November 27, 2014
Monthly payments return to lure customers
Credit card installments of up to 24 months have been brought back to boost consumption
Credit card installments of up to 24 months have been brought back to boost consumption.
It seemed as if buying in installments was becoming a thing of the past when the Central Bank hiked its interest rates and made credit pricier in February, but retail outlets have been able to bring them back with a bang, seeking to counteract a marked drop in economic activity. Public and private banks have reinvigorated the interest-free monthly payment methods, but have also boosted their traditional discount schemes, offering between and 20 percent off products on certain days of the week when using the bank’s credit card.
Installment payments, one of the cornerstones of consumption that has marked the last decade, had taken a blow in February as stores stopped offering 12-month interest free options to purchase goods, allowing only six-month payments.
Some, like Banco Nación, offer them every day, alternating discounts for vehicles, at restaurants, for tourist packages and groceries, among others, with installments of up to 24 months not uncommon.
Banco Hipotecário told the news agency Télam, that “March figures show a recovery in consumption compared to the first two months of the year,” which saw significant deceleration in transactions and accentuated inflation of 7.1 percent.
The bank offers 15 percent off and interest-free monthly payments at shopping malls on Tuesdays, also maintaining its special offers at Walmart, Mercado Libre and Aerolíneas Argentinas. It also offers accessible interest-free plans for construction materials.
“Regarding our credit card clients, compared to the same month last year, we have seen an increase of 23 percent in the amount of purchases and 56 percent in the value of these purchases,” the bank added.
During Easter Week, Banco Provincia offered discounts of up to 50 percent at cinemas and 35 percent at restaurants and fast food chains. Additionally the bank’s clients get 30 percent off at the hairdresser’s every Friday until the end of June.
On Thursdays, Galicia’s “Vamos Los Jueves” means savings for its credit card customers on more than 150 brands, at Falabella and 35 shopping centres throughout the country.
A source at Banco Galicia told Télam that credit card consumption increased by “39 percent compared to the first quarter of 2012.”
Faced with declining consumption and in a bid to lure customers back, retailers have thus taken on the burden of pricier credits. Many wages have not been adjusted according to inflation yet, another plausible explanation for increased credit spending.
The INDEC national statistics bureau’s latest report saw the quarter end with inflation of 9.7 percent, with the discouraging effect of a rampantly high Consumer Price Index on sales waning by March and seemingly persuading some consumers back out to shop.
The steep devaluation of the peso against the dollar by about 15 percent may have also ceased in its reverberations, as the waters have calmed in terms of expectancy of further depreciation in the short- to middle- term
Nonetheless, the absorption of currency by the Central Bank and its funneling into credit schemes — the cause of lesser inflation last month — means that consumption is very unlikely to return to last year’s levels. A large chunk of funds were tied up in suddenly profitable fixed-rate deposits, for instance.
World Cup fever
Abeceb consultant Horacio Lazarte estimated at the start of the month that house appliance sales will contract approximately six percent this year. In February, the government managed to have the sector roll back prices to 7.5 percent above pre-devaluation rates.
The imminent World Cup fever and the return of long-term interest-free payment plans, if upheld, will shield consumption rates, and particularly the demand for flat-screen televisions.
The most afflicted sectors have been motorcycles and new cars, both affected primarily by the hike to the luxury goods tax.
Motorcycle sales boomed in recent years, with many national companies cropping up, but the sector contracted 19 percent in the first quarter.
New car sales dropped 13 percent, while used cars managed to grow only 0.77 percent in the first three months of the year. Largely out of the reach of many of these discount or installment schemes, aside from the tax hike, the automobile also suffered the Central Bank’s interest rate rise.
In January, Central Bank Governor Juan Carlos Fábrega set out an unprecedented objective for the institution during President Cristina Fernández de Kirchner’s terms in office: lower inflation in 2014. Such an objective requires less money-printing, of course, but also scaling back the government’s heavy economic subsidies — an obstacle to fostering consumption.
With foreign reserves no longer plumetting and less subsidies toward public utilities, the fiscal sacrifice in offering long-term installments is seemingly feasible again.
Herald staff with Télam