Rent-to-own chain to add 50 area stores
Aaron's aims to lift market share as industry fights a negative image
Aaron's, a rent-to-own chain well known throughout the Southeast, says it will open up to 50 stores in the Boston area over the next three years, more than quadrupling the number of locations it has in Massachusetts.
Areas targeted for immediate development include East Boston, Jamaica Plain, South Boston, Lowell, Newton, Taunton, and Waltham, says Todd Evans, vice president of franchising at Aaron's Sales and Lease Ownership, a division of Aaron Rents Inc. in Atlanta.
The company is looking at those areas because they match the income level and lifestyle of their typical customer, which Evans describes as a "blue-collar or white-collar hourly wage earner who may be cash or credit constrained but needs a refrigerator, washer or dryer, television, or sofa."
Rent-to-own stores like Aaron's lease merchandise such as furniture, electronics, major appliances, computers, jewelry, and other products with an option to buy. The companies make money from leasing and service fees they charge associated with renting products.
At an Aaron's store in Dorchester, renting a 52-inch RCA high definition TV costs $99.99 a month: Rent it for 24 months, and you can own it for about $2,640 including taxes, services, and fees. You can buy a similar model at Wal-Mart for about $950.
With 14 locations in Massachusetts, including six in the Boston area, Aaron's said it has carved out a niche in the $6.7 billion national rent-to-own market that sets it apart from its main competitor, Rent-A-Center Inc.
"Our stores are larger and more attractive than the competition, usually suburban in location, and serve customers with a higher income than other rent-to-own businesses," says Evans.
Gus Whitcomb, a spokesman for Rent-A-Center, which has 75 locations in Massachusetts, says, "Aaron's proposed growth underscores the importance of the local market. Competition is good for the consumer, and we will compete aggressively."
Whitcomb added that Rent-A-Center doesn't have any current plans to expand in Massachusetts.
The Association of Progressive Rental Organizations, the industry's trade group based in Austin, Texas, says there are 106 rent-to-own stores in Massachusetts.
For years, the rent-to-own industry has been plagued by allegations that it preys on the poor, offering confusing, high-interest installment agreements, which result in goods eventually being purchased for two to three times the retail price, says Mike Anderson, a University of Massachusetts at Dartmouth finance professor who has studied the market.
Over the years, however, state legislation has been passed which requires full disclosure of terms; these laws ensure that leasing transactions don't run afoul of usury limits, says Anderson.
But leasing costs still can be high. At the Aaron's in Dorchester, a Dell laptop rents for $99.99 a month, with an option to own it after 12 months for about $1,320. The leasing costs alone tallied about $420, or nearly one-third of the total cost.
"Computers and televisions are our most popular items," says store manager Bill Jenkins.
Charles Smithgall, a franchisee who operates 55 Aaron's stores in seven states, including 11 in Massachusetts, defends the rent-to-own industry. "Our job is to help make dreams come true," he says. "We want our customers to own the merchandise as quickly as they can."
Smithgall, who calls himself a protégé of former media magnate Ted Turner, is opening nine of the new Aaron's stores in the Boston region. He said his most successful store is in Springfield, which brought in more than $2.5 million in revenue last year.
Availability and cost of real estate have slowed development of the Boston metropolitan stores, says Smithgall, but preliminary site negotiations are going on in Lowell, Taunton, Jamaica Plain, and South Boston.
"I'd like to open them all tomorrow," says Smithgall, who has also been acquiring independent rent-to-own operations as opportunities for expansion.
The typical Aaron's customer makes $50,000 or less annually, which accounts for an estimated 43 percent of US households, says Evans, Aaron's vice president of franchising.
"We have so much growth opportunity. I like the fact that we serve only about 5 million of the 50 million who have poor, bad, no credit or very little credit," Smithgall says.
Across the country, Aaron's opened an average of three stores each week last year. The company plans a 15 percent growth rate in stores for the next several years. Aaron's 1,250 stores in the United States and Canada are mainly company operated, but franchisees manage one-third of the outlets.
"What we have been doing is radiating out in concentric areas around hub markets such as Houston, Dallas, Atlanta, and now Boston," Evans says.
The typical Aaron's store is 8,000 to 10,000 square feet, one-third the size of a typical Best Buy, and is located in a strip mall or stand-alone building. 