How Rent-A-Center Diversifies Financial Lenders’ Portfolios By Refranchising With Experienced Multi-Unit Owners
Over the last 30 years, Rent-A-Center has risen to the highest levels of brand recognition with nearly 2,500 locations and dominance of around 35 percent of the entire rent-to-own market space in the U.S. Over the last year in particular, Rent-A-Center has leveraged its unique positioning to empower local business owners to franchise corporate-owned locations around the country.
With more than 250 of the brand’s stores now owned by franchisees local to their markets, Rent-A-Center’s refranchising effort continues to target experienced multi-unit franchisees looking to purchase the rights to an entire market as area developers. Each market typically consists of 30 to 50 existing stores, allowing owners to hit the ground running with a cash-flowing business.
Rent-A-Center partners with a select group of banks and lenders that have a deep understanding of the business to further the momentum of the brand’s refranchising initiative.
“While getting uninitiated lenders to understand the complexities of our business is more work on the front end, we’ve found that once we get lenders on board, they enjoy the partnership so much that they engage us to present them with additional franchise prospects,” said Cathy Skula, Executive Vice President of Franchising at Rent-A-Center.
The rent-to-own leader’s business model is unique in that a franchisee purchases not only hard assets in the form of inventory—furniture, appliances and electronics—but also a portfolio of customer rent-to-own agreements.
“When a franchisee purchases a store, existing customers may be at any point within the 78-week rent-to-own agreement,” explained Skula. “A franchisee is essentially buying a business portfolio within the business, as customers continue to make their weekly payments after the franchisee purchases the store. Once we get lenders to understand the receivables involved, they become much more comfortable with what differentiates us from a traditional retail business.”
Skula said that Rent-A-Center targets lenders with experience in the franchise space looking to diversify their portfolios from food and retail brands. While franchise lenders are most often approached by systems seeking financing options for single- to triple-unit franchisees, Rent-A-Center offers lenders a valuable opportunity to work exclusively with established owners who are subsequently also looking to diversify their portfolios by entering the unique segment.
“We match our lenders with franchise prospects looking to buy 30 to 50 or more stores. These prospects are all well-heeled, well-qualified franchisees. They’re not typically people looking to liquidate their 401(k)s and open their first business—they already own 50, 75, or over 100 units in another system,” said Skula, “And that’s very attractive to our lender relationships.”
Skula said that one of the most common misconceptions about the rent-to-own space is that losses are high compared with other retail businesses. “Because we do not do credit checks, people are always surprised to learn how low our losses have run historically,” she said.
The refranchising effort thus far has been a major success. “Our pipeline is packed, and it’s mostly referrals,” said Skula. “Our existing franchisees have enjoyed controlling local Rent-A-Center markets so much that they are telling other multi-unit franchisees.”
Rent-A-Center’s Vice President of Finance, Daniel O’Rourke, will be speaking at the Franchise Times Finance and Growth Conference taking place in Las Vegas May 6 to 8. With the support of Skula, O’Rourke will give a financial presentation regarding the rent-to-own sector, within which Rent-A-Center is the only brand leading a refranchising effort. They will also address several timely issues affecting the franchise industry at large.
“We are in the retail industry, but we are uniquely positioned to be somewhat insulated from Amazon by the nature of our business,” said Skula. “We are a good diversification play for franchisees of other concepts such as food. Our stores operate with just five employees, which is attractive to those concerned with the impact of rising minimum wages. At the same time, rising wages around the country help our customers. We believe the current environment is opening a lot of opportunities for franchisees interested in getting into our business.”
To learn more about franchising opportunities with Rent-A-Center, visit http://www.racfranchising.com/.