The recent recession and continued struggles of the economy produced many losers, but Atlanta-based rental giant Aaron’s was not one of them.
The continuing inability of millions of Americans to get credit has been a boon for the company, which allows consumers to lease-to-own TVs to refrigerators to laptops with no money down or credit check. Revenue has been on a strong upswing for the company for five consecutive years, rising 10 percent last year to $2.2 billion.
How the 58-year-old company handles the next 12 months as the economy recovers, however, will be instructive to many industries that have maintained a healthy balance sheet despite the bad times.
Aaron’s has already hit its first bump in the road: foot traffic dropped in the first quarter, though analysts say that may have been related to the Congressional-caused delay in tax refunds. The company also faces a barrage of lawsuits alleging that spyware has been activated on computers rented from franchised locations and that personal information has been stored on company servers.
And like the rest of the rent-to-own industry, critics charge that Aaron’s takes advantage of low-income consumers by hooking them with low rental rates that if paid off over time are 200 percent to 300 percent mark ups.
President and Chief Executive Officer Ron Allen is not worried. The slower-than-expected numbers in the first quarter were a result of a Black Friday promotion that was so successful that it hurt business early in the year, Allen said.
“We are not looking for excuses, we are looking for reasons,” he said during a sit-down interview with The Atlanta Journal-Constitution.
Allen, a former Delta Air Lines executive, has guided Aaron’s since taking over for Charlie Loudermilk, the company’s founder, in November 2011. He said Aaron’s is on track to continue its strong growth, with an additional 120 to 125 new stores planned to open this year. (Aaron’s will report its second quarter earnings July 25).
The brand, which has more than 1,800 locations in every state except Minnesota and Wisconsin, also is investing in new point-of-sale technology — its back-of-the-house computer system is more than 20 years old and needed updating, Allen said — to collect better data on customers. It’s delving deeper into social media to lure more consumers and attending more furniture shows to make sure its showrooms have what renters are looking for.
“There is so much low hanging fruit,” he said. “Even in areas that we are strong in, we can still do some back filling.”
Robert Straus, an analyst with Gilford Securities, said Aaron’s has reason to be optimistic. The company has built a loyal customer base that he expects will spend more at Aaron’s stores, not less, as their financial picture improves.
“The overall retail sector had a challenging first quarter and we believe Aaron’s navigated through that period just as they have through other challenges,” he said.
SunTrust Robinson Humphrey analyst David Magee agrees, with some reservations. The company lost one of its key players — chief operating officer Ken Butler — who retired May 1. In research notes, Magee noted, “As Butler has been a key executive at (Aaron’s) for a long time, it is hard to not see this change as at least a modest short-term negative.”
For Aaron’s, the focus is not only on growth, but the mix of its products. About 33 percent of lease sales are for electronics (TVs 42 inches and larger are particularly popular); 33 percent furniture; 20 percent appliances; 10 percent computers; and the rest accessories and other items.
The company likes to stick to the basics, said Aaron’s Chief Financial Officer Gil Danielson. Aaron’s has taken some chances in the past on products such as tanning beds, radar detectors and more recently DJ systems, but they are never big sellers.
The best sellers are “basically the products you need to live in your home today,” he said.
The company also operates Rimco, which leases tires, and the smaller HomeSmart, an Aaron’s-like chain that attracts customers who prefer making smaller, weekly payments over the typical monthly payment schedule at Aaron’s stores. Allen has slowed the growth of HomeSmart as the company studies its positioning to make sure it doesn’t cannibalize Aaron’s stores and to make sure it has the right product mix.
What makes Aaron’s successful also makes it a target of critics, though. The company succeeds because there will always be a segment of the population that doesn’t have the cash or credit to buy big ticket items. They turn to the rent-to-own industry, which allows them to pay the product over time — as much as 24 months in some cases — and to return the product at any time with no questions asked.
Consumer advocates charge that allows companies such as Aaron’s and its rival Rent-A-Center, which has the largest number of stores, to rake in billions by selling products at up to 200 percent to 300 percent above the actual cost. Advocates said in many cases the customer is not told their overall payment because the industry has successfully fought disclosure laws in state legislatures. (Allen said full disclosure of total costs are mandatory at Aaron’s stores).
“They make it sound so affordable, but what they don’t tell you is after you’re done, you have paid for the product three times,” said Ed Mierzwinski, consumer program director for advocacy group U.S. PIRG. “My concern is the (rent-to-own) industry wants to sell products over time, but not under the same rules as anybody else.”
And Margot Freeman Saunders, an attorney with the National Consumer Law Center, said when customers do complain, it’s tough to challenge the companies because of arbitration laws.
Richard May, a spokesman for the Association of Progressive Rental Organizations, a rent-to-own industry group, said the industry is upfront with consumers about overall costs. He said only about 25 percent of customers rent to purchase a product outright. Of that group, about 13 percent purchase their products before the end of a contract while five percent choose 90- or 120-day same-as-cash deals.
The eight percent who rent to own over 12, 18 or 24 months, are “people who are in the situation that they have to do that,” he said.
Over the past two years, Aaron’s also has faced class-action lawsuits filed against its franchisees alleging that software installed on laptops have been used to spy on them. The lawsuits also allege that more than 180,000 pieces of ill-gotten customer information are being stored on Aaron’s corporate computers.
The captured information, according to the suits, include passwords to emails, social media websites and financial institutions; medical records; and Social Security numbers. They also claim pictures of children, partially clothed individuals and couples in intimate moments have been taken.
Allen declined to comment on the legal action. But he said his mission is to protect Aaron’s brand and to ensure customers have trust in what Charlie Loudermilk built. That includes working with store operators to make sure they are always focused on the consumer.
“We are in a relationships business,” he said, noting that many of the operators live in the communities in which they have stores. “That’s one of the reasons Aaron’s has been successful. Our customers are loyal.”
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