Brief

These industries, such as rent-to-own stores, serve the “sub-prime” or “unbanked” consumer, which basically means lower-income households with limited access to credit, renters, minorities, migrant workers, and the divorced. Many of these consumers do not have a bank checking account and rely on small non-secured loans to meet weekly or monthly bills, or emergency situation such as unexpected car repairs or medical bills. Services such as these are popular because they are more convenient than traditional banks, available to consumers seven days a week and for extended hours. Consumers realize that these services charge high interest rates, but they don’t mind.

In the U.S., at least 9 million households are “unbanked”. According to data released by the Fair Isaac Corporation on September 10, 2019, consumers in the “sub-prime” category (those with credit scores below 650) made up approximately 28% of the United States population.

Many of these consumers cannot maintain sufficient balances to avoid high monthly fees, write too few checks to need a checking account or have too little income to justify a savings account. Additionally, the decline of bank branches in many lower income and inner city neighborhoods has made a banking relationship inconvenient for many consumers.

Rent-to-own stores revenues

The rent-to-own stores industry emerged in the 1970s, in response to a growing consumer need to obtain household goods without incurring debt. The service appeals to lower income consumers that don’t have the cash or ability to make large purchased.  It is comprised of dealers who rent furniture, appliances, computers and other electronics, musical instruments, wheels and tires and jewelry. The industry is estimated to serve 4.8 million U.S. households in any given year.

According to the industry’s main trade association, APRO (Ass. Of Progressive Rental Organizations), a nonprofit trade association advocating on behalf of the rent-to-own industry, the industry had revenues of $8.5 billion in 2012 and operates about 10,000 stores. The industry has grown since 2012, at a fairly steady rate, and growth is reported to have accelerated since 2015. Marketdata estimates the industry’s revenues in 2019 at $11 billion.

Currently, 46 states, the District of Columbia and Puerto Rico have rental purchase statutes that recognize and regulate rental purchase transactions as separate and distinct from credit sales. Eleven states limit the total rental payments that can be charged to amounts ranging from 2.0 times to 2.4 times the disclosed cash price or the retail value of the rental product.

Rent-To-Own Stores Industry Definition

 The rent-to-own stores industry emerged in the 1970s, in response to a growing consumer need to obtain household goods without incurring debt. The service appeals to lower income consumers that don’t have the cash or ability to make large purchased.  It comprises dealers who rent furniture, appliances, computers and other electronics, musical instruments, wheels and tires and jewelry. The industry is estimated to serve 4.8 million U.S. households in any given year.

A rent-to-own transaction differs from a traditional lease, in that the lessee can purchase the leased item at any time during the agreement (in a traditional lease the lessee has no such right), and from a hire-purchase/installment plan, in that the lessee can terminate the agreement by simply returning the property (in a hire-purchase the buyer has a limited time, if any, to cancel the agreement).

The usage of rent-to-own transactions began in the United Kingdom and Europe, and first appeared in the United States during the 1950s and 1960s. 

While rent-to-own terminology is most commonly associated with consumer goods transactions, the term is sometimes used in connection with real estate transactions.

Major Rent-To-Own Stores Industry Trends & Issues

 Like many industries, the lease-to-own industry has been transformed by the internet and virtual marketplaces. Competitors believe that the traditional store based lease-to-own industry has been negatively impacted in recent periods by: (i) commoditization of pricing in consumer electronics; (ii) the challenges faced by many traditional “brick-and-mortar” retailers, with respect to a decrease in the number of consumers visiting those stores, especially younger consumers; and (iii) increased competition from a wide range of competitors, including national, regional and local operators of lease-to-own stores; virtual lease-to-own companies; traditional and e-commerce retailers; traditional and online sellers of used merchandise; and from a growing number of various types of consumer finance companies that enable our customers to shop at traditional or online retailers.

The lease-to-own industry has experienced steady growth, and revenue gains have accelerated since 2015. The lease-to-own industry is introducing rapid change with the emergence of virtual and kiosk-based operations at retail partner locations, un-manned or virtual lease-to-own options, or a combination of the two (the hybrid model). These new industry participants are disrupting traditional lease-to-own stores by attracting customers and making the lease-to-own transaction more acceptable to potential customers.

Another trend of note is the increase in count and revenue for RTO’s e-commerce segment and a decrease in store and customer count for brick-and-mortar stores.

For the “alternative financial services” industry in general, of which RTO stores are a part:

 The industry is mature and fragmented, with many small competitors and several large competitors.

• The largest competitors have grown by the acquisition of smaller players, franchising, new technologies, and expansion into overseas markets such as Latin America.
• The shift to more online services and apps has been accelerated by the Covid-19 pandemic. Online services account for an increasing share of the business in all five sectors.
• Many alternative financial services fare better in bad economic environments, such as recessions.
• There is substantial cross-over between the five sectors. Check cashing companies may also be engaged in money transfer and pawn operations. Pawn shops may offer check cashing and payday loans.
• The U.S. government has staged on-again/off-again crackdowns against the high costs of alternative financial services, depending on who is President. Republicans tend to be less restrictive than Democrats.
• The number of retail storefronts (check cashing outlets, pawn shops, payday loan stores, rent-to-own stores) has been declining during the past 5-7 years, as more operations move online and consolidation takes place.
• There are an estimated 9 million “unbanked” households in the United States.
• Covid-19 has affected all five segments of this industry, some more than others.
• There are several pockets of growth: online installment loans and apps that are replacing traditional payday loans, and money transfer services helped by increased worldwide migrant movements. During just the past five years, online installment loans have gone from being a niche offering to a hot growth industry.

Rent-To-Own Stores Industry Size & Growth

2020 Performance

 This industry generally does well when the general economy is bad. Right now, companies like Rent-A-Center are doing well. Rent-to-own stores do better during recessions.

RAC management projected a 5.4% increase in 2020 revenues. Economic uncertainty has left low- and middle-income consumer either unwilling to part with savings or unable to secure credit when their appliances need to be replaced. Working and schooling from home has also forced households into temporarily needing a second and maybe a third computer. Other consumers haven’t lost their jobs, but are worried about the possibility and don’t want to get overextended.

In addition, RTO companies have gotten a boost from e-commerce sales. Online sales represented 19% of RAC’s sales in Q2 2020—up from 12% the prior year. For the full year, RAC projects revenues between $2.78 and $2.83 billion (vs. $2.67 bill. In 2019).

As a result, based upon the weighted increase of the two companies for the first half of 2020, Marketdata estimates that the industry’s revenues grew by 6.0%, reaching $11.69 billion.