RTOHQ: The Magazine December 2008 - January 2009

Surviving a Bad Economy 101: Back to Basics
by Bud Holladay

In a year when 22 national retailers filed for bankruptcy and another 52 chains saw their credit ratings downgraded to some level between “Skip/Stolen” and “Disputed Account,” some rent-to-own dealers may be tempted to reinvent the business. All the constant yammering about toxic debt, subprime shenanigans and corporate greed can create misplaced urgency the first time our own numbers head south. So this is a good time to revisit the basics that underpin a sound operation. Start by ignoring events and voices outside our four walls and focus on what is going on inside rent-to-own. What’s happening here will largely determine who is still open this time next year.

For most companies, it’s a nuts-’n-bolts thing; not a mathematical or financial equation. If you doubt this, check the 22 percent dive in stock prices following the first round of bank bailouts. Apparently the smart money believes—rightly—that a badly managed business with a lot of cash won’t perform any better than the same business with no cash. Didn’t TransAmerica and Chrysler figure this out decades back? From day one, we have believed that rent-to-own is a recession-proof industry. Certainly, any economy that leaves most consumers still employed but fearful of things to come, with fewer places to buy and even fewer ways to finance big-ticket purchases, is an incubator for rent-to-own growth.

Households still have clothes to launder, food to chill and bodies that need rest, sleep and recreation. Those things don’t go away. But unhappy or under-served customers do go away. More than nifty marketing or clever merchandising, your ability to properly execute the basics on a day-in/day-out basis will determine whether your operation will thrive or dive in coming months. What follows is an abbreviated accounting of the things every store manager should know and every district manager should inspect and measure regularly to stay alive in a dead economy. Take care of these and most everything else falls into place. CustomerService. Everyone on the payroll must buy into the proposition that the customer we are working with right now is the reason we have a job—he is the person who feeds our family, pays our bills and secures our collective futures.

More than just posters and motivational talks are required to accomplish such agreement. If employees fear bending a rule more than they fear losing a customer; if a local manager can’t make on-the-spot decisions that will positively impact revenues for months to come; if district managers are fact-checkers instead of coaches, nobody will be willing to take a calculated risk just to keep a customer happy. This doesn’t mean that you must give away the store. Smart operators routinely review and adjust advertising and pricing to stay competitive in changing markets. Even smarter ones apply the same process to policies and procedures to ensure they support initiatives that can make our customers feel good—about walking through our doors, about referring friends and relatives, about paying as agreed. Such is the stuff of creating Customers for Life. When the economy enters turn-around, as it certainly will, and your customer’s prospects improve, he will still be yours.

Every dollar, every minute spent keeping a customer or reinforcing his loyalty to you is an investment in your own future. Only the unhappy customer is an expense; all others are assets. It is often necessary to invest in an asset far in advance of any expected return. Cash. Radical suggestion: stop talking about profit and start talking about cash. Instilling in employees an effective understanding of profit requires skills that not every store manager or DM brings to the job. And tough times call for sure things, not murky explanations or misstatements. Cash-in, cash-out is not a difficult concept for even the dimmest rookie. Determine the rock-bottom cost of keeping the doors open in terms of labor, supplies, materials and services. Don’t add advertising, occupancy costs or interest unless each manager is a co-owner. Mrs. Manager, when you’ve spent that amount, no more cash will be forthcoming. Period. Do without or bring it from home.

Tighten up, be more resourceful. Managers often overspend because they have too much time with which to shop for the things they imagine they need to do work they never get around to doing. Instead of checking the totals on all those hardware and office supply receipts, check the time stamps. What else could they have been doing at that time on that day? Inventory. See if this sounds like your company: A new driver puts a small dent in the bumper of the fully insured truck and has to fill out three forms, take a drug test and face a chewing out; but anyone can take the corner off a table or leave a ding in a new refrigerator and it’s just “Oh well…”

Building future rental revenue requires that every available piece of goods produces the needed return. The value of future rent is the value of the business and inventory is the only fuel that can drive that growth. It begins in the back. Put one person in charge of seeing that every item in the back room is either staged for delivery, in process of repair (with no outdated “waiting for…” tags) or tagged for evaluation and potential charge off by the district manager. There should be no other reason for goods to be in the back room. Many careers have been cut short by assuming that all is well. Tough times demand zero tolerance for any loss that is not the result of adding new business. Audit one inventory category daily.

This takes only a few minutes and greatly reduces the time required to conduct full monthly audits. Make sure that at least one member of management signs off on every piece of goods entering or leaving the store every day. Next morning, balance that list against actual deliveries, returns and cash sales. Remember that computers compile, sort and calculate; humans control. AccountManagement. The first step to getting all the money is having accurate and complete information on the people who are required to come up with it—the customers. Talk to managers and employees to determine what kind of information is most valuable in managing accounts and which is rarely if ever helpful. It’s likely you will get different answers across regions or districts and this will require creating different rental order forms, each tailored to a specific market.

Compared to the cost of writing off 62- inch televisions or leather sofas, paper is cheap. Heavily penalize people who fail to complete the rental order form as required, even if the account in question is paying as agreed. Just because that particular horse didn’t fall down coming out of the gate doesn’t mean others will not. Double-digit percentages of uncollected rent at the end of the month result from a combination of mishap and misdirection. Those can be corrected, but only with good information. Monitoring is critical to solving. Unless managers closely monitor the aging of accounts and take specific actions at appropriate intervals, too much time (read: payroll dollars) will be misdirected chasing people who now have no ability to pay the amount they owe. When asked how he consistently managed to carry so few bad accounts on his books, one good rental store manager replied, “It’s hard to hit 15 without going past seven.”

You can reduce collection problems dramatically with three simple rules: (1) know everything about the customer who is getting your goods; (2) know what your employee did with every past-due account he touched yesterday; and (3) follow up on phoned-in commitments hourly until fulfilled. AdvertisingandMarketing. As the old cowboys say, “Dance with them who brung you.” Draw on experience and records to determine what has worked and what has not. A recession is not the time to experiment. Spend your money in the one place it works best and hit it relentlessly. If you aren’t sure what that medium is, copy your most successful competitor.

Ask for advertising dollars from suppliers and cut your unit cost by finding ways to partner with nearby businesses that may share your customer base. Of course, the best way to reduce the cost of getting new customers is to lose fewer existing customers. Managers high up on the ladder often talk to customers who missed payments. Who talks to the customers who missed payouts? Expect the bottom third of credit buyers to land on your radar screen with the bottom third of your own customers dropping out of it entirely. Those least stable and least credit- worthy will be the least employed and, therefore, neither of you will be able to afford the other. This turnover will require some adjustment on your part. Employees must have more and better answers, greater patience and an absolute dedication to cleanliness and order.

The rent-to-own store that looks like a second-hand furniture outlet gone bad, with policies and procedures made up on the fly, will be unable to compete for the business of a couple who would never have thought about renting in a different economy. Factories will be eager to unload goods previously earmarked for big-box retailers. Resist the temptation to bring in a bunch of “neat stuff” that may create costly new training and other processes. Count the number of nameplates offered by near-bankrupt General Motors and consider that thriving Toyota has only a few. Case closed. PeopleandTraining. Be ruthless, but fair.

Employees who apply more attitude than aptitude must be replaced with the willing workers laid off by other retailers and service businesses. They are used to even later hours than yours and would be thrilled at the prospect of having Sundays off. Training is critical, but don’t waste money training people who do not share your values, regardless of experience or “Wow!” factor. They will never share your enthusiasm or concern for company goals, but their skills will ensure they stay on way past the point they should. Draw the shortest, straightest line between performance and reward. Consider paying incentives twice a month instead of monthly or quarterly to lessen the sting of new demands.
If the bookkeeper doesn’t like it, get a new bookkeeper. He is overhead. The stores are revenue. Finally, don’t forget that rent-to-own was invented in a bad economy, by people who knew far less about what they were doing than you do today. And yet, here we are, hemispheric in scope and dealing in billions instead of millions or thousands. Bad economy? Credit crisis? Bring ’em on!

Imagery Marketing Group
by Neil Ferguson

Image and rent-to-own have had a love/ hate relationship from the get-go. When the industry’s image is bad, it doesn’t just affect BOR—it threatens to bring RTO to the brink of collapse. When rent-to-own’s image improves, it has a positive effect on all aspects of the business and brings the industry that much closer to due recognition on Capitol Hill. Imagery Marketing Group is all about image enhancement. And who better to polish rent-to-own’s image than a company birthed in RTO’s early years in the back office of a Rent One store? “We have been an advocate of enhancing the RTO image from early on. It’s one of my personal passions,” says Sharon Carrico, one of Imagery’s principals, along with Rick Linton, Marty Smith and Phil Brown.

In 1985, when her husband, Larry Carrico, opened his first Rent One stores in northern Alabama, Sharon began keeping books and working the floor. Even though she was not familiar with terms such as “brand management,” “corporate culture” or “company image,” Sharon instinctively was drawn to setting up floor displays and consumed with the products and their placement. In 1987, when Larry and Sharon returned to Illinois to take over six stores from Borg-Warner, she continued the bookkeeping, but also kept a watchful eye on the stores to assure customers experienced the best possible impression of their growing enterprise. To help develop a first-class business, Rent One sought professionals to produce high-quality television commercials. Local video and advertising pro Rick Linton was the man for that job and, for several years, that was the extent of Rent One’s marketing strategy.

But as Rent One grew, so did its advertising demands. Soon, in addition to video productions, there were flyers and other print materials to be created and that’s when the Carricos and Linton decided to hatch a fullfledged marketing and advertising firm—a separate company developed by rent-to-own for rent-to-own. Imagery’s client list was humble when the company was launched in 1996—primarily servicing Rent One and a few local businesses— but its aspirations weren’t so modest and it wasn’t long before the company expanded to the point where it now can boast of clients nationwide, a wide array of services and a staff of 25.

In the image-making business, Imagery offers “the works,” and it’s an in-house operation. In addition to the more traditional advertising and marketing services, the company also offers a burgeoning selection of 21stcentury strategies: RTOtoGO, an online rentto- own shopping resource with the option to complete transactions on the Web; RTO-TV, in-store, custom-produced video programming for dealers’ HDTV displays; RTO Payments/ Pay This Now!, an online payment system for the rent-to-own industry; D551, an easy-to-use RTO Web development tool; and Imagery’s latest program, CompanyCake, an online employee training resource that RTO clients can customize to fit the specific needs of their companies.

From small acorns, mighty oaks grow and so it’s been with the former four-person Rent One marketing department. As new clients came on board during the 1990s—coinciding with Larry Carrico’s expansion in the rent-to-own market—that growth necessitated a quest for more rent-to-own expertise at Imagery. Rent One’s marketing and sales director, Marty Smith, fit the bill. Smith began his Rent One marketing career in 1992 “on one condition: that Larry allow me to manage one of his stores for a year so that I could experience his company at the grassroots level,” Smith recalls. “That gave me incredible insight into the rent-to-own industry, its employees and customers.

It was just what I needed.” With RTO expertise in tow, Smith transitioned to Imagery in 1999 as the company sought to expand and develop strategies for independent rent-to-own dealers across the country. In 2008, Imagery added printing-industry veteran Phil Brown as a principal with the aim of creating even more new services. “When we were looking for someone to lead Imagery into its next phase of growth, the stars aligned,” Sharon says. “We were very lucky that Phil was looking for a career change at the same time. He brings great energy, many resources and new perspective to Imagery.”

The Carricos, along with Smith, Linton and Brown, pride themselves on Imagery’s vast rent-to-own prowess. “Being a full-service agency, we have the ability and expertise to deliver production and placement of print and electronic media, graphic design, Web services—and all of it à la carte if the client so chooses,” Smith says. While the scope of services is broad, the way they are delivered comes down to a few common attributes: quality and creativity. The company has long had a cuttingedge creative bent, which Sharon attributes to the graphic team led by David Ballowe, Imagery’s creative guru since the late-1990s.

Smith sites the maxim “You never get a second chance to make a first impression” as one of the company’s key philosophies. Imagery’s creative process includes brainstorming sessions that involve everyone within the company. “Even if it’s just a graphic job, everybody gets involved,” Sharon says. “We’re very critical of each other’s work. An account executive or project manager might have the best creative idea to solve a problem and they’re always encouraged to share their ideas. We don’t put people in cubicles— we’re all on the same team. “Creativity is tricky,” she continues. “We don’t have a set formula for inspiring it. We just try to allow enough time and resources to generate ideas and we use every technique we can. A lot of our rentto- own ideas come from RTO clients and the people who deal with them regularly [e.g., Larry Carrico]. Our design team has a way of refining a not-so-hot sales idea into an amazing TV spot or insert theme.

The ‘Great Coupon Event,’ ‘Six- Months-Same-as-Cash’ or ‘Dare to Compare’ don’t sound so awesome, but if you look at the end products, you can see the importance of great graphics. The daily grind aside, it’s not an all-work/no-play business. “Our culture is probably best defined as ‘professional- fun,’” Sharon says. “There are considerable production demands every day, but we try to find time to enjoy each other and the opportunity we have to be creative in our work. We celebrate a lot: birthdays, holidays, chili cook-offs, Pirate Day, barbecues—whatever is on the calendar or comes to mind.” As a company with an inside track on rent-toown, Sharon urges clients to make sure that the quality in the marketing and advertising is met with quality at the store level. “When it comes to quality, I have pushed Larry personally and professionally over the years,” she says.

“[In Rent One’s formative years], it was one of my missions to visit each of his rent-to-own stores. When I’d visit the stores, the managers would [jokingly] say, ‘Oh no, here comes Sharon!’ It’s not just about advertising or marketing. If people get to your store and it’s dirty, then all the advertising in the world is not going to help.” It’s image enhancement up and down the line. “Let’s get this right—you don’t have to scream into the TV or on the printed page,” Sharon concludes. “Rent-to-own customers don’t need clutter. Customer service is one of the cornerstones of the industry and RTO customers are treated with respect. They deserve that same respect in their marketing and advertising, as well.”