An article in this week’s Sunday Times details an unusual price promotion in a German Furniture chain: Who’s Perfect, which could provide UK NAMs with a way of understanding some of the consequences of Negative Interest Rates.
Essentially, its Frankfurt store offers a white Halma corner sofa – the company’s bestseller – for €2,700, buying and paying now at full price, or have a 1% discount if paid after two years…
This is because the store gets charged negative interest rates on its bank deposits, so it is preferable to leave the cash with customers for two years at a cost of 0.5% per annum…!
Logical to a point, but the promotion ignores the risk-factor involved with credit extension.
For example, can you imagine if, after all these years of begging, or even paying for earlier payment, you were to offer your buyer a discount for taking even longer to pay, at increasing risk to you, in these Imperfect times…?
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