Dubai: Payment by credit card instalments and on zero per cent financing are proving popular with UAE retailers in trying to convince consumers to make those purchases now rather than set aside for later. What is interesting is that operators in more retail categories are now joining the bandwagon, while those with existing programmes are changing their offers to be in sync with market needs.

Supermarket chains are among the early adopters, while for automotive dealerships the zero per cent financing has been a favoured marketing tactic they have regularly used whenever buying sentiments have hit speed bumps.

For some local brick-and-mortar operators, this is also a chance to win back shoppers lost to online stores, which, in most cases, do not have the strategic tie-ups with banks to offer sweeping zero per cent financing deals.

Interestingly, other consumer-facing sectors — such as schools — could also be considering similar programmes of their own, some sources suggest.

There are also macro factors in play. “What’s happening is that with the resurgence of the dollar, there is downward pressure on the prices of imported merchandise at UAE stores,” said Sameer Lakhani, Managing Director at Global Capital Partners, an investment firm.

“But rather than reduce prices as such, retailers are bringing in such financing schemes on a range of goods, from cars to furniture and smartphones to groceries. This trend is expected to continue awhile.”

Consumer apprehension

Retailers are also playing it smart. Rather than suddenly be confronted with a sharp drop in buying, as had happened in 2009-10, they are using instalment and 0 per cent financing to soothe consumer apprehensions over their spending. Some jewellery retailers are also starting to think along these lines, or dropping their manufacturing charges as the hook to land a buyer. Or in the case of automotive dealerships, the 0 per cent could be a way to convince a buyer to trade up or go for a higher priced model.

With supermarket chains, a different dynamic is at work. It’s more a strategy on their part to ensure that market uncertainty will not lead shoppers to cut down the size of their weekly or monthly purchases. The promise of a 0 per cent rate on payments that need to be made and that can be spread out over months should convince a lot of shoppers to stick to their regular average transactions.

“The Lulu Group has had these types of offers for some years now, but those essentially for big-ticket purchases such as electronic or tech goods and coming to more than Dh3,000 per transaction,” said V. Nandakumar, spokesperson for the Abu Dhabi based operator of supermarket and hypermarket outlets. “Those deals were done through two of our banking partners.

“Now, we have brought down the average transaction size — a customer making purchases of Dh1,000 and over can decide to make the payments in credit card instalments and at 0 per cent. Now, we have as many as 10 banks partnering us in the scheme.

“It’s a reflection of market circumstances — buyers need to be offered something extra to convince them. For a supermarket operator, it’s about creating those opportunities for shoppers to keep coming back. At the same time, it also helps us move our inventory.”

Bank charges

Banks too are not suffering in the bargain. Their contractual arrangements will ensure that the retailer makes up for the shortfall from the 0 per cent financing.

Currently, banks charge anywhere from 6-8 per cent monthly on the balance when transactions are made using credit cards. “Rates can vary all over the place because the declining versus average rate used by banks are kind of non-transparent,” said an industry source.

“Even with a retailer offering 0 per cent, banks do get their dues. The banks’ profit margin is comes embedded within the price itself.”

So, are these offers starting to win over shoppers? Market sources say there is still a lot of convincing that retailers need to do before that can happen. “It’s going to be a gradual learning curve,” said a retailer. “But everyone needs to pitch in to keep convincing UAE consumers that the situation in 2016 is quite different from 2009. More than anything else, these offers are a strong rejoinder to any negative talk.”


Factbox: The lure of a 0 per cent financing

• Shoppers do not have to incur significant credit card related interest charges because retailers are guaranteeing 0 per cent.

• For retailers, such offers allow them to keep clearing stocks and not having to do heavy discounting. Plus, on most imported goods, they are already deriving the benefits from the strong dollar and the dirham peg.