With the end of the year fast approaching, we take a moment – with the help of Wells Fargo’s Steve Jermier – to look back at how the retail industry (and economy) ultimately performed in 2024, and look ahead to next year. Steve also gives an overview on the resources available to set retailers up for success in the new year, including waterfall programs.

Rob Stott: All right, we are back on the Independent Thinking podcast and I always love podcasting fresh off of travel. Isn’t that fun? When you get home, get off a plane, and I just want to continue to talk to people. So, Mr. Steve Jermier, SVP, a relationship manager for Wells Fargo Retail Services. Appreciate you. It’s not just me either. We were there together, so I appreciate you-

Steve Jermier: We were there together.

Rob Stott: … deciding to do this right off of a trip. So we appreciate it.

Steve Jermier: Good to be here, Rob. Yeah, I saw you guys multiple times. I laugh, when you get home from a long week on the road, your family wants you to be on and ready to go and the rest of your body says, “I need to just rest and recover.” But hey, early morning podcast the next morning gave me all the motivation to wake up and get a cup of coffee, so we’re good.

Rob Stott: Let’s do it. No, that’s awesome. Well, I want to start there actually. I don’t know that we knew we were going to be there together at the Furniture Today Leadership Conference, but it was an awesome experience. My first time to go. First time for you? Have you been there before?

Steve Jermier: No. No, no, no. I’ve gone for quite a few years now. I don’t even know if I can count them all, but at least seven, eight, nine, 10, something like that.

Rob Stott: That’s awesome. Well, we’ll talk about that because for me being there, great educational event, a lot of great content that came out of it. For you, being there as an extended attendee, the importance of it, why continue to go back to an event like that?

Steve Jermier: Yeah, and I agree with you on the education and the engagement in the sessions, but if you really pin me down and said, “What’s the real value in it?” There’s no question in my mind, it’s an opportunity for us to get together with our retail partners and have some really, really good meaningful dialogue. And the part that I like the best is when you get multiple retailers together, and it doesn’t matter if it’s at breakfast with coffee or at the hotel bar in the evening or at a breakout session, watching the interaction between them, and I always laugh and I say, “Look, I’m not a furniture store owner, I’m not an appliance store owner, I’m just a finance guy.” But we’re able to, I think, provide some insights into those conversations.

And after doing this as many years as I have, it’s nice to have a seat at the table with those folks and I think we’re able to drive a lot of value, but that brings a ton of value to me. Hopefully it brings some to them as well. But beyond that, it’s also interesting to hear the trends in what’s going on within the market, listening to some of the manufacturers and what’s going on in their worlds as well, and whether or not what we see happening in the market is similar to what they’re seeing happening in the market. It’s just that interaction is really valuable.

Rob Stott: Anything you pulled out, like, big themes that came out of this one for you that you could talk about that you saw this week?

Steve Jermier: Cautious optimism is what I would say. I think if we would’ve had this conference in September or October, I don’t think that would’ve been the sentiment. There was a-

Rob Stott: What changed? What happened?

Steve Jermier: There was a universal sense of cautious optimism based on how November played out.

Rob Stott: I got you. For sure, for sure. Well before we look about the cautious optimism moving forward, I know we’re sitting right now at the end of the year. This may actually end up being one of our final podcasts for the year, so we’re letting you have the mic drop moment on the Independent Thinking podcast here. Looking back at ’24, election year, so there was a lot of craziness that went on and the economy did what it did, but from your seat, expectations, how did they play out in ’24? Is it what we expected this year to be like, or what are you guys seeing at Wells?

Steve Jermier: Yeah, I think so. I mean, you said it and regardless of anyone’s political affiliation, it doesn’t matter. Election years are tough. There’s a period of, just call it general uncertainty that leads up to the November date, and then depending on how things go one way or the other, it’s going to react good or it’s going to react poorly after the election’s done. So I would say across the board, in the traditional retail spaces, that it’s kind of our core bread and butter over the years. We’re a little soft year over year but frankly, that was probably a realistic expectation to start the year. And again, I would say, I would reiterate not just in the retail space in general, but our business, I would say cautious optimism moving into ’25.

Rob Stott: Gotcha. I know, tough to make predictions and everything, but looking ahead, what are you keeping an eye on or are there any key indicators that you’re focused on as you look to what ’25 could hold for this category?

Steve Jermier: Yeah, funding costs were a real interesting topic. I mean, kind of the flip side, if you would’ve asked me two, three, four months ago, “What’s the forecast? What’s the expectation for 2025?” We were forecasting, not significant, but I would say moderate rate cuts throughout, and I think you and I have talked about this before, the way we index for our pricing, for our merchant discount pricing, we do something that’s, I call it matched maturity where we try to match a funding index to the promotions that are being processed. And something a lot of people don’t know is even on long-term, 0% equal payment promotions, so something like a 36-month or a 48-month 0% promotion against probably the advice of whoever’s personal financial advisor, people pay those off a lot faster than you think they should or would.

Matter of fact, I think on average it’s a little less than half of the full duration of the promotion. So if you’ve got a 36-month equal payment, 0% promotion, those customers on average are paying it off in less than 18 months. Like I said, a financial advisor would knock you upside head and go, “What the heck are you thinking? This is free money, use it.” And look, I think it’s true even in my household. My wife and I talked about it. I think people get payment fatigue over time. They want to be done with it.

Rob Stott: The don’t like the terms.

Steve Jermier: Yeah, but they want to be done. Bonus comes in or tax return comes in and they pay it off. If you think about it this way, the longer term stuff, we match to US Treasury yield curve rates on the 12 month and the shorter term stuff, the six and 12 month deferred interest promotions, the 12 is really popular on the Nationwide program, those get matched to the six-month US Treasury yield curve rate. And three, four months ago we saw a forecast that looked like pretty significant softening on both of those going into ’25. I think that’s been tempered a bit obviously since the election and what we’ve seen in the economy just in the month of November.

So that makes me think things are going to be a bit more stable throughout ’25. When you look at those indicators, they tend to tell you something maybe about the broader economy, generally speaking. So we see that from a funding cost perspective. We’ve been paying a lot of attention to that and all of the other indicators that we’ve talked about before, FICO scores are FICO scores, right? But there’s a lot of underlying factors on consumer credit that we have to watch. And things like the amount of revolving debt that a customer carries. Those are at historic highs. They’re higher than 2008. We look pretty hard at debt to income ratios. So if you add up all the different payments that come back on the bureau that we pull and you take that against the income each month that the customer tells us they make, there’s a percentage in there, and we’ve got a requirement from a federal perspective to make sure that they can cover that debt.

But then there’s also our risk tolerance within that, and we’ve seen that percentage continue to creep up a bit. So I don’t think inflation is helping anything there. Now I sound negative. I’m going to sound positive again. I do think there’s some really good signs of, I’ll say it again, cautious optimism going into ’25.

Rob Stott: Right, that’s exactly what I was going to say. If you didn’t say the words I was going add them to it and say, it all goes back to that cautious optimism that came out of the event. So it all makes sense. I mean, the indicators are there and we appreciate it and the oversight and all that that you’re providing. So there’s a lot of things that retailers can do though as they look ahead. And you kind of alluded to it a little bit in terms of the things that you’re looking at. As spending is where it is and everything like that. What resources are available to a retailer to help them capture more of those sales or drive more business to their stores in light of, again, remaining cautiously optimistic, but to ensure that they’re going to have a successful ’25? What can they do?

Steve Jermier: Yeah, so I would tell you a couple of things. One, the redesign that we just did of our online resource center, which is our base portal that the merchants leverage, we deployed that late this year. As a retailer, it gives you way more paths to provide a consumer credit application to that customer that’s walking into your store. And as technology has evolved, the old school idea of filling out a paper credit application, handing all your personal information on paper to a merchant to have them key into a system, tear off some pages, give it back to you, mail it to us, we started that evolution back in 2018, 2019. But if you fast-forward to where we are today, it’s like warp speed Star Trek style.

We can email the application link to the consumer. There’s a barcode on the ORC that they can just hover their phone over and launch it on their own device. You can put a QR code in your store on certain items. If you love when people want to finance a stove or a couch or a sectional or a mattress or whatever, there’s point of sale material available with that barcode so they can launch the credit application there. We’ve launched pre-qualification in a number of markets within the Nationwide group and specifically the Corberan builder group. But to me that’s another vein that I think we’re just starting to get good at and pre-qualification is, it’s starting to feel more like a table stake in consumer credit where you want someone to know and have confidence that they’re pre-qualified for financing without having any impact to their credit, so that when they go around the store shopping, they’re shopping with confidence and they may be able to make an aspirational purchase on a nicer product that’s going to last longer, perform better. And that’s a situation where everybody wins.

Those tools are awesome, but they don’t work unless you know how to use them properly and leverage them within your conversations. And I would tell you if you haven’t engaged our team, so first and foremost, you have a dedicated to your program that’s as good as you’ll find anywhere in the industry in Christie Aloise. And she’s been in this business a long time and has heard every question and fielded every kind of objection you can think of. And then our core relationship team with Scott and Kerry and Jack and Alan Peters, our marketing team with Amy Blessington. I think we really truly have best in class there. So engaging them to help you and trust me, they’re willing to come out and meet you in person. They’ll meet you on Zoom or teams or whatever platform you prefer for a video conference. We can meet you however you want to be met.

Rob Stott: No, that’s awesome. And what I love too about the New Wave shot, it kind of came up, I think, during the just recency buyers. I keep thinking back to some of the conversations that happened there, but younger consumers, you think about how they go around a store and having a… I don’t know that I shop without my phone in my hand. I’m thinking about it, right? It’s hard not to. But having those materials around where I’m curious, I want to scan something and see, “Oh, well what will it tell me?,” without the impact, and just the simplicity of doing something like that and then having that information almost immediately on hand without, to your point, of wanting to keep that either private or just simple and do that without having to engage with the sales associate or wait for the mail. It’s all right there. It’s instantaneous. So it fits today’s customer experience expectations.

Steve Jermier: It does, and this is where I’m going to say, like, I am going to crawl inside the brain of a retailer. I’m not a furniture store owner. I’m not an appliance store owner. I did not stay at a Holiday Inn Express last night. But here’s what I will tell you. If all you have to differentiate is the same product that sits two blocks up the street and you’re doing, Rob, exactly what you just said and you’re pulling it up on your phone, it becomes a commodity war. You’re just price shopping.

But if you give them the opportunity to get pre-qualified or just simply apply and get approved right there on their own device with no intervention at all from a store associate, you now have a locked in customer that knows they have buying power right there. And that’s one less reason for them to leave on a day like this in central Iowa, go back out in the cold, get in their car to keep shopping because we don’t have a lot of time anymore in this society. If you can provide something else to take them off the shelf, that’s why we’re here and we want to help you do that.

Rob Stott: Yeah. And I know too, the types of tools and ways to get qualified are also evolving today, and we see things like the waterfall programs that are out there. Before we dive into it and talk about the benefits there, explain for those that may not be familiar. I think back to TLC and the idea of Don’t Go Chasing waterfalls, but it’s a little bit different today. We actually want you to go after these programs and follow this process. So set up what a waterfall program is for the retailer that might not be familiar.

Steve Jermier: Yeah, I will, and I’ll start by saying this, regardless of what vertical you operate in for Nationwide, you have customers. As much as I want to approve 100% of the customers that apply for credit, that is never going to happen. At least I’ve never seen it happen. Maybe if we have a glitch in our system, that would be a happy day for all the retailers, but I don’t think it’s realistic. So if you have situations where customers get declined by the primary provider, which in this case is us, in theory, if you have a secondary lender like a Concora or a Fortiva or insert secondary lender here, and then if you have an LTO or a tertiary provider behind them and you don’t have a waterfall process in place, then they’re going to apply with me first. They’re going to get a decline.

And then you’re going to have to have kind of an awkward conversation with them and say, “You were declined. Would you like to apply with lender B?” And if they have to do that again, they have to give you all that same information again because remember, I’m not giving you paper anymore. Everything’s done electronically with me, and you don’t have access to anything they just gave you. It’s all encrypted, and once it’s done, it’s done. You can’t go back and see their social, the date of birth. It doesn’t work like that. So now you have to ask them all those questions again, and then I would assume the secondary lenders got the same process. So if they get declined there, then you have to have a second conversation that’s really uncomfortable and say, “Hey, no, I’m really sorry you got declined again. But now I’ve got Progressive or AFF or insert lender name here. Would you like to apply again?”

In 2024, in a world where we hire people to create frictionless environments, that’s like a gravel road with speed bumps on it and potholes and a ditch on both sides. So basically central Iowa, when you get outside of Des Moines.

Rob Stott: Hey, Lincoln and Kelly Drive for those familiar with Philadelphia. We got them everywhere. I get it.

Steve Jermier: Yeah. So what a waterfall does and what we’ve done here at Wells, we’ve partnered with Versatile, and they are a longtime partner of ours. They’re great partners, frankly. They innovate, they push us to be better, which I like getting pushed in the area of technology to make us. We want to be best in class here, but what a waterfall, what a seamless waterfall or credit cascade, you can call it whatever you want, does is you enter that information upfront with the waterfall provider. In this case, you’re talking about Versatile. So you’re going to enter all that information with them, and then you’re going to check a box that says, “If Wells Fargo tells me no, I’m okay with this information that I just passed, going to secondary lender, Fortiva,” whoever. “And if they say, no, I’m okay with that information going to the tertiary or the LTO provider.”

You don’t have to have a secondary in between. You can go directly from us to an LTO. I mean, as a retailer, you can pick the flow that you want and that’s okay, but the most important part is it’s seamless. The customer enters their information once, they check a box and then it pushes through. That’s the idea with a waterfall process that we’ve created less friction for the consumer.

Rob Stott: Right. And that’s less friction at a point, where if they’re ready to make that purchase and that’s where something’s happening, it’s probably the most sensitive or touchy where things can go wrong. Right?

Steve Jermier: Yeah, it’s a critical point in the process. And you’ll hear salespeople that are nervous about offering financing that’ll say, “I don’t want to lose the sale.” Well, that implies that you’re offering it way at the end of the process, which I would say, “You need to call our trainer, call our relationship management team, and we’ll teach you when to actually introduce financing.” But if that’s the concern, that’s where credit cascade or a waterfall becomes an even more valuable tool.

Rob Stott: This is asking off the cuff, so I don’t know if you have numbers in front of you, but things that you know of as far as retailers that are using waterfall, do they see any benefit to their bottom line or business in general?

Steve Jermier: Yeah, so you get a couple of things. Your credit adoption rate goes up overnight when you do this, and if you follow anything about how financing works, without question, you get a higher average ticket when you offer consumer financing. If you think about who our customers are, I don’t want to oversimplify this, but we have customers that need our product to complete the purchase. They say, “Look, I don’t have $6,000 or $5,000 or $4,000 in the bank. I don’t want to tie up my general purpose credit card.” So we help them make that purchase over time. But the other advantage is if we offer competitive limits, it gives that customer, that same customer, an opportunity to make an aspirational purchase and say, “You know, I know we’re shopping over here, but now that I know Wells has approved me for $10,000, I think we want to look at this unit over here because it’s going to last longer. It’s going to work more efficiently,” all of those things. So that’s customer one.

Customer two is the customer that absolutely can make that purchase by other means, but they want to use our money. I know I just told you they pay it off faster than they should. There’s a subset of customers that say, “Look, it’s great financing terms. I’m going to take advantage of it.” And even that customer, I think when we offer competitive, and I think we really do offer competitive approval rates, that customer now says, “You know what? I know I was looking over here, but maybe I want to look over here.” So that increase in average ticket is depending on the area that we’re in, depending on the industry that we are in, I mean, it’s consistently 20% greater than your other tender types, but in a lot of pockets it’s significantly more than that.

Rob Stott: Yeah, no, that’s awesome. Now, for the retailers using it, is this something that with a waterfall program, they can message that to their customers as a benefit? Or is it more just knowing on the back end that you have it? Have you seen any sort of success stories or anything like that?

Steve Jermier: Yeah, I think it’s really the peace of mind on the back end versus proactively saying, “We’ve partnered with three lenders to make sure you’re going to get approved for credit.” I mean, you can certainly message it that way, but it’s really more about that peace of mind to know that I’ve removed all of those roadblocks and speed bumps and gravel and all that other stuff, the process. And look, the portal that we developed specifically for Nationwide is a competitive advantage that your members are going to get that other retailers that just call us off the street would not get. So to be clear, we’ve built a self-sustaining portal for Nationwide members that want to leverage the versatile waterfall. It is subsidized by us. It does not cost you anything. And again, if you weren’t a Nationwide member and you called us off the street, A, you’re not getting the portal, and B, you’re paying for that service through Versatile, we’re not subsidizing that for you.

So that advantage by itself, I think at least warrants a peek from the retailer to take a look at it. The other piece that… I don’t work for Versatile, so I got to be a little careful what I promise here, but they have the ability to aggregate data within the Nationwide members that are leveraging that portal so that you can benchmark yourself with reporting that’s available in there and see, “How am I doing compared to my peers?,” from just about every operational performance metric that you can think of.

Rob Stott: No, that’s awesome. Any other benefits that might not be top of mind to a retailer about having one of these programs that you’d want to call out?

Steve Jermier: So in addition to the friction, I would tell you it is a lot simpler to manage logins. I mean, think about it. I mean, it’s true.

Rob Stott: Fair point.

Steve Jermier: Look, I don’t know what the secondary and LTOs have for requirements for passwords and things like that, but if it’s like everything else in my life, they’re not the same.

Rob Stott: They shouldn’t be.

Steve Jermier: If you don’t have a waterfall right here, you’re having to remember like, “Oh, I got to log off here, log in here, log off here, log in here,” all that. So yeah, I think beyond just the friction for the consumer, I think there’s a significant advantage for the retailer where you’re going to one place to get all of this done. It’s just faster and easier. And again, it’s not costing you anything. We’ve agreed to subsidize this because we know there’s value in it for Nationwide members.

Rob Stott: No, that’s awesome. It’s an important topic, one that I know we’ve built momentum around in recent months, and I could say recent shows as well. So I appreciate you jumping on to talk about it and providing that little bit of insight as well, looking ahead into the year ’cause I think this is one of those things that if a retailer is not taking advantage of it, there’s a big opportunity. Right now we’re sitting here end of year to look at it as we get into ’25 and the potential impact that it can have on their business. Significant, as you’re saying. The data points you’re pointing to are there, and it’s just one of those things that just seems to make sense. There’s not many of those that just… It clicks, right? It makes sense in your head. This feels like one of them that it’s like a no-brainer for a retailer to take advantage of. So appreciate you diving into it with us.

Steve Jermier: You bet. You bet. And if anybody has questions, they know how to get ahold of our team. But we’ll be in San Antonio in the spring too, so if you want to chat with us in person there, we’ll be there and we can talk through it as well.

Rob Stott: I was going to say, looking forward to it. It should be a good show.

Steve Jermier: A little warmer than Des Moines today.

Rob Stott: Yeah. It’s all right. I know. We fall down and we got to get… We’re re-freezing over here, but looking forward to it. Now, Steve, this was great, so we appreciate it and look forward to catching up down the line.

Steve Jermier: Sounds good. Thanks, Rob.