‘Our model is unique’
Conn’s CEO says retailer will keep serving those without access to credit and financing through regular channels
The Woodlands-based Conn’s expanded into seven additional states over the past year while also tightening credit standards, discontinuing items that contributed to a stubbornly high delinquency rate and selling off a $1.4 billion consumer loan portfolio that company officials said was dragging down profits.
In 2016, the company expects to keep growing, fueled by the cash freed up by the consumer debt sale.
Norman Miller, who was named Conn’s CEO in September, says he will continue the company’s tradition of serving populations that wouldn’t have access to credit and financing through regular channels. Miller formerly was president of Sears Automotive and worked with the “unbanked and underbanked” — a group that makes up 80 percent of Conn’s customer base — while with DFC Global Corp.
Miller spoke with the Chronicle at corporate headquarters last week. Edited
excerpts follow:
Q: What is an “underbanked” customer?
A: There’s about 25 million people that fall into that category that we consider some of our prime customers. ... They exist in every city across the United States and that customer demographic is continuing to grow, which makes it very attractive for Conn’s, obviously. And that customer: They’re not at poverty level by any stretch but they typically have a household, two people working in that household, and they live basically paycheck to paycheck, but people don’t participate in the banking system because they don’t have disposable income at the end of the day. Even if you have a banking account ... there’s not nearly the level of value in the banking system.
Q: Seems like a risky group.
A: The risk is absolutely higher, but it’s part of the reason our model is unique
and effective. Unlike other companies, we’re not just a retail company ... our credit and our financing business are in house. We don’t outsource. We do all the underwriting, we do all the collections and we do that pretty effectively. ... It’s a different mentality from a collections standpoint. It’s not a demanding, “We need our $500,” but we’re trying to work with the customer to say, “What do we need to do to help you get current so you can pay your loan off and do business with us in the future?”
Q: Is it a competitive field for unbanked or underbanked customers?
A: You’d think so because there’s so many of them. There’s really no one nationally or regionally who does what we do.
Q: In your last quarterly report, your 60-day delinquency rate was 9.2 percent. Is that a healthy figure?
A: Well, we’d always like to get it lower, but long term, we’re looking for our static loss rate to be in the high single digits. When it’s in the high single digits, it’s very effective for us, it tells us we’re underwriting at the right levels and very profitable for us at the end of the day, as well.
(The company reported a 10.2 percent delinquency rate as of the end of October.)
Q: This summer, Conn’s stopped selling gaming software, cameras, tablets. Electronics typically do well during the holidays. Was that too soon?
A: The losses we were experiencing with those products were such that it just didn’t make sense at the end of the day for us to carry them. Simultaneously, we were significantly enhancing our furniture mix as well. (It’s now about 50 to 55 percent of each store.) Within Texas, many know us as an electronics and appliance business. But if you go into our newer markets in the Carolinas and Colorado and Las Vegas, they see us as a furniture retailer first. We’ve been aggressively moving into that market because the margins are very good on the products.
Q: I’m sure you’re aware from the customer service standpoint over the years, there’s been criticism. Are there changes coming to how that’s done?
A: We do mystery shops in all of our stores every month. We do video mystery shops where they go in wearing cameras we score and rate it, and we’re very, very focused on it. ... We get the highest ratings from the Better Business Bureau, which not only measures the number of complaints you have but how do you handle them when you do have complaints. I think we put a great deal of resources and energy and effort into customer service. Unfortunately, when you have the hundreds of thousands of customers that we have, sometimes we do fall short or we disappoint someone. And when we have had those instances in the past, I’m not sure we’ve been as reactive and proactive in some of those as possibly we could have or should have.