Aaron’s CEO faces daunting future

Aaron’s Chief Executive Officer Ron Allen made headway last week in easing the concerns of critics who blame him for the Atlanta company’s recent sluggish sales performance.

But, despite gains made at the national managers conference, he and the company he leads still face a bumpy road ahead.

Aaron’s needs to turn around its performance in 2014.

The company, the nation’s second largest rent-to-own retailer, eked out annual revenue growth of less than 1 percent in 2013. Its fourth quarter net income last year fell to $22.7 million, or 30 cents a share, compared with $36.6 million, or 48 cents a share, in the same period a year earlier.

And an unsolicited $2.3 billion bid to take over the company by Florida private equity firm Vintage Capital Management, Aaron’s second-largest shareholder, is still on the table. The architect of that proposal, Vintage Managing Partner Brian Kahn, says he has not heard anything from Allen that would lead him to rescind his offer.

In addition, Allen’s seat on the board is one of two up for renewal. Vintage has notified Aaron’s it plans to nominate five candidates for the seats, including Kahn and former Aaron’s Chief Operating Officer Ken Butler.

Allen’s frank speech last week, in which he ticked off a list of issues facing the company when he took over, may have helped smooth ruffled feathers, said Heywood Sanders, a professor in the public administration department of the University of Texas at San Antonio. “But if (Aaron’s) performance doesn’t improve, it won’t save his job,” said Sanders.

The fight for Aaron’s could take a while. The board of directors has created a transaction committee to review Vintage’s bid, but no date for a decision has been set. In the meantime, the board said in a statement its transaction committee will also investigate other “opportunities to enhance long-term value for all of Aaron’s shareholders.”

Aaron’s said the national manager’s meeting was not about saving Allen’s or other company leaders’ jobs. It was “an important part of our efforts to engage, communicate and work together with our key stakeholders, including franchisees and employees.”

Aaron’s fate is important to Atlanta. The company, founded by Atlanta businessman Charlie Loudermilk, is an institution in the city and often donates money to schools and other projects. The company employs more than 13,000 people and has more than 2,100 stores across the nation.

With the announcement of Vintage’s takeover bid, Aaron’s shares rose to as much as $32.56, though the price had slid to about $30 Thursday. The stock was trading around $28 before Vintage’s announcement.

Allen has been criticized by some for trying to broaden the 59-year-old company’s customer base to middle- and high-end consumers at the expense of its traditional clientele, the majority of whom struggle economically and have bad or no credit. Other franchisees are upset about new store designs, what they see as a lack of communication with corporate leaders and a reluctance to raise prices.

But Allen, the former leader of Delta Air Lines who became Aaron’s chairman and CEO in February 2012, told an audience at the national managers meeting that the company was facing a barrage of problems when he took over. Those problems included a $95 million sexual harassment lawsuit, allegations of spying on consumers through rented computers and an investigation by the California Attorney General’s office for its business practices.

He said he made swift changes because Aaron’s was in danger of resting on its laurels. Some of those changes included hiring new leaders at its corporate headquarters, remodeling stores and installing a point-of-sale system for handling sales transactions.

“History shows that the path to failure is lined with companies that achieved great success but became complacent and failed to recognize the need to take an honest look at their business practices in a changing world,” he told the more than 2,000 who gathered for the managers conference.

He won some franchisees over early last week when he announced that he was suspending a required monthly $800 advertising fee from each the company’s 776 franchised stores. But Kahn thinks the strategy will come back to haunt Allen because the fees added up to roughly $7.5 million a year, which the company may have to bear.

“When the shareholders understand this, that is going to be very, very damning for Ron,” Kahn said.

Aaron’s spokeswoman Garet Hayes said the company will not have to bear that much of a cost. Hayes said it will cost about $1.8 million in the second quarter. But after that, she said, the money will be made up by shifting funds from other marketing efforts.

Despite the turmoil surrounding Aaron’s as a company, the brand’s customers remain committed.

Lonnie Burkes, a Powder Springs customer, said he has furnished his entire living room and master bedroom with Aaron’s products, some of which he paid off early while others he has elected to finance through a longer payment plan. One of the benefits of working with Aaron’s, he said, was quicker delivery than department stores and the ability to return items at any time without owing money.

“When we moved here, we didn’t have a lot of money at that time,” said Burkes, whose family moved to metro Atlanta in August 2012 from Michigan. “There are a lot of options out there, but the staff at Aaron’s was so helpful that we went with them. Everything was brand new, and the store’s general manager delivered our furniture personally. You don’t get that kind of service everywhere.”

George Ware of Marietta said he used to make purchases using layaway. But as that option has become less available, Aaron’s has filled the void.

“Without Aaron’s, there are a lot of things I wouldn’t be able to get,” he said. “I don’t have A1 credit. So, to get what I want, I would just have to save.”