Aaron's Inc – Lease-to-own Market Update & Spinoff
Update – 29 July 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Joe Mucci (JM)
Former VP, Operations & Business Development at Aaron's Co Inc
Agenda:
1. Lease-to-own market dynamics, demand and consumer behaviour
2. Aaron’s (NYSE: AAN) omnichannel strategy and portfolio mix
3. 2020 restructuring – update on spinoff from Prog Holdings (NYSE: PRG)
4. Same-store revenue outlook for H2 2021
Contents
Q: How has this lease-to-own industry operated? When you started, Aaron’s didn’t even have furniture.
What categories have really taken off and are dominating the market by product?
Q: What 2-3 trends were you following in the industry pre-coronavirus? How were those trends impacted
over the last 18 months?
3
4
Q: What is the value proposition here as a consumer? How do you manage the product quality, given the
way the business model is set up? If I understand this correctly, you’re renting something to return it, or you
eventually decide to purchase it. Could you explain that dynamic and what it does regarding maintenance for
4
Aaron’s to distribute these products?
Q: How would you describe consumer resilience or was there a large cut back in consumer spending during
the pandemic, specifically in this lease-to-own market? What are your thoughts on that?
5
Q: What is stopping the consumer from purchasing with a credit card? I think you alluded to some of the
optionality to return that product. Could you discuss how often they don’t return it and the other option of
loose financial conditions, with interest rates at all-time lows and credit card approvals very high? Could you
5
speak to that dynamic vs the ones who don’t return a product?
Q: How do you think Aaron’s has performed following the Prog spin-off? What are some of the pros and
cons of being its own company?
6
Q: Could you discuss Aaron’s product categories and the ability of a lease-to-own company to take advantage
6
of trends? How agile are they to onboard new products for consumers?
Q: How does Aaron’s capitalise on short-term demand for particular products? Throughout the pandemic, a
lot of companies were short on inventory. Do you think there are instances where Aaron’s could sell that
furniture outright to make a higher margin? Could you discuss that interest rate and ROC on the leases that
it offers?
7
Q: It seems like Aaron’s and its distribution, or physical retail footprint, are in every state in the country, but
it plans to reduce that footprint. Could you discuss how it is adjusting from that physical footprint? Do you
think there are just some markets that you have to maintain a presence in to stay competitive?
7
Q: Why do you think Aaron’s decided to follow the franchise route? What are some of the benefits and
drawbacks of that model, given that the company is scaling back that business?
8
Q: Could you discuss pricing and how promotional this industry is given some of the financial fragility of the
8
consumer? How well can you manage pricing in the industry before a competitor takes share?
Q: Have there been instances where there are spikes in specific products and inventory runs out? How
difficult can inventory management be at times of high vs low demand?
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Q: Could you discuss the marketing for Aaron’s physical footprint, such as rebranding stores? How has that
changed in the e-commerce environment? What is the marketing budget and what are some of the trends,
such as targeted ads? I know there’s a higher focus on digital, but what does that really mean?
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Q: It seems like the next-gen strategy is a priority for Aaron’s management team. Could you elaborate on
what they’re doing for those stores? What changes are they making to drive more traffic?
Q: Could you discuss consumer loyalty? How often are consumers switching from Rent-A-Center to other
competitors in the lease-to-own market? Are consumers being more loyal to specific stores or will it be a
much more fragmented market where they are solely focused on price?
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Aaron's Inc – Lease-to-own Market Update & Spinoff
Update
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Aaron's Inc – Lease-to-own Market Update &
Spinoff Update. I’m Nyree Hinton and I’ll be facilitating today’s Interview with Mr Joe Mucci, former VP,
Operations and Business Development at Aaron’s Inc.
Joe, before we get started with today’s Interview, pleas3e state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
JM: I agree.
NH: Could you start by giving the audience an overview of your background and the various roles you’ve held
in the industry?
JM: The lease-to-own industry has really been most of my career. I started way back in 1981 and was pretty
much in that industry until I left the Aaron’s system in June of 2019, say, for a couple of years doing
something else. The better part of 35-plus years in the industry. Started off at entry level. I started off
delivering TVs, delivering washers and dryers. Actually, I when I started, we didn’t even carry furniture, that’s
how long ago it was. Then, part of that job was doing the collection piece of the business as well and found out
that I had a knack for all of those things, so I progressed up through the initial company and eventually made
it to multi-unit management. Started off with six, seven, eight stores, had as many as 52 stores later on in life,
but kept working my way up through in different parts of the business. I was exposed to marketing,
advertising, real estate, developed training systems for one particular company and just over time had realised
it was a fun, it was an engaging business. It was something new every day, and so it kept you on your toes. I
enjoyed it tremendously and was able to just call it a day here, not too long ago, and move into retirement.
Anywhere from entry-level position to running 52 stores to being in charge of development and auditing and
marketing and real estate and fleet and so you name it, just all around.
[00:02:53]
Q: How has this lease-to-own industry operated? When you started, Aaron’s didn’t even have furniture. What
categories have really taken off and are dominating the market by product?
JM: Way back in the day, there weren’t many companies around. I actually started with a company called
Remco, and that only grew to really about 60 stores, which was pretty good at the time. There were only a
couple of mom-and-pop competitors back in the day. Mainly we dealt in, like I said, appliances, televisions
and rack stereo systems. It was such a new industry that we were learning as we went as well. The industry was
very attractive to the same customer that’s still attracted to it now. We had to learn from each other over time.
We had to continually get better because there was always customer service pressure and legislative pressure,
and so the industry has really evolved and bringing on furniture was a big deal. You had to, the consumer
demanded better-looking stores, cleaner stores, better merchandise, competitive pricing over time. It has
really evolved into a real viable alternative for the customer in need of that service. It’s really, like I said, I has
been fun to watch over all those years, but it has been something that when computers came on there was a big
bump in business because nobody had a computer, now everybody has three in their home, two or three in
their home, and they last forever. It has really been fun to watch over time, let alone the internet coming into
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play.
[00:05:24]
Q: What 2-3 trends were you following in the industry pre-coronavirus? How were those trends impacted over
the last 18 months?
JM: It’s an interesting thing, even when I was still in the business, you had this thing going on between the
introduction of the e-commerce business and the traffic in the store being down because of the e-commerce
business. That was something I started noticing pre-COVID, and then, because the industry now is a mature
industry, also at that time we realised we had to start expanding our product offerings because, like I said, you
could have a laptop, the technology is not changing very much any more, so they last you a long time and
they’re good products. Television is the same thing. Televisions are made to last. You can only have so many
TVs in your house. The rent-to-own customer base, it’s not finite but it’s certainly not for everybody. You had
to continually try to reinvent yourself, whether it be through new product offerings or new rental or lease
terms or a new store look. Pre-COVID, we were kind of struggling with all of those things because store traffic
was down, because of e-comm, wages really weren’t growing for the customers and it was just a thing we were
all reaching out. We did start expanding product lines, we did start really pushing the e-commerce side of the
business a few years ago to try to recapture some of the business that seemed to be waning, stagnant, whatever
you want to call it.
[00:07:40]
Q: What is the value proposition here as a consumer? How do you manage the product quality, given the way
the business model is set up? If I understand this correctly, you’re renting something to return it, or you
eventually decide to purchase it. Could you explain that dynamic and what it does regarding maintenance for
Aaron’s to distribute these products?
JM: I think the large majority of the customers enter into the lease agreement with the intention of owning it.
Therefore, the lease-to-own, rent-to-own business. We’re talking about cash-constrained customers, credit-
constrained customers, unbanked or under-banked customers that would really love to go out and pay cash for
that, whatever product it is, but they can’t save up that much to do it. Credit is something that’s out of reach
for various reasons, either they’re new to credit overall, young people, or people that are moving here from
elsewhere, so they intend to own it.
One of the nice things about the lease-to-own transaction is you’re never obligated to keep the merchandise.
It’s generally a month-to-month or week-to-week lease, and if you can no longer afford it, don’t like it, it
wasn’t what you thought it was, you have to move out of state and can’t take it with you, you can just return it.
Like I said, most people do aim to own it, so that’s where the people in the store come in, trying to keep that on
lease and keep that revenue coming in the door through their customer service and collection activity. You are
going to get merchandise back, and what we found over time was, when you have customers paying on a
weekly basis vs a monthly basis, the weekly industry will generally have higher returns. It really is a simple fact
that they’re having to react to collection calls a little bit more as it is, so when you’re only talking to them once
a month, in that situation vs every week or every other week, it makes the relationship a little easier.
You do get some things back and you have to refurbish them. Again, that has really changed over time. It used
to be you dust it off and make it look good and put it back out on lease. Now, the standards are much higher.
Customers want something, we tended to start to call rental return product or used product, we called it like-
new. So, you had new and like-new, because you had to do everything you could to get back to a like-new
condition so you could release it. It does you no good to have that inventory back and sitting in your store.
That was one of the big changes over the years in the way in which companies handled their return
merchandise, their pre-leased merchandise because the consumer demanded more. They demanded just as
much as anybody else in the world would, from a new product, or a used product that they were purchasing.
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Just because their situation was what it was, doesn’t mean they were going to lower their standards of
accepting merchandise.
[00:11:49]
Q: How would you describe consumer resilience or was there a large cut back in consumer spending during
the pandemic, specifically in this lease-to-own market? What are your thoughts on that?
JM: Staying in touch with some people in the industry actually, let me start by saying this. The rent-to-own
customer, unfortunately has struggled a lot of their lives. They have really become masters of prioritising, they
really have. They’re very good at that. That’s why we say that the business is recession resistant. It’s not
recession proof, but our customers have always figured out how to make things work. They want the same
thing as everybody else for themselves and for their families. They want to provide them with the best they can
get. They want to get them good furniture, a good television, a washer and dryer that works, whatever the case
may be.
During the pandemic, I think at first, when it first hit, fortunately, for the companies around in the rent-to-
own industry, they were several years into the e-commerce business. They had that going for them, where
people didn’t really have to come in the store as much as they used to. They had that going for them to begin
with. Then, with all the money, the stimulus payments, the enhanced unemployment that had gone on for the
last 18 months, and our customers have worked in the service industries, so those industries still had a need
for a lot of those employees. The revenues, in an odd way, in the rent-to-own industry, in the last 18 months,
have been strong. You’ve had, like I said, the stimulus, you had enhanced unemployment, then you have tax
seasons, we had two tax seasons during the pandemic. One last February, March and then this year and
customers, they, like I said, respond positively to those situations. A lot of them came in, paid off their
merchandise when they got their stimulus, their tax, their enhanced unemployment. The revenues remained
strong and even certainly had a boost from all the money that was flowing in the market.
[00:14:44]
Q: What is stopping the consumer from purchasing with a credit card? I think you alluded to some of the
optionality to return that product. Could you discuss how often they don’t return it and the other option of
loose financial conditions, with interest rates at all-time lows and credit card approvals very high? Could you
speak to that dynamic vs the ones who don’t return a product?
JM: As far as not returning the merchandise, again, over all the years that I was in the industry, that
particular factor was really directly related to how well the store was run, because you have, it’s not a strict,
obviously, back in the day, we had no credit check whatsoever. You were relying on the personal information
that they gave us, and you verified that information. The better we got at the business, the more we
understand the risk tolerance and the risk factors for the customer. Like I said, most people do want to own it
and really, most people are honest. I will say that without hesitancy. Most people are honest and they want to
do the right thing. Those were what you realised. You have people that are trying to get over you. That
happens, but again, you can minimise that, mitigate it, you can’t eliminate it. It’s a lot less than one would
think. I think a lot of collection companies would die to have the bad debt write off the rent-to-own companies
have, generally speaking. Like I said, some are better than others, and it’s directly related to the store, as far as
store personnel.
As far as credit cards go, that’s really changed. It used to be almost a strictly-cash business. There was no
nothing. You had cash, you took some cheques and some places stopped taking cheques, but credit cards, the
consumer gets their paycheck on a pay card now that they use. They get debit cards but they can only use up to
X, USD 100, USD 200, USD 500 at a time. It makes it real hard for them to just go out and buy that.
Oftentimes they just don’t accumulate cash because of their situations. Credit cards have become more and
Private and confidential 5
more a payment method in rent-to-own, and most companies now really, the brick-and-mortar stores really
encourage you to get your credit card on file and just have the store go ahead and hit your card every month or
every week for the payment. That has become more prevalent because it’s easy for them to get a card. It might
not be one with a USD 20,000 limit, but they have credit cards. There’s very little cash flowing through those
brick-and-mortar stores any more.
[00:18:28]
Q: How do you think Aaron’s has performed following the Prog spin-off? What are some of the pros and cons
of being its own company?
JM: All I have to go by in the post spin-off which happened about late last year, I believe, is their results for
H1 of the year, and they looked pretty encouraging, looking just at the public reports. Again, it’s just my
opinion that we’ll see when the market gets back to the unemployment benefit change and there are no
stimulus payments. That has to shake out. So far, so good, and again, I don’t know but I would assume that the
Progressive engine still handles their e-commerce, which was very robust and very good, very well-run. I know
that their e-commerce business is growing, continues to be very popular with the consumer. It’s a little
different times so I think, so far, so good. It’s a wait and see to when the economy in the market normalises a
little bit. It’s so far, so good as far as I can see.
[00:20:10]
Q: Could you discuss Aaron’s product categories and the ability of a lease-to-own company to take advantage
of trends? How agile are they to onboard new products for consumers?
JM: When you get a lot of stores like the Rent-A-Centers, Aaron’s, it’s a struggle to be agile, I’ll say. Once they
make a decision, I think that Aaron’s is pretty quick to get things in stores. We went from LED to OLED TVs,
for example. It takes some time. We went from generally 40-inch, 43-inch TVs to 65-, 75-, 86-inch TVs. Once
the decision is made, it’s pretty quick. Aaron’s, I’m assuming again, that’s still the case that they have
fulfilment centres across the country that deliver to the stores. They can get the product out there pretty
quickly. They can scale those things up pretty quickly once a decision is made. Like any other large company,
there’s some thought, there are some tests that go into it and so on. The product offerings have changed over
the last couple of years as well. I think just looking on the Aaron’s website, I think I saw exercise equipment
now, which may be indicative of work-from-home. We never carried that in my rent-to-own lifetime.
Things are going to continue to change and then the consumer seems to be getting a little younger, so you’re
going to have to cater to those folks as well, which may be where that comes in. They’re going to have to
continue to evolve because there’s a lot of competition out there with, they compete with themselves in some
markets because of the proximity of the stores. They compete heavily with Rent-A-Center in every market.
Then you throw in the virtual rent-to-own including Progressive and Acima Credit and Katapult. There’s heavy
competition, so they’re going to have to continue to evolve in product offerings, in my opinion, just to stay
competitive in those spaces. The main categories are appliances, washers, dryers, refrigerators, ranges, air
conditioning in the summer, in the southern part of the country is big.
They bring in things like snow blowers in the northern part of the country, in the winter. You have televisions,
home theatre, sound bars, you have computers, gaming systems. Some stores in some areas do quite well with
gaming systems, some do not. Computers have always been a good category, but mainly, the bulk of the
category is in furniture, living room, bedroom, dining room, accessories such as TV stands, lamps and rugs. A
lot of the revenue is generated through furniture, which, in that case, furniture still holds a pretty high margin.
It makes sense for Aaron’s who have bigger store footprints, they can display more furniture and therefore,
they really do a good job of leasing furniture vs the other companies who tend to have a little smaller stores
and can’t display quite as much.
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[00:24:28]
Q: How does Aaron’s capitalise on short-term demand for particular products? Throughout the pandemic, a
lot of companies were short on inventory. Do you think there are instances where Aaron’s could sell that
furniture outright to make a higher margin? Could you discuss that interest rate and ROC on the leases that it
offers?
JM: Aaron’s, I would say, if you look over the years, Aaron’s, they were Aaron’s Rentals, Aaron Rent, they
were Aaron’s Rent-to-Own, they were Aaron’s Sales & Lease, and now they try, they’re just Aaron’s, they’re
branding themselves as just Aaron’s. Aaron’s has always fancied itself as a retailer that does rent-to-own, and
only because they used retail jargon in the stores more so than the other competitors. Aaron’s will gladly retail
you anything. They will sell you anything, particularly the franchise end of the business. Retail sales revenue
and profit was a big part of the franchise world, to make up some of the money that might be lost for the
Aaron’s fees. Retail sales is something Aaron’s welcomes. They’ll sell you anything, new, pre-leased, whatever
the case may be.
As far as leasing, again the different product categories have different margins. You have furniture, you’re
going to make the most money because there’s less price pressure on furniture across the retail world.
Furniture is still pretty expensive for a good quality living room, good quality bedroom, whatever the case may
be, whereas televisions and computers have just succumbed to price pressure all over the place. Again, one of
the things to keep in mind is anything that Aaron’s leases, they cover the warranty for the entire time you’re
leasing it. Whether it’s new or pre-leased, you as a consumer never have any additional service costs. If you go
buy something at a new retailer, a TV gives you a one-year warranty. 90-days labour, one year parts,
appliances, maybe one-and-one, the same, computers, one-year warranty, 90-days labour, one-year parts,
more or less. Whereas Aaron’s, if you enter into an agreement for 24 months, which, at least when I left, that
was the longest you could do, your service is covered for that entire two-year period. There is an advantage
right there and some peace of mind for the consumer in that respect.
Even though the margins, the return, is not what you would get from just the retail sale a lot of times,
obviously in lease to own it’s going to be better because of the, we don’t call it interest because it’s a lease, so
it’s cost-of-lease services. I have no idea what the formula is or how they figure out how to price things, but
you’re talking about well above the retail price on a rent-to-own agreement. For Aaron’s, you could lease it on
a 12-, 18- or 24-month term, if those still are available. The 12-month term would get you a better deal for the
consumer, meaning less return for Aaron’s. 24 months would give you the highest return for Aaron’s. Of
course, the most cost for a consumer. Whatever was good for the consumer, they’re willing to do any of those
categories. The return, it’s going to depend. If it’s a new product, if it’s pre-leased, they refurbish it and put it
back out. They’ll still do 12, 18 or 24 months, but they’ll lower the monthly price a little bit. It’s difficult, but
again, furniture gives you the highest return. Electronics, appliances, quite a bit less.
[00:29:29]
Q: It seems like Aaron’s and its distribution, or physical retail footprint, are in every state in the country, but it
plans to reduce that footprint. Could you discuss how it is adjusting from that physical footprint? Do you think
there are just some markets that you have to maintain a presence in to stay competitive?
JM: Yes, they’re in, except for the states that sort of outlaw lease-to-own, but yes. I think I wouldn’t see
anything as far as a state reduction unless something changes in the law that they can’t do lease-to-own any
more. Aaron’s is an interesting, the way they’re set up, if you look at the location of their stores, generally
speaking, they had a philosophy to go into the suburbs rather than the inner cities, where you would have
more Rent-A-Center, week-to-week rentals in the inner cities. Aaron’s always fancied themselves as being a
little, because of the larger stores, and the better looking stores, a little bit more of a retail look that they tried
to attract. They figured that people from the inner city will come to the suburbs to shop. Then you just have
some states that are quite rural. You always have cities but you have states that just rural. I don’t know that
Private and confidential 7
anything, in my opinion, like that would change.
They will, they have consolidated some over time and I’m sure they will because you can, especially when they
acquire some franchises back, when they reacquire franchisees, they may have some that are kind of in their
neighbourhoods, some are close proximity. They will consolidate some of those to keep from cannibalising
each other. I wouldn’t see any change in staying in the big cities and in the states where rural, you have the
smaller towns that. One advantage to the smaller, the rural areas, that there’s no big box competitors there to
compare. There’s no Best Buy. There’s no Ashley Furniture store, for example that they have to compete
against. That has always been attractive to Aaron’s but I wouldn’t that say state or city-wise, it would change,
but they’ve done consolidation over time, for sure.
[00:32:42]
Q: Why do you think Aaron’s decided to follow the franchise route? What are some of the benefits and
drawbacks of that model, given that the company is scaling back that business?
JM: I think, being very familiar with franchise, because I worked for an Aaron’s franchise, I think to get the
growth out there, you always had some people that were looking to invest their money, the franchisees. It’s
their money. These are individuals that have the money to get in, because it’s not cheap to get into an Aaron’s
franchise. You had these good, astute business people that were looking to branch out from their other
businesses, whatever they may be, and enter into an Aaron’s franchise. It was an opportunity to grow, maybe
in some areas where Aaron’s either didn’t have a presence, or weren’t big in their presence, in states. I could
certainly understand that. My experience with franchising is, the one drawback I would see from an Aaron’s
corporate standpoint in my opinion is you have however many franchises, and a lot of the franchisees don’t
have any experience in lease-to-own, rent-to-own. They go out and they seek out operators that have
experience in rent-to-own, lease-to-own.
They may find somebody from Rent-A-Center or Rent 1st, or whatever some of these companies are, and bring
them on to run Aaron’s franchises. Over time, what you start seeing is that the franchisees allow these
operators to operate, and they don’t exactly operate like Aaron’s wants you to operate. Aaron’s has specific
programmes and policies and procedures that you’re supposed to follow. The had a ton of franchise
consultants. I think they’ve really pared that down because franchisees are diminishing. I think other reasons
to pull them back is, when you have a company like Aaron’s, a publicly traded company, that you want to be
able to walk into a store in New York and California and Texas and Iowa and have them doing business exactly
the same in each place.
That’s not necessarily the case. A lot of franchisees follow it to a tee. Some though, like I said, go off on their
own. A lot of them don’t want to advertise like Aaron’s wants to because it’s their money and it’s expensive to
advertise. That would be my opinion as to why they’re going to start clawing those things back when they get
the chance. I don’t know how much they’re doing with new openings at all. I haven’t really paid attention but I
know the franchised store count has dropped over time. They bought back the biggest one a few years ago, SEI
with 100 stores. There’s value in it but I think that Aaron’s trying to protect the brand and trying to get their
things implemented nationwide the way they want them. They’re probably looking at reacquiring a lot, if not
all of them.
[00:36:32]
Q: Could you discuss pricing and how promotional this industry is given some of the financial fragility of the
consumer? How well can you manage pricing in the industry before a competitor takes share?
JM: You’ve got to stay abreast of what the competitor is doing, that’s for sure. Aaron’s, at the beginning of
time, was always kind of the low-priced leader. They guaranteed the lowest price. We’ll match it or pay you
USD 100, was their thing back in the day. They really, way back when, they would not provide a discount for
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you to enter into the agreement, you paid the first month up front. That has changed quite a bit over time.
What everybody realised in the industry, whether you’re Aaron’s or Rent-A-Center or everybody else, is,
obviously, a customer can’t own the product if it’s not in their home. If they don’t have the USD 100 or USD
150 today to pay the first month’s lease, they’re not going to get the product, if that’s what you demand.
They’ve realised, we’ve got to provide some pre-leased, some promotions. They started doing that, discounting
the entry into the merchandising. Especially with e-commerce, when they tried, started building the e-
commerce, it was just a standard USD 25 to get you started. With the downturn in foot traffic, if a customer
came into the store, you demanded the first month’s payment, they’d say, “I can just go online and get it for
USD 25.” They have, over time, realised the value of that, plus, the business, the life blood has always been
repeat and referral business. You had to provide something, which they did all along. You would solicit and
generate market to your return customers or your paid-out customers who paid you off and then went away,
didn’t have an agreement any more. You’d always incentivise them to get it back but now it has become, pretty
much, almost everybody is incentivised in a low entry cost. Once again, if I don’t get it in their home, they have
no chance of owning the merchandise and increasing my revenue.
First things first, let’s get it in the house and then we’ll manage it from there. That’s where that has gone over
time. That has changed quite a bit from, we’re talking quite a number of years now. That has changed quite a
bit for Aaron’s over time because of the competition out there and when you can get something delivered to
your home, for the first weekly payment at Rent-A-Center, which may be USD 25 to USD 30-35, vs the USD
120 or USD 150 for the first month at Aaron’s, you have to adapt. The pricing is the same way. I think the
pricing has become more the other competitors getting closing to Aaron’s pricing than vice-versa. As far as I
know, all the competitors have geographic pricing. You can get more for a product in New York State than you
can in Missouri, so to speak. The pricing is different across the country for Aaron’s, that I know of. It goes by
that, but they can incrementally, when you get new technology like OLED, or UHD TVs, obviously you can up
your price there, until again, until they become saturated in the big box retailers, then you may have to adjust.
There’s some give and take on that, for sure.
[00:40:44]
Q: Have there been instances where there are spikes in specific products and inventory runs out? How
difficult can inventory management be at times of high vs low demand?
JM: Good question. Inventory management is a big deal. You’ve got to have it, police it. It’s a big thing for the
actual individual store manager to pay attention to and your district managers and your regional managers
and on and on. One of the ways that Aaron’s particularly has overcome that over the last few years is, they’ve
allowed, especially the franchises, and they’ve done it corporate-wise now too, they’ve allowed some other
vendors. It used to be that, particularly in furniture, they would, it was only the furniture that they made. They
have a company called Woodhaven, that they manufacture the furniture. That was all you could get. Now,
because of what you’re talking about, there are certain times, obviously with football season coming up, you’re
going to have runs on TVs pretty soon. With school coming up, you’ll have a run on computers or at least you
used to, so you had to be prepared for those things. Aaron’s was good at that. They always had good product
people at their home office that would get prepared for that and get things into the fulfilment centres that you
could order from.
With the combination of the pandemic and the e-commerce factor in general, they brought on new vendors.
You can get Ashley, you can Catnapper, I believe, in Aaron’s stores now. Franchisees were almost allowed to
get anything they wanted. They could go out and purchase it if they wanted it and bring it back in. If somebody
wanted a one-off, or they wanted a particular product. They’ve become a lot more flexible on that,
understanding that there were some constraints on the inventory levels. You can only carry so much and you
have got to, because people like I said, the consumer, even though their financial situation isn’t as ideal as
they’d want to it to be, they still want a new TV. They still want a new furniture, they don’t want something
somebody else has used or was in somebody else’s home. Inventory management is a huge, huge deal and you
have to really pay attention to what goes out. That, again, it varies by location as well, where one store, even in
the same city, depending on where your store is at, they may do a boatload of game systems in a store. On the
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other side of town, may not do any game systems. You can trade back and forth, which, again, is another
advantage of those stores. If store A in Denver has 10 game systems and store B has two, they can go get it and
transfer it into that store. Not only do you have individual inventory management but you have citywide and
district-wide and region-wide inventory management that you have to pay attention to.
[00:44:36]
Q: Could you discuss the marketing for Aaron’s physical footprint, such as rebranding stores? How has that
changed in the e-commerce environment? What is the marketing budget and what are some of the trends,
such as targeted ads? I know there’s a higher focus on digital, but what does that really mean?
JM: Aaron’s has always been a good marketer of their business. I really enjoyed the marketing people I
worked with there. Again, back to a few minutes ago, Aaron’s has always tried to separate themselves from the
rest of the industry. I think that’s what they’re doing in the next-gen stores, and the branding of just Aaron’s.
They’re upping their store appearance and store look because you have to have a little bit of… the customer is
getting younger. Like I said, they’re getting a little bit younger from my experience. You have to create a
customer experience for those younger customers. They don’t want some cookie cutter-looking thing. You
have to create a little bit of a customer experience. Their next-gen stores, new store look, the way in which you
refresh your stores ever so many years, that’s a big factor and so they will market towards that and then when
you go online in e-commerce, you’re going to take a look at the beautiful pictures of the store, and somewhere
where you really want to do business with. I think that’s what they’re getting after. They’ve always been good
marketers of their brand and their store and have been really proud of their store appearance and their store
layout and the size, compared to the competitors. Like I said, they’re always trying to separate themselves.
They do that through, they do a good job of that through their marketing. From what I can see, with the next-
gen stores, they’re stepping that up to another level at this point in time.
[00:47:11]
Q: It seems like the next-gen strategy is a priority for Aaron’s management team. Could you elaborate on what
they’re doing for those stores? What changes are they making to drive more traffic?
JM: They’re making it a more attractive place to shop. I don’t know that it’s totally static displays, but I think
that’s the way in which they want to go. When you have too much pre-leased merchandise on display,
customers will get turned off at that. They’re making sure that they have new product on display, from what I
can tell. The entire store was carpeted. There are going to be different levels of carpet, and different colours of
carpet, the old look, but now it seems like they’ve got carpet where there’s display, but walkway specific. We
used to have walkways too, but they were carpeted, so it was hard to tell, so people would display things
looking crazy. I think they’re getting their displays more crisp, to make it a better shopping experience when
people do come into the store. I think that obviously the look online is going to be better with the new-look
stores.
They’re just really trying up their game to have another advantage of doing business with Aaron’s vs the
competitors. It’s just another part of the evolution to where, like I said, you’ve got the younger people so you
may have more gaming systems on display than previously. You might have more gaming laptops on display
than previously. You have different furniture now, where even the younger people have heard of Catnapper
and Ashley vs Woodhaven. I think those are all targeted to where the business is evolving and therefore they’re
trying to capture. A lot of people still want to go in and see the merchandise, they want to sit in the living room
and feel it and touch it, and so on. That way, they’re having new product, better display, crisper
merchandising, better store environment, brighter, newer, so it’s more enticing to the consumer.
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[00:50:15]
Q: Could you discuss consumer loyalty? How often are consumers switching from Rent-A-Center to other
competitors in the lease-to-own market? Are consumers being more loyal to specific stores or will it be a much
more fragmented market where they are solely focused on price?
JM: Good question. The deal is, the lease-to-own has always been a relationship business. In reality,
consumers are loyal to the people in the store. If you have poor customer service, and/or if you have high
turnover in the store, they’ll be less loyal. Now, generally speaking though, they are very loyal brand, Rent-A-
Center, and I worked for Rent-A-Center for a good number of years as well. Customers were loyal to us, even
though Aaron’s may have lower prices. Once the customer realises that if they have a problem and you will
take care of it for them, they will stay loyal to you, whether that’s a product problem, a payment problem,
whatever it may be. It’s very much a relationship business. Rent-A-Center customers are fiercely loyal to them.
Aaron’s customers are fiercely loyal to them. With that being said, there were plenty of customers when I was
with either company, that also had accounts at the other company. They’re not so loyal that they’ll pay a hell of
a lot more for your product than they can get it across the street. If they’ve got a better deal, or something I
don’t carry, if I didn’t carry the newest game system or the newest washer and dryer or a front-load, or
whatever it may be, they have no problem crossing over. However, generally speaking, they’re extremely loyal
to the brand because of the people that are in the store working for that brand.
[00:52:46]
NH: We’re just about out of time but I think that’s a good place to end the Interview. Let me close by saying
thank you, Joe, for your time today. We covered a lot. It seems like a very interesting company post spin-off
and thank you clients for joining Third Bridge Forum’s Interview today. Have a good one.
JM: Awesome. Thank you. Appreciate it.
Transcription ends at 00:53:06 of the recorded material
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