Rent-to-Own Stores Thrive During Recession

July 11, 2009— -- The rent-to-own industry has a history few retailers would envy but recent sales most would covet.

Aaron's, the second-largest retailer in the $6.3 billion industry, plans to open 200 stores in 2010 on the heels of an 18% increase in same-store sales last year.

Rent-to-own stores lease electronics, appliances and other household items by the week or month. Payments can be applied toward a purchase. Critics say the industry has taken advantage of vulnerable customers for years by making rental payments so high that a product's ultimate purchase price is exorbitant.

But industry officials say just 5% of their customers end up buying their products; customers are simply looking for short-term solutions when critical appliances go kaput.

Aaron's recent growth is almost unheard of in this economy. On Thursday, retailers announced monthly sales declines almost uniformly. Most retailers are either closing stores or cutting back on new-store plans.

"I'm in a catbird seat," says Greg Tanner, Aaron's director of franchising.

While not growing at the rate Aaron's is, the largest rent-to-own chain, Rent-A-Center, is also thriving. Same-store sales were up 2.3% last year, thanks in part to a higher-income client base that's expanding in the recession. Both chains say it's not uncommon these days to have customers with household incomes topping $50,000, which used to be the highest incomes they served.

The ability to get a new refrigerator for less than $18 a week is a benefit that shouldn't be minimized, Rent-A-Center's Dwight Dumler says. Besides, he says, "If they buy a used refrigerator at a garage sale three weeks later, they can end the rental with no further obligation."

About 75% of Rent-A-Center's customers return the merchandise they rented within 17 weeks.

Tighter credit and concerns about job losses make many consumers leery about buying or financing appliances or furniture, Tanner says. Renting, he says, seems less risky.