. Other retailers agree that loans still need to cut through the mindset in a country raised on a the proverb of “saving for a raining day”.
“Somehow it hasn’t picked up in India,” admits Rakesh Kakkar, chief executive of Future Money, the consumer finance arm of Future Group. Kakkar says major share of the company finances are restricted to “high-ticket” products, including LCD television sets and expensive furniture. Globally, 30-35% of consumer durable items are purchased through financing while it is just between 4-5% in India, he adds. At Future Group’s Big Bazaar hypermarket in Wazirpur, the number of consumers opting for loans to purchase consumer durable items is still very small. The hypermarket finances, on an average, five consumers to buy electronic items to furniture in a month, say officials
Undeterred, Future Group, the parent of the country’s largest retailer Pantaloon Retail (India) Ltd, plans to introduce a card where consumers can make purchases of up to Rs3,500 on grocery shopping, said company officials on condition of anonymity because they are not authorized to give out the details for the plan this early. No further details were available.
“We may look at grocery (financing) sometime later,” Kakkar says, but he declined to comment on the card with a Rs3,500 credit limit.
Kakkar, however, says the company plans to introduce loans for purchases of Rs5,000 on apparel, jewellery and health and wellness products among others from the current minimum finance of Rs7,000 on consumer electronics and furniture in the next two months.
Reliance Retail also plans to launch cards allowing consumers to shop on credit at Reliance Retail-owned stores. Similarly, Reliance also plans to widen the reach of its financial arm, selling everything from loans to insurance to a large number of its stores.
India’s largest discount retailer Subhiksha Trading Services Ltd says it has also tied up with financial firms to provide loans on mobile phones priced at Rs5,000 and above. But it is sceptical whether consumers would want to buy their monthly grocery through financing.
“I am not very sure that customers are looking for financing for grocery at the moment,” says R. Subramanian, managing director of the Chennai-based Subhiksha. “It’s a month-on-month thing and why would anybody need financing?” he asked. Sharing his experiences in selling mobile phones through financing, he says, “Typically, nobody avails loans for buying mobile phones for Rs3,000.”
Schoolteacher Ritu Sood is a case in point. She has a budget of about Rs10,000 per month for her family of six, but it’s a clear “no” for her when it comes to taking loans on her grocery purchases.
“I don’t think so….We don’t need loans on that,” she says while pushing a trolley of grocery items in Big Bazaar in Wazirpur area.
For now though, Azad is convincing middle-class Indians that it’s okay to walk in borrowed shoes.