This Space for Rent

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Twenty years ago, people who rented furniture and appliances didn't find many deluxe items in the showroom. Most neighborhood rental stores peddled practical, low-end items - brown plaid sofas, Formica-top kitchen tables, 19-inch televisions. Of course, you can still rent the basics today, but check out what's featured in the advertising flyers: leather wraparound couches, big-screen TVs, and seven-piece cherry-wood bedroom sets. Need a computer? They've got that, too.

Indeed, the rental business delivers just about everything these days, from name-brand refrigerators to framed art for the living room. And it's delivering more every year: Since 1992, annual revenues in the rental-purchase industry - defined as stores that lease products to consumers who can own the item if they complete a certain amount of monthly or weekly payments - have jumped 26 percent, to $4.4 billion. An estimated 8,300 rental-purchase stores are in operation, says Arvind Bhatia, senior equity analyst at Southwest Securities in Dallas, and he believes there's room for more. "Roughly 30 million U.S. households are on a cash-and-carry basis," he says. "Conservatively maybe 20 percent, or 6 million households, are potential customers for the industry. The customer base today is about 2 million, so there's more than 100 percent growth potential." The industry is paying attention to the numbers. Thanks to an infusion of capital from Wall Street, several major players appear to be on permanent shopping sprees, acquiring mom-and-pop stores and opening new outlets as well. Erie, Pennsylvania-based RentWay, which ranks number two in market share after Rent-A-Center, plans to add as many as 60 stores to its current roster of 850 in the next year. Competitor Aaron's Rental Purchase in Atlanta says it's celebrating a grand opening every five days.

Who's renting all of these living room sets? According to a new study by the Association of Progressive Rental Organizations (APRO), 28.7 percent of customers report household incomes below $24,000, and 36.7 percent earn between $24,000 and $36,000. Many are young blue-collar workers, married, with children at home. "The concentration of stores is shaped like an inverted-T," says Richard May, APRO's director of public affairs. "The industry is very heavy in the Midwest and across the South, less so in the Northeast and Northwest." Texas and Florida are hot regions, adds Mark Benedict, national advertising manager for Aaron's Rental Purchase. Of the chain's 330 rental-purchase stores, 50 percent are based in those two states, he says.

Bad credit, or no credit at all, brings many people into the showrooms. Few end up owning the items they lease; 70 percent of products are returned within three to four months for various reasons, including repossession, which occurs about 4 percent of the time. Statutes in many states now regulate the industry, and require contractual and advertising disclosures to consumers.

Understanding the locals in each market involves a lot more than reading a phone book. RentWay appends data from outside vendors to its customer base and clusters stores that serve similar people. "Four years ago, we targeted by Zip code," says Michele Brooks, RentWay's director of advertising. "Then we went to carrier routes and we thought we were really scientific. Now we have the ability to find look-alike customers in any store and direct market to individuals." Every campaign is tracked to determine who's responding to offers - and who's throwing them in the trash. Data such as age, gender, income, and address is culled from customer lease contracts and used with mapping software from Tactician and MapInfo to help the company scout for new locations. "If we're evaluating a potential site in rural Texas, we can look at our profile of rural customers and see the density of prospects near the site," says Jay Huckabay, director of database marketing at RentWay's ad agency, Bernstein-Rein in Kansas City, Missouri. To maximize advertising efficiencies, Brooks says, the company plans to open new outlets in areas where it already has a presence.

RentWay's targeted mailings seem to be reaching the right folks. Last fall, the company sent an offer to several hundred thousand prospects in the Northeast to gauge interest in a new program called Lifetime Reinstatement. The policy allows customers to return items anytime, and then re-rent them without losing their investment. Response exceeded 5 percent - and convinced execs to roll out the program nationwide last spring. The company isn't just focusing on direct marketing, however. Advertising expenditures, primarily on spot TV, totaled $5.8 million in 1998, more than three times the amount spent in 1997, according to Competitive Media Reporting in New York.

Not every campaign plays out as planned. Benedict at Aaron's Rental Purchase recalls what happened last fall when the company tested a 30-minute infomercial in Houston and San Antonio. Call centers handled incoming requests generated from the commercial, and passed on leads to stores closest to the consumer. "The phones were ringing off the hook, but they weren't converting into sales," Benedict says. Turns out, the local stores were ignoring the leads. "We spent $250,000 on the infomercial and then basically canned it," he says.

The experience hasn't derailed the company's marketing push. Through direct mail marketer ADVO, it delivers flyers to 8.5 million households each month. Mailings are targeted according to ADVO's market profiles, but Benedict admits that it's difficult to measure effectiveness. "The flyers are meant to create brand awareness, not to blow the store doors down," he says. The company also buys regional spot TV in about 25 markets, mainly during daytime shows such as "Judge Judy." In all, it spends roughly $5.9 million a year on advertising and marketing.

Besides the rent-to-purchase chains, there's also a growing niche of businesses that focus on upper-crust customers who need furnishings for a short time and have no plans to purchase them. Exact figures are difficult to come by, but experts value the "rent-to-rent" market at about $700 million to $1 billion. Corporate clients are a big chunk of the business, as more and more companies relocate employees and help them resettle. In a recent survey of corporations by the Employee Relocation Council in Washington, 46 percent said they expected the number of transfers at their organization to increase this year.

Outsourcing has also boosted demand, says Jim Page, president of the International Furniture Rental Association. More companies are opting to house consultants who are working on short-term projects in furnished apartments rather than at hotels. "Our customers want the complete set, from the overstuffed leather sofa to the coffee pot," says Christa Landgraf, vice president of sales at Brook Furniture Rental, a rent-to-rent company in Chicago. At Brook, furnishings for a one-bedroom apartment cost from $250 to $400 a month.

Their annual household incomes may widely differ, but rent-to-rent and rental-purchase customers have one thing in common: They both want the best, no matter what the cost. Big-screen televisions lease for a steep $100 a month at Aaron's, and the company can't keep enough in stock. The high-end item accounts for 28 percent of the chain's business. "People always want to upgrade," says Bhatia at Southwest Securities. "If someone can afford a 20-inch TV, they want the 54-inch."

The rental industry hopes he's right.

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