Time for a rentals revival?

As consumers move away from a ‘buy-to-own’ culture – especially millennials – techUK director of markets and membership, Paul Hide, asks if  the time is right for a return to rentals?

The Baby Boomers among us grew up in a culture of ‘save your money and buy with cash’ – owning your asset outright.

Generation X grew up in a culture of flashing a credit card. Buy now pay later, still owning the asset outright, but owing an unsecured creditor for the purchase.
Consumer electronics rentals experienced significant decline since the Nineties, as affordability of electrical goods improved considerably. Most retailers gave up on rentals, focusing solely on cash and credit-based sales.

But are we on the cusp of a rentals revival?

There are a number of factors that point to a move away from the ‘buy-to-own’ culture of the past 40 years. Firstly, we are no longer getting wealthier as a nation.
This is particularly true for millennials – the first generation that are forecast to earn less over their working lives than their parents.

Lower wages, reduced pension forecasts, waning job security and rising house prices are all having a negative impact on actual and perceived wealth, changing behaviour and attitudes towards material goods and a culture of owning.

Millennials are moving towards a greater focus on experiences, convenience, flexibility and instant gratification and this shift is impacting on the way these consumers regard consumer electronics.

Some of the fastest-growing tech companies are experiential and ‘pay-as-you-use’ business models. Think about it – Uber, Airbnb, Spotify and Netflix. These companies have built their businesses on millennial customers – your customers of the future, providing you offer a business model that meets their requirements.

Demand
A full-service rentals option meets the demand of another growing sector – private and corporate landlords. Landlords want peace of mind and third-party management of both properties and assets. Tenants expect home appliances to be operational 24/7 and want a fast response if they go wrong. Landlords can charge extra for homes with modern appliances and will mitigate the risk of appliance breakdowns and repairs by agreeing a rental and service contract for MDA and large AV items.

Remember that rentals will nearly always include services linked to installation, servicing and repair. These are far easier options for you to differentiate your proposition from the competition. Margins tend to be higher for services. There is no way you can differentiate your offer on washing machine ABC from brand X and a retail platform will never match an online platform from an absolute cost perspective.

Electrical retailing can only survive where added-value services are offered. I predict that 90 per cent of UK electrical retailing profits will come from services within 10 years. Those selling goods alone on the high street will not survive.

Most independents are mindful of the margin opportunities linked to added-value sales. However, the focus is mainly on linked hardware sales or warranties. I still hear a large degree of scepticism that rentals are a viable business model, despite the success of rentals within progressive and healthy electrical retailers, such as Hughes.

OK, there are considerations to be made when developing a rentals portfolio. You will need to invest in stock at the outset, as the cash flow won’t become positive until after 12 to 18 months. You’ll need software to manage the process and a marketing plan to reach your customers. These are solvable challenges and if you do the maths, the margins and regular income streams can add a great deal of stability to your business.

Evolution, as opposed to revolution, often dictates the pace of change. Don’t think of rentals in the traditional context of meeting a need of those who lack the income or savings to purchase. Think of rentals as a full-service solution for those that are transient, time-poor, and value convenience and flexibility.
The traditional retail model will die, but in its place alternative methods of supply will emerge.

Don’t wait until it is too late to transform your business.