Rent-to-Own

Creating Inclusion: Staying Competitive in a Multicultural Society by Katie Garza

A Fairer View of Rent-To-Own: A New Article Offers Insight, Dispels Biases by Ed Winn III

APROfile: Dick and Mim Eichlin — Shining Stars by Stephen Schenck

 

 

 

 

 

 

CREATING INCLUSION

Be honest with yourself. Have you ever passed judgment on a walk-in job applicant before he or she has spoken a word or filled out an application? You simply took one look at the person and thought, “He won’t fit in” or “She’s not who we’re looking for.” If you’re honest, your answer is yes.·These snap judgments are called first impressions. They’re inevitable.We’ve all passed initial judgments on people based only on appearances. As much as we don’t want to admit it, we sometimes size up individuals because of their clothes, their race, their gender, their weight, their age, their accent or other immediate cues.

We perceive these visual traits as insight to who a person is on the inside. The man is old; he must be a slow and feeble worker. The woman is overweight; she must be lazy and indifferent.

The danger in these quick judgments is that they often betray us. When we make decisions based on superficial traits alone, we most likely are turning away untapped talent and resources that could make our businesses more competitive and profitable.

Back in the 1960s, President Lyndon B. Johnson signed a Civil Rights Act bringing affirmative action into the business arena. This anti-discrimination movement made it a legal and moral obligation to provide equal opportunity for minorities and women within the workforce. It was seen as a temporary measure to “level the playing field,” so to speak.

Critics say that the fault with affirmative action, however, was that it primarily addressed only racial discrimination and operated on the assumption that minorities and women had deficits and needed extra support to thrive. The racial quotas that were meant to “equalize” the business environment sometimes resulted in accusations of “reverse discrimination”; suddenly there was a new kind of dissension among the workforce. To a certain degree, the legal approach to “equal employment opportunity” suffered a backlash.

In the 1970s and early 1980s, however, a new approach gained popularity: cultural diversity training. Cultural diversity training addressed differences in race, as well as ethnicity, gender, age, sexual orientation, tenure, social class and geographic origin—all factors that filter an individual’s outlook on life and work.

Cultural diversity taught business professionals to embrace each other’s differences and have mutual respect for one another. Cultural diversity was no longer a legal obligation based on numbers and statistics. It was now corporate America’s social responsibility.

On the heels of cultural diversity was borne yet another human resource movement called inclusion training. This business approach is still widely used in today’s corporate environment. Inclusion training encompasses all of the high points of cultural diversity yet takes it one step further by making it relevant to a business’s bottom line.

The goal of inclusion training is to provide an atmosphere where every employee can reach his or her fullest potential. This benefits the customer and the company.

“Inclusion training says that cultural diversity makes good business sense,” says Pamela Leri, director of global diversity at PricewaterhouseCoopers Unifi Network. She points out that anti-discrimination movements in the past focused on social, moral and legal obligations. “Inclusion training shows that there are solid business reasons behind including all groups in a workforce. It’s not just ‘the nice thing to do.’”

According to Leri, numerous high-profile companies in various industries have implemented inclusion training over the past 20 years; Merck and Hewlett-Packard are two noteworthy practitioners. Recently the rental-purchase industry, specifically RentWay Inc., began its implementation of inclusion training.

“I think that many large Fortune 500 companies had seen the need for inclusion training much earlier on than the rent-to-own industry,” says Leri, who recently consulted with RentWay, the nation’s second-largest rental-purchase company with approximately 1,100 stores in 41 states. RentWay has taken numerous steps to incorporate inclusion. The company now has a department devoted to inclusion training and regularly schedules inclusion workshops for store managers.

“This is not a socio-economic lesson,” says Wallace Wright, director of inclusion at RentWay. “It’s about providing an environment for personal growth and career satisfaction. If we keep tapping the same resources for talent, we’ll become stagnant and may not achieve our fullest potential as a company.”

Wright explained during a recent inclusion seminar in Shreveport, LA, that RentWay’s rapid business growth in its early stages and the company’s need to meet staffing requirements partly contributed to its inclusion opportunities. He said it is now time to focus on issues such as inclusion, employee development and promoting from within.

A critical component of inclusion training is that companies can gain a competitive advantage in their industries by building corporate cultures that encourage all groups— including white males—to work to their fullest potential.

The theory is that all individuals, based on their different life and work experiences, are capable of finding new ways to solve problems, better serve existing customers and reach out to new markets. Leri says inclusion training can make the rental-purchase industry more inviting for newcomers.

“Employees don’t quit companies; they quit environments,” says Leri. And Wright agrees. “If you want to retain quality employees, you need to show them that you value their contributions,” he says.

Inclusion training teaches managers how to recognize their personal “filters,” or biases, which can undermine the potential success of others in the company or prevent untapped talent from contributing to the company. The participants at the recent Shreveport inclusion seminar talked about how their familial backgrounds and geographic origins have influenced—both negatively and positively— the way they approach business decisions today.

One man admitted that his extensive military background sometimes causes him to view civilian life as unorganized and frustrating—a filter that affects his expectations of other employees. Another gentleman talked about his upbringing in Chicago, IL, and how it filtered his views of Southern people—a bias he still battles now that he works in Louisiana. A third participant pointed out that his mother, who single-handedly raised three children and juggled two jobs, influenced his opinion about women. He said watching his mother as a boy made him realize early on that women could be strong, self-sufficient providers—an opinion that has influenced him to recruit more female employees within his stores.

REACHING OUT THE CUSTOMER

Yet valuing and understanding diversity within the company is only one of the objectives behind inclusion training. “Inclusion is about making customers feel welcome too,” says Leri, noting that a diverse workforce positions a company to be more in touch with an increasingly diverse marketplace.

According to Wright, in addition to promoting a diverse workforce, companies can gain a competitive edge by reaching out to surrounding neighborhoods. In essence, companies that practice inclusion make the community feel included as well.

Wright recommends getting involved in the community by getting out and talking to civic leaders and other local business people. With this information, rental-purchase companies can plan marketing strategies and public relations campaigns that are more effective and relevant to their local markets. If you discover that consumers in your neighborhood prefer family-run businesses, you might want to find ways to make your business more family friendly.

LASTING IMPRESSIONS

Alvin Odom, a RentWay employee who attended the Shreveport seminar, says that inclusion training offers an important message that resonates with employees and customers alike. “It tells me a lot about the company itself when it decides to implement something like this,” he says.

Allen Kelly, a fellow workshop participant, agrees. “I like that inclusion focuses on discovering the potential in all individuals; it’s not just about racism.”

Wright says he hopes that the managers take home what they learn from inclusion training and apply it to their stores. “All this doesn’t mean anything unless you deliver the message to your employees and set a good example,” he says. “You are the most important people in our organization, because you are where it happens.”

Wright’s message rang true for seminar participant Sonny Lewis Jr., who said he now realizes that creating inclusion relies heavily on his actions and the tone set at the top. “I think from now on I’ll be paying just as much attention to my own performance as I do my employees’ performances,” he says.

Katie Garza is a free-lance writer.

 

 

A Fairer View

The excerpt above is the conclusion of a new article in the consumer academic press that offers new insights into the economics of rental-purchase transactions and dispels much of the previous biased and shoddy research into the economics of the industry.

Academics in the field of consumer studies have, over the years, done cursory studies of rental-purchase transactions and concluded, predictably, that the transactions bore high interest rates and were both unfair to and bad for consumers who used them.

One study often cited by industry critics based all of its findings on interviews with 61 rental-purchase customers from West Palm Beach, FL. Another study examined 12 rental-purchase agreements, seven for 19- and 20-inch televisions and five for washers. Much of the consumer advocate condemnation of industry pricing and policies are based on these two articles and others using similarly scanty research methodologies.

The authors of the most recent study had access to a database of hundreds of rental stores and tens of thousands of agreements and customers, which they examined to understand what really happens with rental-purchase agreements in the marketplace.

The authors take pains to debunk the common myths and assumptions about rental-purchase transactions. After reviewing the research to date, the authors conclude that calling rental-purchase transactions installment sales with hidden, exorbitant interest rates obscures the true nature of the transaction and threatens to mislead policy makers about how the transaction ought to be regulated.

The earlier Florida study found that 40 percent of those surveyed did not understand what they were doing when they rented. The Massachusetts authors conclude that the early studies “underestimated consumers’ ability to make efficient utility-maximizing decisions.”

Indeed, it is a fundamental precept in economics that people are capable of acting— and in most cases, do act—to maximize their well being by making rational decisions. Liberal consumerist theory maintains that many—if not most—citizens are incapable of making rational economic decisions; thus the need for the state to step in and make those decisions for them.Not so these latest authors who observed the popularity and growth of the rental-purchase industry and concluded that there must be something going on besides unscrupulous rental dealers “doing business with the desperate and uninformed.”

If it were really the case that the industry charged customers 250 percent interest on transactions when credit card interest rates hover at around 20 percent, then the business would not survive. That the industry has not only survived, but also has prospered means that other elements besides a simplistic analysis of the time value of money must be at work.

The Massachusetts authors use a hypothetical situation to construct an implicit interest rate for going to the Laundromat that is higher than in a rental-purchase transaction for the same washing machine. The authors note that no one is suggesting that Laundromat patrons are exploited and suggest that rental-purchase customers are not being exploited either.

The authors also compare rental-purchase transactions to layaways in order to lay waste to the installment sale comparison even further. In layaways and in RTO there is typically no credit check and both may be terminated without penalty. The authors find a lower implicit interest rate in a layaway transaction, but the lower rate is offset by higher payments over a shorter period of time. Layaway also offers no delivery, no maintenance beyond warranty coverage and, most importantly, no use of the product until it has been paid for in full.

The authors list six benefits of rental-purchase in addition to the benefit of an installment sale, which is essentially the ability to pay over time instead of all at once. Those benefits are:

• Provision of all customary retail services such as delivery, set up, maintenance and repair. [The authors do not acknowledge that the use of loaners and other aspects of rental-purchase maintenance are superior to most retail maintenance plans.
• Immediate product availability without a formal credit check.
• Immediate product availability without a security deposit or a large down payment.
• Payments by cash or check scheduled on a weekly or monthly basis.
• Ability to secure insurance against damage or theft on the item.
• Termination of the agreement by the consumer at any time without further financial liability or damage to his or her credit history.

These benefits are, of course, well known to rental dealers. It is nonetheless nice to see them recited in the academic press.

Instead of being merely an installment sale with unconscionably high “interest rates,” the authors borrow the economic concepts of “puts” and “calls” from the world of corporate finance to explain how consumers employ rental-purchase transactions in their own best interests.

A put is an option to sell something at a fixed price at or within a certain time. If the put is exercised by the holder, the other party, the buyer, must purchase the item from the put holder at the strike price. A call is an option to buy something at a fixed price at or within a certain time. If the holder exercises the option, the other party, the seller,must sell the item to the call holder at the strike price.

In the rental-purchase context, the authors find that for each rental payment the customer makes, the dealer is providing a bundle of services and financial instruments:

• Use of the product and maintenance service for the rental period.
• A put option with a zero strike price.
• An option to acquire a call with a zero strike price when the final payment is made.

If a customer returns the property, it means that he is exercising his put option and abandoning the third option. Over time, as the transaction progresses, the value of the put option declines while the value of the third option increases.

According to the authors, “unlike conventional put and call options whose value to the investor increases with the volatility in the market price of the underlying asset, the value of the imbedded options to an RTO customer increase with the possible future volatility in her or his financial or personal profile.”

The authors then acknowledge that consumers with uncertain financial or personal futures will be particularly drawn to rental-purchase transactions because the value of the put and call options is higher for them.

The authors also offer an alternative analysis of rental-purchase transactions as first a rental agreement with multiple optional rental periods and finally an installment purchase with competitive interest rates. This is so because most rental-purchase customers who terminate do so fairly early on in the transaction. Once a customer has been renting for 12 months, it is likely that he or she will rent long enough to obtain ownership. The authors offer the example of a washing machine to demonstrate that even during the final installment purchase phase of the transaction, the implicit interest rate is not higher than for a traditional credit sale.

In this model, the original third option to acquire a call transforms into an option to secure an installment purchase at a competitive rate.

The authors identify three separate categories of consumers for whom rental-purchase transactions have high value:

• Short-term renters.
• Financially tentative buyers.
• Denied buyers.

 

Short-term renters are, as the name suggests, only interested in the first and second elements of the transaction. They want immediate use of the property without any hassle and they want to be able to return it later. Financially tentative buyers want to purchase the property, but have volatile personal or financial circumstances and do not want to be dunned by debt collectors, have their wages garnished or suffer the other unpleasant results of defaulting on an installment sale in their future. For them, too, the first and second elements of the transaction have high value.

Denied buyers are those who have bad or no credit histories and cannot make an installment purchase, even though that is their goal. For them, all elements of the transaction have value because they can use the multiple period rental phase of the transaction to get to the installment phase.

“This consumer is effectively given the opportunity to establish or restore a record of financial responsibility,” write the authors. If “denied buyers” make timely rental payments, they can become buyers whom the credit market previously has denied. If they fail once again and cannot make timely payments, they are no worse off than they were before they rented and can keep trying.

The Massachusetts authors attempt to demonstrate with a thorough economic analysis of what the marketplace has recognized all along—that rental-purchase transactions offer a valuable choice to consumers in a variety of circumstances. RTO is not intended to supplant credit sales, but to suggest that it is a harmful choice for consumers to make in all circumstances “may be detrimental to consumer welfare,” as the authors put it.

It is rare that the academic community will take a realistic look at how ordinary people live and analyze carefully and objectively the economic decisions that they make. Here is a piece that does just that and rental dealers everywhere will be gratified to read about themselves and their businesses portrayed in such a positive light. A limited number of copies of the article are available to APRO members through the APRO office. To view online, visit www.consumerinterests.org/ public/articles/details.html?id=16

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

 

 

A SHINING STAR

What can rental dealers do to guarantee industry-wide success and continued growth in the future? The question is a critical one that members of the rent-to-own industry have always faced, but as we move further into the 21st century—into a more volatile, technology- based economy and an increasingly competitive market— finding the right answer may prove to be even more difficult.

If you ask Dick Eichlin that question, however, he’ll tell you the answer is clear. The road to a better, more prosperous tomorrow, he says, begins with federal legislation for the industry.

“The opportunity to get federal legislation that would prevent state legislatures from calling the rent-to-own transaction a credit sale is here,” Eichlin says. “Right now the industry spends so much time and money on lawsuits and public relations that if we had federal protection, those energies and finances could be used to benefit the industry and increase business.”

An RTO veteran, Eichlin entered the business in 1980 as a store manager for Universal TV Rentals. Together with his wife, Miriam, they opened Shenandoah TV & Appliance Rentals (STAR Rentals) in 1987. During his 21 years in the industry, Eichlin has learned that the roller coaster world of RTO offers no guarantees, but from the beginning he says he recognized how fundamental national involvement and lobbying would be to his livelihood.

“We attended the first seven APRO legislative conferences in Washington, D.C., because there was a need to explain the nature of our transaction and to educate the people who are against RTO and who mislead the public about interest rates,” he says. “There are no interest rates because there is no obligation. There is no debt!”

Eichlin’s passion for the business led a fellow RTO dealer at the time, Roger Sharp, to ask him to run for the APRO board of directors in 1989. Outmatched by more experienced candidates two years in a row, Eichlin says he ran again after “realizing what the board was all about” and won. He went on to serve with the APRO board for seven years and says it was a high point in his career.

“The board is just a fabulous group of people. I was on the public relations committee and my philosophy was to do whatever they wanted,” he says. “I told them I was a grunt—I just wanted to contribute in any way I could to help preserve our interests and our business.”

Bill Keese, APRO executive director, remembers Eichlin’s years on the board well. “Dick was the kind of board member that you just loved because he brought a lot of enthusiasm to the job,” Keese says. “He was always very involved and supportive and when we asked him for support, he would always follow through.”

BLUE-COLLAR BEGINNINGS

Eichlin has carried that humble, “can do” attitude with him since his childhood days. It’s also a big reason why customers have kept coming back to STAR Rentals year after year.

“We come from blue-collar families, so we know what it means to work and we can appreciate good customer service,” says Miriam Eichlin. Miriam or “Mim” is the daughter of an electrician and a homemaker and grew up in Tatamy, PA. Eichlin lived across the Delaware River, in Phillipsburg, NJ. His father was a machine operator and his mother was also a homemaker. Although they lived within 10 miles of each other, Dick and Mim didn’t meet until after they had graduated high school and after Eichlin had finished a four-year stint in the Navy.

Shortly after returning home in January 1957, he met Miriam at a dance in New Jersey and six months later, they were married. He quickly put his GI Bill to good use and attended Rider Business College in Trenton.However, in 1959, with a baby on the way, Eichlin dropped out of school and took a job in a distribution center with Top Value Enterprises, a trading stamp company.

Gradually, Eichlin earned his way into management and, as the trading stamp business began to decline, was transferred to manage one of Top Value’s catalog showrooms. For 20 years, Eichlin worked for Top Value, but when he failed to catch employees who had been stealing from the company, he was fired. Losing his job after so many years could have dealt a devastating blow to Eichlin, but instead it became a positive turning point that would lead to greater opportunity and success.

Unemployed and searching the Pittsburgh paper for work, Eichlin applied for a manager position with a Universal TV Rentals store.With little knowledge of the RTO industry and few expectations, Eichlin interviewed for the position and on the afternoon of that same day was offered the job.

“I accepted it thinking I would continue to seek other employment,” he says with a chuckle. “My reaction was, ‘Who in God’s name rents televisions?’ I was dumfounded.” It didn’t take him long, however, to realize that rentto- own was big business. During his first week, Eichlin trained at a store in Moline, IL, and was surprised to see the store crowded with customers.

“If you’re in a white-collar job and considered middle class, you don’t really realize how many people would not have the kinds of things they have in their home if not for this industry,” Eichlin says. “Right away, I definitely felt like I was providing a good service to our customers.”

Over the next six years, the company grew from 15 to 60 stores. Eichlin worked his way up to store supervisor, eventually transferring to Columbus, OH, where he oversaw as many as 13 stores. Over time, Eichlin had seen his career take some remarkable turns—he had gone from what he thought was a stable, long-term job to suddenly being unemployed and landing a job in an unfamiliar industry to working his way back to upper management. At last, everything seemed to be in place for Eichlin and his family. Then, one day, when he was helping to get two new stores off the ground in Dayton, OH, Eichlin’s career fell apart, all over again.

“I reported to my immediate supervisor that we were having a credit problem. The manager of one of the stores was not controlling credit and was not collecting on his accounts. But instead of addressing the manager, [my supervisor] called me into the office and said, ‘Dick we’ve got a problem in these two stores and I’m going to have to fire you.’”

Eichlin once again found himself on the outside looking in. This time, however, he was determined to get an explanation. After all, by uncovering the problem and reporting it, Eichlin had followed correct procedures.He submitted a written request to find out why he was fired and, a few days later, was rehired by the general manager to run a store temporarily in Columbus.

As it turned out, Eichlin replaced the same supervisor who let him go. “I’ve been fired twice; once because somebody stole and I didn’t catch it, which was my responsibility, and again because my supervisor was passing the buck,” he says.

SMALL TOWNS AND BIG BUSINESS

In 1986, just as Universal’s ownership was about to change hands, Eichlin left to become the new rentto- own division manager for Bell Furniture, a furniture distributor. Philip Bell, the company’s founder, saw in the RTO industry a relatively untapped market and hoped Eichlin could use his experience to convince RTO owners to stock his furniture.

“I could talk to store owners about past dues and specific business concerns and was able to build on the foundation of my predecessor and business doubled,” says Eichlin.

While working for Bell, he often gave seminars to members of the RTO industry and gradually befriended the owners of Rent-A-Vision in Ohio. One day, they told Eichlin, if he opened his own store, they’d be interested in investing as venture capitalists.

Faced with this offer, Eichlin went to work putting to gether his own market research and found potential in western Virginia. Throughout his career, Eichlin had been based in big cities, but had made up his mind a long time ago that if he ever had the chance to open his own store, he would trade the sprawling metropolis for a small town.

While visiting relatives in Harrisonburg,VA, Eichlin decided the 20,000- person town would be a perfect location for STAR Rentals, but it wasn’t until Miriam Eichlin gave her support that the decision became final.

“We talked it over and she asked me, ‘Are you sure you want to do it in Harrisonburg?’ I said, ‘Well, if we fail and I go on the bread line, I’d rather be in the Shenandoah Valley than the big city.’ So, my wife said, ‘Let’s do it’ and that’s the reason we’re in business today.”

Backed by investors and with borrowed money and Miriam’s inheritance, Eichlin moved to Harrisonburg. He arrived to find his store unfinished and filled with ceiling tile for the grocery store being constructed in the same new shopping center. He hired independent contractors to finish the job and had enough money left over to advertise his grand opening special. Despite the ad, Eichlin says no customers showed up to the store.

“Nobody knew where the new Dukes Plaza shopping center was,” he says. “I did a lot of soul searching at that time and, my God, I wondered if I could still get my old job back. It wasn’t pretty.”

Though the beginning was rough, Eichlin says he was able to make it through the slow times because of strong family support. His son and son-in-law joined the business early on, helping to keep it afloat, sometimes even working for free. Most of the credit, he says, belongs to Miriam, not only for her bookkeeping skills and the valuable perspective she brings to the business, but also for her emotional support. Eichlin is also quick to point out that from the first moment they chose to open the first STAR Rentals store, he and his wife have shared 50/50 responsibility and ownership.

For some couples, working together would add stress to a relationship, but Dick and Mim say the positives far outweigh any negatives. “Sometimes it’s a struggle if we both have our own ideas about how things should go, but it’s nothing we can’t handle.We’ll always be a close-knit family,” Mim says. “We’ve been married 43 years and have stayed in business for 15,” Eichlin says. “I think that should say it all.”

When the shopping center’s grocery store finally opened, business picked up dramatically for the Eichlins and within three years they had expanded to six stores. Today, the Eichlin’s have seven stores in the Shenandoah Valley and only the first required outside funding; a fact that Eichlin says is a direct result of STAR Rentals’ dedication to customer service.

“I wish there was another way to say this because it’s something you always hear, but the most important thing in this business is to treat people the way you want to be treated,” he says.

“We provided the kind of service that RTO customers had not been getting from the competition.We took care of repairs quickly and gave out loaners so our customers didn’t have to wait—eventually we began to capture a share of the business and more.”

Throughout their 15 years in RTO, the Eichlins have seen many ups and downs, but they have never questioned whether to stay in the industry and don’t have any immediate plans to retire or sell the family business. As they have gotten older, Eichlin says that some aspects of the job have gotten more difficult and the growth of STAR Rentals over the years has caused him to miss out on some of his favorite parts of the job.

“I enjoy working with people and get a lot of satisfaction from seeing people I haven’t seen in years who still remember me and are still doing business with us,” he says. “When we expanded and I moved to the corporate office, it was hard.”

Despite these few complaints, both Dick and Mim are content and proud with their work in RTO not only for the professional success it has brought them, but also because it has reaffirmed their lifelong appreciation for hard work, customer service and family.

Stephen Schenck is a free-lance writer and a former student intern at Progressive Rentals.