Technology Gap Closing For Rent-to-Own Chains, Aaron’s, RAC Say

As TV retail prices continue to fall, rent-to-own (RTO) chains are adding larger sizes of sets, cutting into the technology gap that once existed between rental and retail, Aaron Rents and Rent-a-Center (RAC) executives said on separate earnings calls. While RTO chains once typically lagged 18 months behind the introduction of new CE technology at retail, they're now getting quicker access to products driven by customer demand, the executives said.

As evidence of the faster pace, Mitsubishi developed a derivative C10 line of DLP-based 60-, 65-, and 73-inch rear projection TVs for Aaron Rents and Costco. And Aaron expects to add a 42-inch LED-based LCD TV by mid-summer, Chief Operating Officer Ken Butler said. RAC will begin testing rentals of LCD TVs with LED backlighting during the summer as precursor to making them available chainwide in the fall, President Mitchell Fadel said. The names of the brands the two chains will be carrying and the pricing details weren’t immediately available. But Aaron has packaged some TVs with furniture and bundled others with Blu-ray players, including a 42-inch set that has a $99 monthly fee on a 24-month contract. Aaron’s top-renting model has been a 47-inch LCD TV that typically carries a $1,000 dealer cost (CED March 25 p3). A RAC store in Danbury, Conn., was carrying standard 52- and 42-inch Toshiba 1080p LCD TVs with $216 and $155 monthly fees, a store staffer said.

"I'm not sure what the demand for LED-based LCD TVs will be because it’s a higher price point, but we're going to test it,” Fadel said. “As the costs come down, the sets get bigger for us. With price deflation we are able to offer bigger and bigger TVs."

Aaron’s also will test the LED-backlit LCD TV waters, but doesn’t expect it to be a big rental product until it can be bundled at $99 based on a $1,000 monthly dealer cost, Chief Financial Officer Gilbert Danielson told us. Aaron’s has rented 42-inch LCD TVs with a Blu-ray player and 32-inch sets with a bedroom set of furniture both at $99, he said. It also promoted Mitsubishi’s 60-inch DLP model at the same price and rear projection sets remain a “home run” for Aaron’s, Danielson said. LED-backlit LCD sets remain “too expensive” and don’t “fit our customers yet,” but it’s worth testing the market for them, Danielson said.

One downside to the LCD TVs has been a decline in Aaron’s average monthly rental fee, the company said. The downturn in average monthly fees stabilized at $136 in Q1, but is down from $152 a few years ago, Danielson said. While the average is across all product categories, the decline was particularly acute in TVs, the company said. At the end of Q1, Aaron had 840,000 customers on 1.2 million contracts in its 1,080 company-owned stores, Danielson said. There were another 453,000 customers on 625,000 contracts at Aaron’s 595 franchised locations, he said.

Aaron’s Q1 net income improved to $36.9 million from $35.1 million a year earlier as revenue rose to $495.2 million from $473.9 million on a 4.4 percent gain in same-store sales. Revenue included a $5.7 million gain on sales of company-owned locations to Aaron’s franchisees, the company said. Lease revenue and fees increased to $366.6 million from $344.5 million, while franchise royalties and fees jumped to $14.9 million from $13.1 million. Sales at franchise stores increased 14 percent to $220.2 million, the company said. Revenue at Aaron’s office furniture stores declined 27 percent as the chain closed three locations in Memphis and Raleigh, N.C

RAC’s Q1 net income improved to $51.4 million from $43.5 million despite revenue slipping to $718.4 million from $728.1 million as same-stores decreased 0.1 percent. First quarter sales didn’t include sales of RAC’s former prepaid telecommunications subsidiary DPI Teleconnect, which it divested in November. RAC store revenue decreased to $583.8 million from $597.6 million, while those from rentals and fees dropped to $89.3 million from $95.7 million. Franchise merchandise sales from RAC’s Colortyme stores rose to $8.4 million from $7.9 million as royalty income and fees inched up to $1.276 million from $1.271 million. RAC closed 36 underperforming financial services kiosks in Q1, to end the quarter with 400, company officials said. It plans to open a net of 50 financial services kiosks this year and continues to target having 900-1,000 of them, company officials said. RAC also will launch May 1 advertising promoting its 43 stores offering retail installment loans.