Why rentals are relevant…
Robert Hughes, managing director of independent retailer Hughes Electrical, on why rentals have made a comeback and can make your business appeal to a younger generation of buyer
If you go back to digital switch-over, TVs were the cornerstone of rentals – people needed to change technology and they needed some help and some understanding. But, for a long time now, the cornerstone of rentals has been home appliances.
There’s a misconception that rentals are somewhat old-fashioned. They’re not – they’re very much of the moment. The same people think that Argos is a quaint old catalogue company that used to be on the high street. We know that Argos is a shiny, highly relevant click-and-collect company.
We do rentals because it’s not just your parents who are renting, it’s your children as well.
Rentals solve a problem that keeps me, and other independent dealers, awake at night – how you can be relevant to young people?
I feel very strongly that rentals through an online channel is giving my brand – Hughes – a way to be relevant to younger people.
For that reason alone, you should consider rentals.
Rentals work across the economy and across demographics, which makes them very profitable. A rented product has a fantastic life. A shiny new UHD TV will be rented first by an ‘experience over ownership’ person. They will have it for 18 months to two years until the next ‘must-have’ TV technology comes along.
The old set comes back to us and then goes into a less-well-off ‘JAM’ [Just About Managing] household, who wants something that won’t cost a fortune and that isn’t at the cutting-edge.
After three years, that TV comes back and, for the last two or three years of its life, it goes into a household whose only financial option is renting. One product has kept three families happy, it’s paid for its cost price three times over and it’s being recycled. Rentals make sense.
- This article is taken from a speech Robert Hughes gave at the Retra conference last year
Who is renting?
Robert Hughes on the key four demographics of people who rent products:
- People who enjoy experiences over ownership
A lot of people don’t want the responsibility of owning a product, they just want to use it. They don’t want a big cash outlay – they just want to pay a regular amount.
They want to do what’s fashionable and they want to have what their friends have. When they don’t want it anymore, they want to be able to send it back.
These used to be just the early adopters – mostly men who had to have the latest toys. It isn’t about that now – look at your own children. They don’t have CDs or DVDs or Blu-rays, or photo albums – they stream or use the cloud and access everything through their phone, which they don’t own because they rent it. They also don’t own a car – it’s on a personal contract purchase (PCP) – or a house. Rentals are very popular with a younger generation seeking experiences over ownership.
- The JAMs
These are the families who are ‘Just About Managing’, to use Theresa May’s expression. They look very carefully at their monthly budget and they have a bit left over, which is ‘treat money’. If the washing machine breaks down, what do they do? It can cost £90 before an engineer will even do anything and there’s no guarantee they’ll be able to repair it. The replacement cost is huge and growing every year. No kid in that household will thank mum for spending all the treat money on a new one. How do you solve it? Rent a washing machine for £14 a month. Simple!
- The traditional older customer
These are people who want a helping hand, but don’t want to ask or beg for it. They’re quite happy to pay for it, so they rent. We help them with standard TV retuning and we worked hard during the digital switchover.
- People whose only financial option is rentals
This is probably the fastest-growing segment because of the recession.
So you want to get into rentals?
Rentals are capital-intensive and are poorly understood by banks or lessors, who are reluctant to lend money against an asset sitting in a private dwelling. As you need scale to justify the service costs of rentals, there is no point starting to rent unless you have the finance to continue for two years, at which point rentals can start to become self-funding.
Rental customers will generate more service calls than the equivalent sales customer, so you need to have some field installation with first-line service capability to cover simple problems like re-demonstration or pipe blockages. This person can also undertake refurbishment and cleaning of returned rental product. Anything more complex can be handled by a swap-out in the house, with the service managed in a warehouse facility, possibly in bulk by a subcontractor. Using a subcontractor for all in-home or refurbishment work could end up being too costly with a lower consistency of service.
It pays to be cautious about customer credit-worthiness, particularly when you first start out, as you will be targeted initially by people who have been turned down elsewhere. Poorer people’s finances are getting squeezed the most, with the result that sub-prime lenders are experiencing worsening debt. It is inadvisable to supply new or expensive kit to a first-time customer whose personal circumstances are not known to you. Second-hand, graded, shop-soiled or ex-rental equipment makes the most sense in these circumstances. You can always upgrade them later.
You retain ownership of the product, so any price depreciation will be at your cost. Renting a newly-launched television will be very expensive. Customers who want the latest are also more likely to swap over once the minimum rental period has passed. The best rental equipment is a washing machine, as it holds it value, is less likely to be stolen or accidentally damaged or replaced because of a change in fashion or technology. They go out and stay out.
Rentals are popular with the young, who do the bulk of their research and spending online. If you just rely on converting shop traffic from selling to renting, you will not attract that younger market and the opportunity cost of every rental will be a lost sale. As a result, it makes sense to promote rentals online.