Consumer Product Rental
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Industry Overview
The US consumer product rental industry includes about 15,000 companies with combined annual revenue of $22 billion. Major companies include Blockbuster, Movie Gallery, Aaron Rents, and Rent-A-Center. The industry is concentrated: the largest 50 companies account for about 60 percent of industry revenue.
The industry includes companies that rent personal and household goods for short periods.
Competitive Landscape
Demand is driven by personal income and the timing and popularity of new movie releases. The profitability of individual companies depends on the right merchandise mix and inventory financing costs. Large companies have advantages in economies of scale in purchasing, distribution, and advertising. Small companies compete effectively by providing superior customer service and catering to local demographics. The industry is labor intensive: average revenue per worker for a typical company is less than $100,000.
Products, Operations & Technology
Major services include renting video discs and tapes (50 percent of revenue); home health equipment (15 percent); and consumer electronics and appliances (12 percent). Other services include renting furniture, formal wear and costumes, and party supplies.
Most video rental companies are small, although close to half are franchises of large retail chains. Videos are the most important revenue source for the movie industry. Movie studios generally release a movie as a video during an exclusive "distribution window" of 30 to 60 days, during which the film isn't available on TV, cable, or pay-per-view. Some movies are released as "sell-through" where consumers can buy the movie at relatively low prices at the same time the movie is released to rental stores.
Rental of consumer electronics, furniture, and some home healthcare equipment is on a contract basis, usually week-to-week, where the consumer, such as a student or temporary worker, either wants the item for a short period, or prefers to pay week-to-week on a rent-to-own basis. The rental company retains title to the merchandise during the rental term. Only about 25 percent of initial rental agreements are taken to full term. To cover relatively high operating expenses, rental purchase agreements generally charge higher amounts than purchase plans. Tools, formal wear, and party supplies are generally rented for only a short period; frequent turnover on such items is necessary to be profitable.
Video stores are typically open 365 days a year and stock hundreds of titles. Household goods rental companies usually have several thousand items in their stores, which can approach 9,000 square feet. Video and rent-to-own companies have large automated distribution facilities that store merchandise before delivery to local stores. Video companies generally use a third-party delivery agent, such as UPS. Furniture and appliance rental companies usually have their own truck fleets to deliver merchandise, both to stores and to customers.
Rental companies have computerized inventory systems to efficiently track merchandise. Video companies use customer relationship management (CRM) systems to track consumer purchases and create a transaction database to formulate and adjust marketing plans. Increasingly, companies are using radio frequency identification (RFID) tags on inventory to help tracking and reduce losses.
