A New Lease on Life Aaron's Sales & Lease Ownership has a new look, new loan terms--and openings for new franchisees.
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Once you've had a car with power windows, it's prettyhard to go without. The same goes for any number of the luxuriesmany of us take for granted. For instance, imagine life without awashing machine. For most of us, pounding our clothes on rocks in astream is just not an option. At any socioeconomic level, it'shuman nature to want more. Aaron's Sales & Lease Ownership(franchised by Aaron Rents Inc.) capitalizes on this fact by makingit easier for those with lower-than-average incomes to havemore-now.
Aaron's has found its niche among consumers who, on average,have annual household incomes of less than $35,000 andless-than-ideal credit ratings. Typically, Aaron's customersalso shun debt but are looking for good offers. Accordingly,they're jubilant to find that they can "rent"furniture, computers, consumer electronics and householdappliances, and-after making monthly payments for 12consecutive months-own the articles. That's a sharpcontrast with rent-to-own industry norms, which typically requireweekly payments for 18 to 24 months.
This modern version of "buy now, pay later" has caughton, and the income and store count for this company has grownsteadily. Yet it's been a somewhat quiet success story,probably because franchisees who came into the system years agokeep adding locations. Most of the chain's recent growth hascome from existing franchisees, as consumer preference for the newprototype store-which is larger, has a cleaner image and hasbetter loan terms-has compelled current franchisees to openadditional prototype units.
Many franchisees operate at least five units, and it'spossible to build and operate as many as 20. When you seefranchisees opening multiple locations, it means one of two things:Either you can't make a living from one store, or the units areperforming nicely. In this case, it's the latter.
Aaron's makes earnings claims, and the numbers will exciteyou. The most recently published results are for 1999;company-operated stores reported an average annual revenue perstore of $1,169,479 and annual pretax earnings of $156,355.However, a detailed review of the information indicates it takesabout two years for stores to get that type of result. In fact, theaverage store loses money in the first year, according to Item 19of the company's disclosure.
The average "rent to purchase" store uses from 8,000to 10,000 square feet of retail space, and the amount you have tospend to open a store depends greatly on the way you finance theinventory. Because of its size and solid earnings history,Aaron's has been able to secure a revolving credit linefacility for qualified franchisees. That's crucial, because, asa franchisee, you'll have customers with 12 months in which topay you, yet you'll still have to keep inventory on the floor.Assuming you use Aaron's inventory financing, you should expectto spend up to $472,400 to open a typical store. Also be preparedto handle the first-year loss resulting from operations, whichaveraged $75,142 and included depreciation for company-operatedstores in 1999.
Aaron's is expanding and now has 193 franchised stores and apresence in no less than 43 states. To qualify as a franchisee, youneed a net worth of about $450,000, $250,000 of which is liquid.The franchisor is actively seeking franchisees throughout thecontinental United States.
Todd D. Maddocks is a franchise attorney and small-businessconsultant who is founder of Franchisedecision.com. You can reach him at yourcounsel@home.com.
