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Rent-to-Own Services

Rent-to-Own Services. Short-Term Options. Overview. Dealers within this industry include those who rent furniture, electronics, major appliances, computers, wheels and tires, musical instruments, jewelry, and many other items that come with the option to purchase.

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Rent-to-Own Services

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  1. Rent-to-Own Services Short-Term Options

  2. Overview • Dealers within this industry include those who rent furniture, electronics, major appliances, computers, wheels and tires, musical instruments, jewelry, and many other items that come with the option to purchase. • Another benefit to the rent-to-own transaction is that replacement is free, as is repair and delivery. • The industry is comprised of about 8,600 stores nationwide and generates roughly $7 billion every year. • Just over 4 million households are serviced by this industry. • Items that are returned once the option to purchase has been declined are refurbished and then re-rented to other customers at a lower rate.

  3. About the Competition • The RTO industry competition is led by Aaron’s and Rent-A-Center, with the balance of revenue earned by independent companies. • Operating costs are more expensive in this industry than traditional retail because merchandise is ultimately returned, and often needs repair or replacement. A rotating customer base also drives up costs.

  4. Marketing Features • Some of the bigger names in the industry are trying to turn the tide on the long-time perception of being predatory lenders by pledging to hire veterans returning from duty. • The most common reasons for getting into a rent-to-own contract, and the reasons to be focused on in marketing campaigns are as follows: • Immediate delivery • No credit check or down payment at some stores • Ability to purchase high dollar items • Small weekly or monthly payments • Can often return an item without hurting credit

  5. Marketing Features • The most common items purchased on a rent-to-own basis include: • Home electronic products: 38% • Furniture: 36% • Appliances: 25% • TVs, sofas, VCRs, washers and stereos: > 50%

  6. Customer Demographics • One-time need. Many customers of the RTO industry have a one-time need, like those customers who want a big-screen television just to watch the big game. • When it’s broken. When a large appliance breaks down, such as a refrigerator or washer and dryer, the option to rent for a short period of time until a new one can be purchased provides many customers with a more financially-friendly option. • Seasonally-based. It’s not uncommon for relocation companies, moving companies or other organizations with employees who are temporarily living in a new location, to use RTO products for short-term needs.

  7. Customer Demographics • A seasoned traveler. Many travelers have part-time accommodations in vacation destinations around the country. RTO allows them to update their furnishings for short-terms without a big financial commitment. • Approximately 2.3 of U.S. households use rent-to-own services with the following profile: • Ethnic minority: 41% • Ages 18-44: 79% • High school education or less: 73% • Incomes less than $25,000: 59% • Children in the household: 67% • Rent their residence: 62% • Live in non-suburban areas: 68%

  8. Industry Trends • The newest televisions hit stores in late 2012. Known as the Ultra TV because it offers a resolution of 3,840 by 2,160 pixels, it will be offered to RTO consumers in spring 2013. • Nearly 7 in 10 consumers, or 68% say they use or plan to use their smartphones to complete their holiday shopping, giving retailers an opportunity to provide access to rent-to-own products via mobile-friendly applications and web pages. • Consumers expect to find the same quality and current offerings that would be available if purchasing outright, including the latest electronics and appliances, as well as current season’s furniture options.

  9. Growth Areas • According to a recent report published in Forbes, there are five trends that are pushing traditional retail stores toward extinction, which potentially endangers RTO storefronts. These trends, which potentially offer areas of growth include: • Voluntary conversion: Taking the storefront from traditional brick-and-mortar to an online format before being forced to do so. • Cost structure re-evaluation: By eliminating overhead should provide wiggle room for stores to offer lower final purchase prices or terms on all items, possibly incenting more consumers to rent. • Delivery and returns: Offering free delivery and free returns is not something RTO stores have traditionally offered, but it is something to be considered if long-term competitive advantage is to be obtained.

  10. Growth Areas • According to a recent report published in Forbes, there are five trends that are pushing traditional retail stores toward extinction, which potentially endangers RTO storefronts. These trends, which potentially offer areas of growth include: • Set it and forget it: This is the ability of a store to foresee a customer’s need by having a product or service delivered on a predetermined basis, such as subscriptions. • Custom fits: In this trend, a retailer would be able to provide products that specifically fit customer’s profiles and needs, like appliances of different colors to fit personalities, and washing machines specifically designed for parents.

  11. The Future • Rent-to-own electronics retailers have been performing very well over the last year, although it’s thought to be attributable only to beating expectations as opposed to any long-term sustained growth. • It is possible that competition will increase for existing players as non-traditional retailers begin adopting this business model, such as Wal-Mart’s layaway policy.

  12. Advertising Strategies • RTO retailers will do well to focus on the credit-availability in marketing campaigns, specifically on the individual store’s credit policy for no-credit checks or credit impact with returns. • With the industry moving toward online sales with the rest of retail, it’s necessary to have a strategically created site that is user friendly and optimized to be easily located. • If a store has discounts on items like those that are used or last year’s model, this is also a tactic that will garner additional attention from those customers seeking a deal.

  13. Advertising Strategies • Tight credit markets and job worries are influencing more consumers to rent, rather than purchase, expensive household items. Dealers can tap into this growing market of customers with TV ads that focus on affordable solutions, flexible payment plans, and value-added services that come with the rent-to-own (RTO) option. • RTOS also offer unique short-term solutions and additional benefits, such as renting rather than buying the latest computer, musical instrument, or big-screen TV for the Super Bowl. By featuring these benefits in TV ads, dealers can spark audience interest and trigger increased store traffic. • RTOs also help consumers establish a credit history, a marketing message that resonates with audiences in almost every market. Use TV commercials to share customer testimonials or as a way to educate viewers about how lenders are using RTO payment reports to evaluate a consumer's credit worthiness.

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