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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3 min read

This story appears in the May 2001 issue of Entrepreneur. Subscribe »

Once you've had a car with power windows, it's pretty hard to go without. The same goes for any number of the luxuries many of us take for granted. For instance, imagine life without a washing machine. For most of us, pounding our clothes on rocks in a stream is just not an option. At any socioeconomic level, it's human nature to want more. Aaron's Sales & Lease Ownership (franchised by Aaron Rents Inc.) capitalizes on this fact by making it easier for those with lower-than-average incomes to have more-now.

Aaron's has found its niche among consumers who, on average, have annual household incomes of less than $35,000 and less-than-ideal credit ratings. Typically, Aaron's customers also shun debt but are looking for good offers. Accordingly, they're jubilant to find that they can "rent" furniture, computers, consumer electronics and household appliances, and-after making monthly payments for 12 consecutive months-own the articles. That's a sharp contrast with rent-to-own industry norms, which typically require weekly payments for 18 to 24 months.

This modern version of "buy now, pay later" has caught on, and the income and store count for this company has grown steadily. Yet it's been a somewhat quiet success story, probably because franchisees who came into the system years ago keep adding locations. Most of the chain's recent growth has come from existing franchisees, as consumer preference for the new prototype store-which is larger, has a cleaner image and has better loan terms-has compelled current franchisees to open additional prototype units.

Many franchisees operate at least five units, and it's possible to build and operate as many as 20. When you see franchisees opening multiple locations, it means one of two things: Either you can't make a living from one store, or the units are performing nicely. In this case, it's the latter.

Aaron's makes earnings claims, and the numbers will excite you. The most recently published results are for 1999; company-operated stores reported an average annual revenue per store of $1,169,479 and annual pretax earnings of $156,355. However, a detailed review of the information indicates it takes about two years for stores to get that type of result. In fact, the average store loses money in the first year, according to Item 19 of the company's disclosure.

The average "rent to purchase" store uses from 8,000 to 10,000 square feet of retail space, and the amount you have to spend to open a store depends greatly on the way you finance the inventory. Because of its size and solid earnings history, Aaron's has been able to secure a revolving credit line facility for qualified franchisees. That's crucial, because, as a franchisee, you'll have customers with 12 months in which to pay you, yet you'll still have to keep inventory on the floor. Assuming you use Aaron's inventory financing, you should expect to spend up to $472,400 to open a typical store. Also be prepared to handle the first-year loss resulting from operations, which averaged $75,142 and included depreciation for company-operated stores in 1999.

Aaron's is expanding and now has 193 franchised stores and a presence in no less than 43 states. To qualify as a franchisee, you need a net worth of about $450,000, $250,000 of which is liquid. The franchisor is actively seeking franchisees throughout the continental United States.

Todd D. Maddocks is a franchise attorney and small-business consultant who is founder of Franchisedecision.com. You can reach him at yourcounsel@home.com.


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