Progressive Rentals July-August 2004

Capitol Steps by Ed Winn III

Tampa Time by Stephen Schenck

Mapping Out Rent-to-Own on Wall Street by Robert Straus

The Next Generation: An APROfile of Kelley Rentals by Kristen Card

Capitol Steps

by Ed Winn III

The Senate Banking Committee recently held a hearing on financial services reform, aka deregulation, which included testimony for and against S 884, the pending “Consumer Rental-Purchase Act of 2003.” It is the first time in more than 20 years that the world’s greatest deliberative body, the U.S. Senate, has actively considered RTO legislation. The first time the Senate looked at the industry was in 1983. It has taken this long to get RTO back on the table. A

HISTORICAL PERSPECTIVE

The first RTO bill in the Senate was sent by the Federal Reserve Board as part of a package to simplify the Consumer Leasing Act, much as the Truth In Lending Act had been simplified by the previous Congress. Senate Bill 1152 was described as a bill “to amend the Consumer Credit Protection Act with respect to consumer leases and rental-purchase agreements.” At the hearing in 1983, a National Consumer Law Center attorney testified with tales of expensive TVs and consumer abuse in Connecticut, Ohio, Pennsylvania and South Carolina.

At the time, whether the industry should have to disclose the total RTO price in the rental agreement was still actively being debated. This disclosure, one of six, was in the bill in 1983. The NCLC wanted the law to prevent “whispered options,” where the written agreement was for a rent-to-rent transaction and the purchase option was “whispered” to the consumer. The level of mistrust of industry practices was considerably higher then than now. There were also RTO customer witnesses, two from Miami, appearing with their legal aid attorney, one of whom testified that she paid $2,109 for a TV set worth $638 and, further, that while she had read her RTO agreement, she did not understand it.

Interestingly, the legal aid attorney testified that RTO agreements have their place in the economy: “Quite often we have a situation where a consumer will lose a job and there’s no extra money, there’s no savings account to tide them over until they find another job, so in some cases, they might prefer a rental agreement that they would not be obligated for the total of payments that they would be obligated to make under a retail installment contract. It’s an alternative financing method that might be valuable to some.” At the time, the furniture rental industry dwarfed RTO and representatives from that industry also testified. They explained that furniture rental dealers would not be able to make an accurate cash price or fair market value disclosure in a rental agreement because they literally never made cash sales and did not think that their rental consumers would be interested in such a disclosure.

Nor could the industry accurately disclose whether the rental property was new or used. This was because furniture rental customers signed agreements for, usually, apartments full of furniture, 12 to 20 items, which would later be chosen from the merchandise available in a warehouse somewhere. The red sofa might be new or it might be used. There was no way of knowing at the time the agreement was executed. The furniture rental industry opposed the pending bill as unnecessary and urged Congress not to disrupt “an already smoothly functioning industry.” Also appearing on the RTO issue in 1983 was a representative from the American Rental Association, which is the trade association for rental yards.

The ARA testimony was that the fledgling RTO industry threatened to ruin the good name of “rental” and that the law and everything related to RTO should be changed to “lease.” After this hearing in the subcommittee on consumer affairs, the full Senate Banking Committee voted the bill out of committee to the full Senate on a straight party-line vote. In the full Senate, the leasing/RTO bill was made part of the Omnibus Bank Deregulation bill, which was passed by the Senate during the waning days of the 98th Congress by a vote of 94-0. The Omnibus bill with the RTO language intact was sent to the House where no action was taken before Congress adjourned and so the bill died.

MAKING GAINS

Bits and pieces of the Omnibus bill were reintroduced in subsequent sessions of Congress. Some parts were passed, but the U.S. Senate has paid little official attention to RTO until lately. In 1993, Senator Metzenbaum introduced a companion bill to Representative Gonzalez’s efforts to regulate RTO out of business, but no action was ever taken on the Metzenbaum bill and Gonzalez’s bill died in his own committee. In the next Congress, in 1994, Senator Shelby introduced a companion bill to Representative LaRocco’s RTO bill, which the industry supported, but once again, both bills died in committee with no action being taken at all in the Senate.

The industry continued to make friends in the Senate and has not been without Senate supporters over the past decade. However, in the absence of any meaningful action in the House on RTO legislation, the Senate has taken a more passive roll on the RTO issue, preferring to get a bill sent over from the House before taking the issue up seriously. The House finally voted on RTO in 2002, this time as a stand-alone bill. There were contentious hearings, multiple mark-up sessions at the committee level and, finally, a full floor vote in the House and a close one at that. The bill passed 215–201 and was sent to the Senate in the closing days of the 107th Congress. The Congress adjourned before the Senate considered the bill.

A NEW ERA OF SUPPORT

In this new Congress, the 108th, the House leadership told RTO industry leaders that there would have to be action in the Senate before the House would reconsider the RTO issue. It was, therefore, with a sense of history and guarded optimism that the industry watched the Senate Banking Committee convene for a hearing on June 22. The title of the hearing was “Consideration of Regulatory Reform Proposals.” Importantly, the committee did not meet to consider any particular piece of pending legislation. Instead the committee met to hear testimony on a variety of issues of which RTO was one. In all, 19 witnesses testified and, in general, the testimony was about the relationships among and the powers of the different kinds of financial institutions in the country—large banks, small banks, state banks, federal banks, savings and loans, credit unions and industrial loan companies. The issues before the committee were many and complex. Here is a sampling of those issues:

• whether to allow interest to be earned on business checking accounts;whether to allow interest on Federal Reserve Bank depository institution accounts;
• whether to increase the flexibility of the FRB to set reserve accounts for national banks;
• whether to eliminate barriers to de novo branch interstate banking;
• whether to reduce cross-marketing restrictions of depository institutions controlled by one financial holding company;
• whether to extend the bank exemptions from investment adviser and broker-dealer registration requirements to savings and loans;
• whether to allow auto loans by savings and loans;
• whether to expand savings and loans’ authority to own credit card savings associations; whether to reduce the audit levels of community banks;
• whether to increase the commercial lending limits for savings and loans; • whether to simplify dividend calculations for national banks;
• whether to enact more efficient reporting requirements under the Bank Secrecy Act and the U.S. Patriot Act;
• whether to expand federal court jurisdiction for suits involving national banks and savings and loans;
• whether to expand the powers of industrial loan companies; and
• whether to recognize and regulate RTO transactions at the federal level.

In 1996, Congress enacted the Economic Growth and Regulatory Paperwork Reduction Act. That statute requires several federal agencies that regulate financial institutions to review all regulations every 10 years to identify “outdated, unnecessary regulatory requirements.” The first review period under this law ends in September 2006. Review has already been underway and many of the reforms called for by witnesses during this hearing stem from reviews instigated under this Act. Of the 19 witnesses called before the committee in June, two were U.S. Senators— one of whom, Senator Landrieu, testified solely in support of the RTO issue and S 884, of which the senator is the primary sponsor—seven were from federal or state government agencies with oversight over financial institutions, eight were from the financial services industry and two witnesses represented consumer interests on behalf of six different consumer organizations. One of the consumer advocates, the U.S. Public Interest Research Group executive director, mentioned the RTO issue in passing and offered the traditional criticism of the industry—that of too high prices for ownership, with nothing new.

The consumer advocates were against nearly every proposal advanced in the name of regulatory relief. Their task to identify and criticize every proposed change with any perceived anti-consumer impact was so daunting that the legal aid witness felt compelled to declare to the committee that just because she did not actively condemn a proposal, her silence was not to be taken as an implied approval by the consumer advocate groups that she represented. The hearing was a smooth, non-conflicted affair. The witnesses testified with few interruptions and few questions. Landrieu was the first witness to testify and her understanding of and support for the RTO industry and her bill was much appreciated by the committee. The only negative comments about RTO came several hours later when the U.S. PIRG witness gave the issue 30 seconds of his time.

THE NEXT CAPITOL STEP

With the Senate hearing over, the industry will look to the House to take up the RTO issue again. The House can streamline the legislative process if it wants to since the pros and cons of the pending RTO bill were so thoroughly ventilated in the last Congress. And it is a good thing that the House can move swiftly, because in a presidential election year, there are not many days left when Congress is convened for business. There is always much work awaiting a Congress toward the end of a legislative session, as now.

Late night deals get struck and bills move when the pressure to get things done disturbs the natural inertia that is a built-in part of the legislative process. Rental dealers as citizens have done a Herculean job in recent years heating up the level of congressional attention to the truths of the RTO industry. Passage of a stand-alone RTO bill by the House showed Congress the seriousness and resoluteness of purpose of the supporters of RTO legislation. Now, with action in both the House and the Senate, Congress may be ripe for passage of an RTO statute at long last. It has been long time coming.

Ed Winn III is APRO’s general counsel. His e-mail address is edwinn@e-bylaw.com.

Tampa Time

by Stephen Schenck

It’s that time of year again, when company executives, store owners and their employees converge at the annual APRO Convention and Buying Show to find out the latest and greatest in the world of RTO. Now that the 2004 show is ready to go and choc full of insightful guest speakers and endless exhibits, Progressive Rentals set out to discover more about our host city, Tampa Bay, and all it has to offer.  What we found were rich histories, vibrant cities, eclectic communities, lazy beaches, kid-friendly parks, colorful museums, happening night spots, good eats and much more. 

Terry Beville, vice president and CFO of Buddy’s Home Furnishings, as well as the current president of the Florida Rental Dealers Association, has lived in Tampa for 55 years. “Tampa is a great place because there’s so much to do in and around the city,” he says. “You have Busch Gardens, the Florida Aquarium and the beaches are a short drive from the hotel. Then you have places like Disney World just a couple hours away.” (See sidebar at on the following page.) 8 So, whether you’re planning a vacation around the convention or are here only for business, take some time to learn about Tampa and the hot spots you shouldn’t miss! TAMPA BAY HISTORY Although our hotel, the Tampa Marriott Waterside, is technically located in the heart of Tampa (population 300,000), the city of Tampa actually lies within a much larger metropolitan area, known as Tampa Bay.

No longer just a body of water on Florida’s west coast, Tampa Bay is home to more than two million people and encompasses Tampa, St. Petersburg, Clearwater, Tarpon Springs and all the stops in between. It is the most populous metropolitan area in Florida and also the state’s largest television market. The history of Tampa Bay can be traced back to Native Americans who settled in the area hundreds of years ago, naming their village “Tanpa,” meaning “sticks of fire.” The spelling became “Tampa” on the maps of early explorers, two of which were Ponce de Leon, who began his search for the fountain of youth south of Tampa in 1521 and Hernando de Soto, who sailed into the bay to search for gold in 1539. Despite these early visits, the western coast of Florida wasn’t the focus for settlers until the United States purchased Florida from Spain in 1821 and promptly set up Fort Brooke in what is now downtown Tampa. Over the next century, Tampa Bay would see an influx of industry and new settlements, eventually creating the metropolitan area we know today.

LOCAL CULTURE

Ybor City (pronounced EE-bore) played a significant role in the development of Tampa Bay. The city takes its name from Don Vicenté Martinez Ybor, a cigar manufacturer and Cuban exile who brought his cigar business to the area from Key West in 1885. After the first cigar factory opened a year later, more Spanish cigar manufacturers followed, transplanting their factories and workers to Tampa. At its peak, the cigar industry employed nearly 12,000 Spanish, Italian, German and Cuban workers and produced 700 million cigars a year. After being revitalized in the early 1990s, Ybor City is now designated as one of three National Historic Landmark districts in Florida and is a center for nightlife in Tampa.

Ybor’s cobblestone streets also feature upscale dining, shopping, Cuban sandwiches, traditional hand-rolled cigars and museums. “A perfect day for someone new to Tampa would probably include a visit to Busch Gardens in the morning, then in the afternoon I’d take the trolley to the historic district of Ybor City,” says Melissa Sulsberger, director of marketing at Buddy’s Home Furnishings. “Ybor City has a bunch of Spanish restaurants. My favorite is Columbia. It’s 80 years old and has flamenco dancers and really captures the flavor of old Tampa.” Founded in 1905, Columbia Restaurant (812/248-4961) is Ybor City’s most famous attraction and is impossible to miss. The restaurant has a Mediterranean style and is enormous—stretching a full city block and holding up to 1,600 people. Columbia offers authentic Spanish- Cuban cuisine, such as paella and empañadas, as well as a wide selection of seafood and meat entrées, tapas and sandwiches. The restaurant is also well known for its lively atmosphere, complete with flamenco dancers. In fact, the Tampa Tribune listed Columbia as one of the 10 best Tampa Bay attractions.

FAMILY FUN

Busch Gardens (813/987-5000), Tampa’s No. 1 attraction, is one of the many reasons why Tampa is a favorite destination for families and children. The park contains adventure rides, shows, shops and restaurants, spread out over 300 acres of various “African lands,” such as Egypt, Timbuktu and Morocco and is guaranteed to wow kids and adults alike. More than 2,700 exotic animals from around the world wander freely as rides allow you to pass over and around them. The park also features roller coasters and a raging river ride. Adult admission is $49.95; for children ages 3 to 9, admission is $40.95.

Adventure Island (813/987-5600), located next door to Busch Gardens, is also owned by Busch and is considered one of Florida’s best water parks. Attractions include the Tampa Typhoon, the Endless Surf Pool, the Splash Attack Maze and the Caribbean Corkscrew. Admission is $27.95 for adults and $25.95 for children 3 to 9 (plus tax).

Both Busch Gardens and Adventure Island are located in northeast Tampa, about 30 minutes from the hotel. For family entertainment within walking distance or a short trolley ride from the convention center, the Channel District, along Channelside Drive, has much to offer. While walking along the waterfront, you can watch cruise ships dock in the Port of Tampa, stop in for a movie at the IMAX theater or relax at the many restaurants, dance clubs, piano bars and unique shops along the way. The Florida Aquarium (813/273-4000) is the focal point of the district and is part of the Garrison Seaport Center.

With more than 152,000 square feet tucked beneath a seashell-shaped dome, exhibits recreate various water environments inhabited by sharks, angelfish, jellyfish and octopi. Popular features are a tank that holds sharks and rays that are safe to pet and the daily shark feeding shows. Admission for adults is $15, while seniors pay $12 and children $10. Stump’s Supper Club (813/226-2261) is also located in the new Channelside complex downtown and features “Southern cooking and deep-fried dancing.”

The menu offers traditional Southern fare, from cornbread and black-eyed peas to barbecue ribs and meatloaf, as well as a variety of steaks and seafood. After dinner, you can cut loose on the dance club floor or check out one of the bands playing onstage.

THE GREAT OUTDOORS

As awesome as its commercial attractions may be, for many it is Tampa’s natural beauty that will always be its top selling point. From its tropical weather and near constant sunshine to its white sand beaches and deep-sea fishing, Tampa Bay was made for people who love to get outside and leave the city behind. “One of the best parts of living here is definitely the weather because the sun is always shining and the winters are really mild,” says Joe Gazzo, president of Buddy’s Home Furnishings. “Of course, in August it’s hot and the humidity is going to be 100 percent, but Tampa culture is very outdoorsy.

People are always out rollerblading or jogging, especially along Bayshore Boulevard.” Known as the world’s longest sidewalk, Bayshore Boulevard borders Tampa Bay for 4.5 miles without a break and is frequented by joggers, skaters, walkers and bikers. “Tampa was much smaller when I first arrived 23 years ago,” says Melissa Sulsberger. “It has boomed during the past several years, but probably the first thing that made an impression on me was the beaches, which are great.” Ben T. Davis Municipal Beach (813/274-7719) is Tampa’s lone saltwater beach, which lies on the Courtney Campbell Causeway, in northwest Tampa, but for the serious beach bum, St. Pete Beach and Clearwater are the places to be. St. Pete Beach is located on Long Key, a 7.5-mile island just west of St. Petersburg, and is famous for its interesting history, as well as its beaches.

The pink, 70-year-old Don CeSar Resort was once a stomping ground for 1920s celebrities such as Al Capone and F. Scott Fitzgerald. Clearwater Beach, though not as well known as St. Petersburg or St. Pete Beach, has beaches that rival any beach along Florida’s western coast. About a 30- minute drive from Tampa, Clearwater also is abundant with other recreational activities.

Boat tours, like the ones offered at Sea Screamer (727/447-7200) take families on hour-long trips visiting dolphins, beaches and the Gulf. In addition to tours, scuba diving, snorkeling, parasailing and fishing charters are available along Clearwater Marina. “I like fishing, so if it was up to me I’d charter a boat in Clearwater and do some deep sea fishing,” says Gazzo. Gypsy (727/461- 4882), also located along Clearwater Marina, offers fishing charters for six people or less at a rate of $75 per hour.

Stephen Schenck is a free-lance writer based in Austin, TX.

Mapping Out Rent-to-Own on Wall Street

by Robert Straus

Rent-to-own operators are benefiting from strong fundamentals in the rental industry. The industry generates annual revenue of approximately $6 billion and has grown 5 percent, on average, over the past five years. RTO operators are becoming a more visible group as indicated by a 23 percent increase in the Association of Progressive Rental Organizations’ member stores in 2003 versus 2002. (This percentage excludes the stores of Aaron Rents, the industry’s second-largest operator, which only joined APRO in November 2003.)

RTO continues to provide opportunities that are especially attractive for entrepreneurs. Unlike many traditional retail businesses, RTO operators tend to generate comparatively strong cash flow, which has resulted in a fragmented industry composed of profitable small operators. My job is to search for compelling investment ideas that I consider under- or over-valued—often because a company or industry is misunderstood or less visible. To build an investment case, I conduct in-depth industry interviews, read up on my subject company and its competitors, aggregate industry data and seek stock specific catalysts. In general, I favor companies with strong competitive positions and solid management that operate in niche markets.

As a screening tool in the search for investment opportunities, I use a proprietary database with more than 900 consumer and retail companies. Also, I emphasize the analysis of cash flows and valuation parameters—how is my subject company valued on various financial measures, on an absolute basis and relative to its publicly traded peers.

PLENTY OF ROOM FOR GROWTH

Based on my discussions with public and private RTO operators, I believe industry growth trends remain solid. My industry checks suggest that the number of RTO operators is on the rise, which is an encouraging sign. Independent operators appear to be attracted to RTO’s cash flow potential and the industry’s view that customers can be served better by a smaller-scale operation. At present, the RTO industry has 3 million U.S. clients. By my estimate, this represents only 7 percent of the industry’s addressable market—based on the most recent U.S. Census indicating that there are roughly 44.5 million U.S. households that generate annual income of $15,000 to $50,000, the RTO-opportunity sweet spot.

These strong macro industry fundamentals should support the efforts of large and small operators. The RTO industry serves the needs of a specific consumer segment that is not met by traditional retailers. It’s a niche segment of retail. The RTO operator provides an alternative for consumers who lack the credit or available cash to purchase goods such as major appliances, furniture and electronics. There are three types of RTO customer: 1) consumers who lack credit or the available cash to purchase goods at typical retailers; 2) consumers and businesses that have temporary needs; and 3) customers who have the credit or cash availability, but have an interest in trying out a particular brand or model before making a final purchase. In my estimation, more than 90 percent of RTO customers are those who lack credit or the available cash to purchase merchandise at traditional retail stores.

These customers are drawn to the flexibility of RTO agreements, which offer an option to purchase merchandise, yet allow the customer to be free from obligation beyond a weekly or monthly commitment.

THE RTO GROWTH, CASH FLOW AND TURNAROUND STORIES

The top-three publicly traded companies offer three distinct investment opportunities: Aaron Rents as the growth play, Rent-A-Center as the cash flow story and RentWay as the turnaround story. As a result of these different perspectives, there is opportunity in the RTO sector for many different types of investors. Risks that may affect these companies include uncertainty regarding federal regulation, pressure from consumer advocacy groups, acquisition-related integration risk and failure to implement key strategies and growth plans. Aaron Rents is an industry leader that is generating record growth. Aaron’s primary business is the operation of RTO stores in its Sales and Lease Ownership division.

If we apply the “same-store sales” metric to SLO (same-store sales is used to measure the growth of existing operations), we find that Aaron stores are currently increasing at a low double-digit pace year over year. The company reported outstanding financial results in the first quarter ending March 2004. Its rental agreement growth drove a first-quarter same-store sales increase of 13.7 percent, especially impressive following year-ago growth of 14.1 percent. The company’s store expansion plans appear to be on track. In 2004, Aaron’s primary growth driver will be roughly 70 new company- owned and 70 new franchise locations. Further, its franchisee success has resulted in strong demand for its franchise license rights and has allowed the company to raise its initial franchise fee and franchise royalty fee. The company purchased approximately 25 stores year to date and could acquire a total of 50 stores by yearend. In my view, execution of new-store openings will be the key to this story.

Rent-A-Center is the largest RTO operator with approximately 3,000 locations. The company generates significant free cash flow (cash flow from operations minus purchases of property assets), which has been used to fund new store openings, acquisitions and share repurchases over the past three years. Rent-A-Center’s new store operations are outpacing the company’s internal expectations. The company is expected to continue to increase its store base through a combination of acquisitions and new store openings. In 2004, I expect Rent-A-Center to open approximately 100 new locations. The company has made two sizeable acquisitions already this year: Rainbow Rentals, which operated 124 stores in 15 states, and Rent-Rite, which operated 90 stores in 11 states. The key to success for RAC will be to reinvigorate revenue growth.

Last but not least, RentWay is a turnaround story returning to rental basics. The company emerged from financial and legal troubles approximately 12 months ago and has not looked back. In June 2003, a refinancing significantly strengthened Rent- Way’s balance sheet. Management has been able to return its focus to store operations. The company has restored rental revenue momentum with a same-stores sales increase of 2.5 percent in the fourth quarter of its fiscal 2003 (the fiscal period ended September 2003), 6.6 percent in the first quarter of its fiscal 2004 (ended December 2003) and 6.9 percent in the second quarter of fiscal 2004 (ended March 2004). RentWay’s rental collections also are showing improvement, with on-time receipts increasing to slightly over 92 percent as of its fiscal second quarter ended March 2004; this compares to 91 percent in the year-ago period and 89.7 percent in the first quarter ending December 2003. RentWay remains well positioned in the RTO market and look for the company to start expanding its store base—something it has not done in about four years.

EXPANSION OPPORTUNITIES IN THE WEST, CANADA AND MEXICO

In 2003, Rent-A-Center Chairman and CEO Mark Speese said he believed “the industry can add another 6,000-plus stores before it is saturated”—to 14,000 locations from the current 8,000.My discussions with industry contacts suggest that expansion throughout the western United States is likely to be a focus over the next several years. International markets—specifically Canada and Mexico—should provide additional growth opportunities for RTO operators. Other international markets may be of interest to U.S. RTO operators on a franchise basis, including New Zealand and Australia.

Canada is a promising near-term market for U.S. RTO operators. In 2003, Aaron Rents became the first U.S. operator to enter Canada with six franchise stores in southwestern Ontario. In March 2004, Rent-A-Center entered Canada with the purchase of five stores in Edmonton and Calgary. Our industry checks suggest that there are about 200 RTO stores in Canada at present. Easyhome is Canada’s largest RTO operator, with 133 locations. Rent Cash, whose primary business is payday loans, is currently the second-largest Canadian RTO operator, with five locations.

The Canadian RTO industry shares several similarities with the U.S. industry, including: merchandise remains in the system for approximately two years, the average rental length is about 18 months and the total cost of merchandise ownership for the client is roughly four times the RTO operator’s cost to buy it. I believe RTO in Canada is in the early stage of its development and in some ways is similar to the U.S. market 20 years ago. For example, there are currently no laws regulating RTO in Canada. Canada also has a more rural topography. To date, this has translated into solid profits for RTO stores despite lower volumes. On a final note, investment interest in the RTO community is strong due to its positive outlook and continued growth potential, both here and abroad. I look for the industry to continue to garner investment interest in the coming years, especially in light of the possibility of the passage of federal legislation.

Robert D. Straus has eight years of Wall Street experience and covers the consumer and retail sector as a senior analyst for Independent Research Group. He has appeared on CNBC and Bloomberg Television. Straus also has been interviewed by The Wall Street Transcript and national publications, including The Wall Street Journal, Business Week, Investor’s Business Daily and The New York Times. IRG Research is a registered broker-dealer providing hedge funds and institutional money managers with unbiased and differentiated equity research. IRG Research is headquartered in New York City. The Next Generation:

An APROfile of Kelley Rentals

by Kristen Card

When Bobbie Mitchell moved with her husband, Grady, and their two young sons, Chad and Derek, from Winston Salem, NC, to Danville, VA, in 1981, she thought her involvement in her husband’s new retail appliance and electronics store was going to be temporary. Just a few months, they decided, until the store was up and running. Then she’d stay at home with the boys. Twenty-plus years later, things have turned out differently. Very differently. Bobbie never did quit working at their store, which quickly evolved into a booming rent-to-own business. Rather than staying at home with Chad and Derek, she simply brought the boys to work— and then put them to work. And when Grady died unexpectedly in 1995, Bobbie became owner and president of Kelly Rentals (www .kellyrentals.com), feeling rather lucky to have missed stay-at-home-momhood. “One thing I was thankful for was that I had been involved in the business from the very beginning,” Bobbie—now remarried, with the new surname Floyd— says. “If I hadn’t been, then I’d have been at a total loss. But I was prepared to run the business.”

A TWO-WOMAN SHOW

And run it Bobbie Floyd has—like a marathon. Today, Kelly Rentals has 18 stores and 150 employees throughout Virginia and North Carolina. But Bobbie definitely hasn’t done it alone. Jo Ann Grainger, Bobbie’s righthand woman and a kind of second mother to her sons, is the company’s general manager and secretary. As the Mitchells’ first-ever employee, Jo Ann marked 20 years with the company just as the company itself celebrated its 20th anniversary last January. “We hired Jo Ann when we decided to have rentals at the back of our retail store,” says Bobbie. “It wasn’t even a separate section; she had a cordless telephone and a file cabinet.”

Despite her sparse setup, Jo Ann worked industriously and, before long, it became clear rentals were a much more profitable path. The retail portion of the Mitchell’s business faded away to make room for Kelly Rentals. “Before I came to the rent-to-own business, I never had a job that kept me busy,” Jo Ann says. “This is a business where you never have a dull day—it’s been so many years since I’ve seen the light at the end of the tunnel, I can’t remember what it looks like. But it’s exciting; it’s a challenge every single day. I wanted a job that I wouldn’t be bored with and wanted job security. It’s really been the answer to the things I was searching for in a career.” The appreciation is mutual. “Jo Ann has been a godsend,” Bobbie says. “I depend upon her 100 percent as far as making the right decisions for the business. Whenever I have to be gone, I know she’s going to be right here, taking care of business just as if I were here. She’s an exceptional employee and a great friend.” And so the mom-and-pop shop turned into a two woman business until 1997, when Chad Mitchell, freshly graduated from the University of Virginia with his degrees in economics and government, stunned his mother and their family friend by announcing his intentions to join the family business.

“I never had any pressure from my parents at all to go into the rent-to-own business,” Chad says. “They sent me off to college, paid for it, and left it up to me to decide what career I wanted to choose. “My last year in college, I decided I had a great opportunity to come home and try to grow the business,” he says. “It was left in good hands with my mom and Jo Ann. I wanted to come home and continue what my dad had started. That’s how I saw it.” Three years later, younger brother Derek—following his graduation from Virginia Tech with a history degree—followed suit. “I went to school and changed my major a lot and stuck with history because I thought teaching was what I wanted to do. Somehow—it didn’t have to be in a classroom, but some sort of teaching,” Derek says. “And the more I thought about it, the more I thought about coming to Kelly Rentals and working in the human resources department, training new associates, teaching them.” “[The boys] really spent a lot of time during their younger years at the store,” says Bobbie. “They worked at the warehouse and just did odd jobs here and there. But they hadn’t given me much of an inkling that they wanted to come into the family business. I was really proud they wanted to do that. I was thrilled.”

THE KELLY RENTALS MANAGEMENT QUARTET

The breakdown of duties among Kelly Rentals’ leadership quartet seems fairly clear-cut: Bobbie and Jo Ann are responsible for keeping operations running smoothly; Chad and Derek—as director of merchandising and marketing and director of development and growth, respectively—are in charge of expanding the company. “Grady’s dream was to grow the company,” says Jo Ann. “We’ve tried to open one or two stores a year, get them on their feet, then move on to a couple more. We’ve tried to do a steady, healthy growth that we could keep up with and manage as we grew.” Bobbie adds with pride that every single Kelly Rentals store was “made” from scratch—no acquisitions or mergers here.

“We just grow as we can afford to grow,” she says. But with two twenty-somethings stepping in, Kelly Rentals’ expansion rate is stepping up. According to the brothers, the company now intends to launch two or three stores annually, with the ultimate goal of having 40 stores active within the next nine years. “The main thing allowing us to accelerate our growth is these two young men coming into our company, taking a lot of the load and giving us a new vision,” Jo Ann says. “I think all companies can use the vision of youth. We feel like Kelly Rentals’ future is brighter than ever.” While the company’s growth pattern may be accelerating, its core values are intact. The keys to Kelly Rentals’ success are as down-to-earth and straightforward as the tight-knit extended family that serves as the example for them: Treat customers with the utmost respect. Offer a fine quality product. Train your associates comprehensively. Take care of your employees and they will take care of your customers. “What do I think makes the difference?” Bobbie says. “Being honest with your customers and fair with everyone. And just treating everyone like you want to be treated.”

PROTECTING THE KELLY INTERESTS

Something else the foursome agrees makes a real difference— not just for their business, but for the rental purchase industry overall—is political participation. Kelly Rentals has been a member of the Association of Progressive Rental Organizations since 1987; Derek has been the company’s key attendee at APRO’s annual legislative conference for the past four years. “When I first came to the company, I was wet behind the ears,” Derek says. “I really didn’t have much knowledge of our government and how it works. When I went to the APRO Legislative Conference the first year, I learned real quick how it all works.” Derek and his Kelly Rentals colleagues picked up the ways of Washington, D.C., so quickly, in fact, that they held more meetings with lawmakers to urge support for federal RTO legislation than any other APRO member company for two consecutive years. Derek is powerfully motivated by the fact that while Virginia has its own state law to safeguard rental-purchase businesses, North Carolina—where Kelly Rentals’ growth is currently centered— doesn’t.

“APRO is our voice,” says Derek. “It gets our message across, it gets the rent-to-own industry out there in a good light. There are people out there who are against our business and might get their message across better than us and we could be on the street. That’s always the fear at the back of my mind; I’m going to do what I can to make sure that doesn’t happen.”

CARVING OUT A LEGACY

The Kelly Rentals team has its self-directed work cut out for it, with high expectations for themselves, their company and their industry. And though their quiet Southern accents and genteel manners might make you wonder whether they possess the drive to deliver, don’t— this quartet is a well-oiled business machine, ready to carve out a strong rent-to-own legacy that can proudly be passed down from parent to child. Which is exactly what Bobbie Floyd envisions. With both Chad and Derek married and Chad’s second son due this autumn, Bobbie’s working to make sure Kelly Rentals is something worthy of keeping within her family for generations to come.

“Hopefully, this business will be left to the boys someday,” she says. “They’re going to need to continue to work hard, because I don’t want to see our business bought out by somebody, like so many smaller companies are doing nowadays. I don’t want to see that happen to Kelly Rentals.”

Kristen Card is an independent business writer in Austin, TX.