Tight credit or no credit? HHGregg wants your business

HHGregg Inc. always has cast itself as a purveyor of premium products. That’s great if you have the means to purchase big-ticket items. But a vast swath of the American consumer does not.

The Indianapolis-based appliance and electronics retailer is quietly making a fundamental shift to cast its net more widely—starting with stepped-up promotion of its private-label credit card.

That card, offered through GE Capital with an annual rate of 29.99 percent, can take it only so far—given that one-third of its applicants get rejected.

So HHGregg is racing to put together credit options for customers with spottier credit. And it also has rolled out rent-to-own, an option it now offers in more than half of its 228 stores.

It’s a dicey business to lend money to people with credit problems. But HHGregg is not the party taking the risk. All those offerings are through third-party vendors and are non-recourse to the company.

Even so, the aggressiveness of the push has surprised some analysts. On the company’s May 20 conference call, Janney Montgomery Scott analyst David Strasser said that, given what he thought was the chain’s higher-end customer base, he wouldn’t have expected to hear management discussing rent-to-own opportunities or the positive boost it got from IRS refund checks.

“Yeah,” HHGregg CEO Dennis May responded, “in today’s economy, I think it is a wider customer base. I think that is an impact of the overall economic environment we live in.”

The broader credit offerings also stem from the chain’s decision to de-emphasize weak-selling large-screen televisions and introduce a host of other big-ticket items for the home, including furniture and fitness equipment.

Buyers of such products—along with purchasers of appliances, now HHGregg’s biggest segment—“crave” financing options, May said. Private-label credit card purchases now represent 35 percent of sales, up from 29 percent two years ago.

HHGregg projects rent-to-own will become only a sliver of its business. But it has big ambitions for the credit programs that would target customers who failed to qualify for the private-label card.

“We believe that by enhancing our credit offerings, we will be able to generate greater brand loyalty, higher average sales per transaction, and increased premium service plans,” May said on the call.

But analysts say lining up credit providers willing to shoulder the risk won’t be easy.

“We first heard management was looking for partners last summer, so it has already been a long road to get to this point,” Jefferies analyst Daniel Binder said in a report. “Given the lack of a single source for this kind of credit, management will attempt to set up a network of credit providers.”

Binder added: “This is where the biggest opportunity could be if management can form the right relationships and get past system and regulatory hurdles.”

For now, most analysts aren’t factoring successful execution of those programs into their outlook for the company. But even without that boost, they see the future brightening after a long string of painful quarters in which consumer-electronics sales plunged.

Same-store sales of appliances now have risen seven consecutive quarters, in part because of the recovery of the housing market. And the new product lines, especially furniture, are beginning to pick up slack from the weak TV business.

The company also is getting a rub-off effect from the resurgence of its chief rival, Best Buy. Growing sentiment that Best Buy management has righted the ship has pushed that chain’s shares up 138 percent from their December low. HHGregg shares are up 145 percent from their October low.

Milestone for Interactive

It took 13 years, but Indianapolis-based software developer Interactive Intelligence Group Inc. shares finally surpassed the high they reached in 2000 at the height of the dot-com boom.

Interactive went public in 1999 at $13 a share. The stock rocketed past $31 in its first day of trading and reached $50.50 the following March. But then the bubble burst, and by 2002 the shares were fetching less than $2.

Interactive shares finally eclipsed their 2000 high on May 8, reaching $51.29. They have since settled back to $49, but still are up 46 percent for the year.

There is a lot more to support today’s stock price than when shares were last in this range. For starters, quarterly revenue now tops $73 million, 10 times where it was in 2000.•