Aaron’s setting new course a year after takeover bid

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Aaron’s setting new course a year after takeover bid

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LEON STAFFORD / lstafford@ajc.com
Aaron's founder Charlie Loudermilk, 87, recently surprised Aaron's employees at the company's annual National Managers Meeting in New Orleans.

NEW ORLEANS — Paint brushes and rollers in hand, hundreds of Aaron’s employees fanned out across Behrman Stadium here to put a new face on a neighborhood landmark that has seen better days.

Though the football field was recently replaced with a synthetic turf, the ravages of time and Hurricane Katrina had left the concession stands, bleachers, railings and a nearby tennis court in disrepair.

Clad in “Aaron’s gives” T-shirts, the employees of the rent-to-own giant chose the renovation of Behrman as their project for the National Managers Meeting, held last week in the Crescent City.

Their efforts could be a metaphor for the company’s own rebuilding. This time last year, Aaron’s held the same managers gathering in Orlando, but the mood was anything but hopeful.

Franchisees were upset that foot traffic and revenue was falling. CEO Ron Allen was under fire for what franchisees saw as an attempt to broaden beyond the company’s customer base to include more middle-income consumers. Amid those troubles, one of Aaron’s largest former franchisee was pursuing a $2.3 billion hostile takeover.

A year later, Allen, a one-time Delta Air Lines CEO, is retired and has been replaced by John Robinson, the former head of Aaron’s acquisition Progressive Finance.

Revenue is recovering, debt is dropping, though foot traffic remains a problem. And Brian Kahn, who led the takeover attempt, ultimately dropped the action and is now a member of the board of directors.

Before an audience of 1,900 employees at the managers meeting, Robinson tried seizing on the momentum.

“I’m a competitor and I like to win,” Robinson said in a flashy pep rally of sorts at the New Orleans Convention Center a day before the Behrman Stadium work project. With thunderous music, cow bells and dizzying lights meant to pump up the team, he said, “You guys are competitors and you like to win … It’s in our culture to win. It’s in our DNA to win.”

Still challenges

The challenges ahead may be daunting. Aaron’s, like all retailers, faces a consumer who is not wedded to coming into stores to pick out furniture or TVs the way they have for most of the company’s 60 years. Millennials make buying decisions online at 2 a.m. with a smartphone. That has pressed the company, which didn’t have a strong e-commerce game until last year, into action.

Products change more quickly as well. For instance, Robinson said Aaron’s will soon start renting cell phones and probably scale back on tablets, which show signs of waning popularity, just four years after their introduction.

“Technology is accelerating the pace of change like we’ve never seen,” he said. “Concepts that were relevant five years ago are becoming obsolete faster than ever.”

The model in the retail industry of opening new stores to stimulate revenue also is ending, he said. What stores the company opens will be offset by closing others, Robinson said. The emphasis will be on growing sales per square foot in existing locations, a strategy also popular now with companies such as Atlanta-based Home Depot.

If successful, the moves will please one shareholder in particular: Aaron’s founder Charlie Loudermilk.

Loudermilk made a surprise appearance during the rally, eliciting thunderous applause. Helped on stage by aides, a frail Loudermilk, 87, implored staffers to work with Robinson and return the company to its former financial glory.

While never publicly stated, Loudermilk reportedly was disappointed with the company’s performance under Allen’s leadership. Allen had been on Aaron’s board before taking on the top job in 2012.

“For the last three years, I have looked at the company as a large shareholder and I’ve seen it decrease in revenue, top line and bottom line,” he said. “Our customer base is still there, … but we were not approaching them in the right way.”

The addition of Progressive, which happened on Allen’s watch, may prove pivotal. While Aaron’s struggles to find the right mix for Internet and foot traffic, Progressive is adding a new stream of income. The company had revenue of $220.8 million in the fourth quarter of 2014 and since its acquisition last April has generated $549.5 million in revenue.

Suntrust analyst David Magee, in research notes after Aaron’s third quarter earnings last year, cited Progressive’s potential to bring Aaron’s more stability.

“While the core business was weak (revenue declined 4 percent), management showed that it could offset core weakness with Progressive strength, resulting in an overall in-line performance,” he said.

Online know-how

Aaron’s is using Progressive’s e-commerce know-how to strengthen its online presence to make it easier for customers to purchase via the Internet and link to a store for any service problems. Progressive also offers rental purchase agreements for other companies and could generate about half of Aaron’s revenue in the years to come.

Franchisees here said relations with Aaron’s are much better.

Chas Smithgall, who recently took over Aaron’s largest franchise from his father, Charlie Smithgall, said store operators are excited about the company’s direction and Robinson’s leadership. He said the decision to push harder on e-commerce will help the company remove the last barrier some customers may have about Aaron’s — coming into stores.

Smithgall is so confident Aaron’s has the right leadership that he is ready to grow his 103-store franchise, either through opening new locations or acquiring existing ones.

Franchisee Adam Marlin, one of the most vocal opponents of Allen’s leadership, said the company’s culture has made a 180-degree turn from last year. Robinson, he said, has brought a “freshness” and “professionalism” with him that he said has been missing in recent years.

Marlin’s enthusiasm is opposite his feelings last year, when he and others urged change at the top through a petition and in a contentious closed-door meeting with the company’s leadership.

Now he’s pulling for management to succeed.

“While things are not perfect, they are not John’s doing,” he said of Robinson. “I am personally happy to own my stores and would like to own more.”

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