Aaron’s INC Is a Powerhouse !

With over 2,000 company owned and over 800 franchised locations peppering the US and Canada, it dominates the lucrative residential furniture, electronics and appliances lease-to-own market. It’s founder, Charles R. Loudermilk started the company in 1955. A pioneer in the furniture rental industry he served at the helm for over 57 year, retiring in 2012 as CEO, Chairman of the Board. At his retirement he had grown the then publicly traded company from one location to 1,190 company owned and operated locations, and 717 franchised locations.

Aaron’s Inc. is parsed into two separate operating divisions. The first is sales and lease ownership. As the largest and fastest growing division of the company it provides credit-constrained customers; those that have limited or no access to traditional credit sources, such as bank financing, installment credit or credit cards. This diverse range of customers of just over 50% of US households which could include white-collar and blue-collar workers, young couples, families and retirees. Customers can choose from a variety of home furnishings, appliances and electronics from two retail banners; Aaron’s and HomeSmart. Aaron’s Inc.’s retail roster did include a third retail brand called, RIMCO, which employed the same lease-to-own model as the sister brands but substituted sofas and TVs for wheels, tires and vehicle accessories. The division grossed over $20M annually and was sold to the Atlanta based Rent-A-Wheel/Rent-A-Tire in January of 2014.

HomeSmart serves customers primarily through weekly payment lease agreements with products similar to those leased through its Aaron’s Sales & Lease Ownership stores. The HomeSmart store layout is a combination showroom and with an average of 5,000 square feet. Although the banners carry the majority of the same products and provide a similar customer experience, HomeSmart is built on a weekly lease to own payment structure as opposed to Aaron’s monthly version.

Woodhaven Furniture Industries is the manufacturing arm of the enterprise and produces the bulk of the furniture leased and sold by Aaron’s Inc. The division has five furniture manufacturing plants and nine bedding manufacturing facilities, that supply the majority of its upholstered furniture and bedding. Woodhaven also provides replacement covers of all styles and fabrics of its upholstered furniture for use in reconditioning lease return furniture. This model of vertical integration allows the company to control the cost, quality and consumer experience of the product all while creating a generous profit margin and distinguishing itself from competitors.

It is for these reasons coupled with the scalability through unit economics and positive cash flow that drew Spencer Smith to the Aaron’s chain. The Colorado native owns a staggering 44 locations, making him the third largest Aaron’s franchisee in the world. “I am aiming to have over 100 locations by the time I retire,” says Spencer. While this goal may seem far-fetched, it is achievable when you look at Spencer’s track record.

He had tried several franchise systems in the past but none had the level of market availability, positive cash flow and unit economics to provide rapid scalability. When he first started his goal was simple. “I wanted growth of one or two locations a year.” However, growth has been explosive, averaging more than four opens per year. Modestly, Spencer has attributed the good fortune to the management of teams and the all mighty unit economics of the system; first year start-up investment of approximately $750,000, cash flow positive in second year, 30% store-level ROI in year 5. The first stores took off very fast, thanks to theses well established processes and procedures of the system.

Spencer’s beginning as an Aaron’s franchise owner happened quite serendipitously. “In was a Saturday and I was at home with my children,” ages two and three at the time. The television was on in the background and the Talladega NASCAR race was on. Amongst the roaring of stock car racing, he kept hearing these commercials for Aaron’s. What he heard had intrigued him so once the kids were in bed he started to research the company. By Monday morning I was calling corporate headquarters for more information. Soon after I flew to Atlanta for face-to-face discussions about ownership. “Admittedly, I was skeptical of the bad reputation of the rent-to-own industry. However, the corporate management quickly demystified some of the falsehoods and I felt confident in their pooled experience.”

Entrepreneurial spirit is a family trait Spencer. His parents owned and operated a tire store. After a brief stint in college he moved home to work in the store, gaining the lion’s share of his business acumen. When his parents later divorced and sold the business he realized that he had to cut the apron strings and make it on his own. He knew he didn’t want to be married to a single store forever. “I also knew I didn’t want to be in a position were I had two or three locations and not enough capital to grow. Once you get past the hurdle of 2 or 3 stores you can put in middle management and focus on strategic decisions. “Put them in place and get out of the way.”

The decision to become an Aaron’s franchise owner is made log before a prospective owner signs the initial documents and attends, “Discovery Day,” where they are invited to visit corporate headquarter for extensive presentations covering the lease-to-ownership business model, site selection, customer demographics, product and enhanced inventory financing. “When I first signed as a franchise owner, I began to work in a couple of existing stores, learning the business through a variety of positions and observing the general day to day. Afterwards you are matched to a field consultant that is assigned to your geographical area. They work with you closely on best practices and how to avoid missteps. In regards to site selection, you get a commercial real estate agent. They spend time driving the market watching out for a combination of key metrics such as retail synergies, market competition and vehicle traffic, eventually settling on the best intersection in any given market. “I have opened so many locations now that I side step some of the formalities but I still follow the same basic process,” comments Spencer. The business consultant continues to work with you once a quarter and is always available for questions. Networking and knowledge sharing also happens at the annual National Managers Convention were there are awards and training opportunities. Training is handled through a variety of online and in the field applications. The proprietary training manual, referred to as “the pathway,” is a 400-paged document. There are 30 to 40 online modules with some live classes with existing owners.

“I receive calls every three to four months from prospective franchisees, interested in opening an Aaron’s location. I ask them all the same basic questions. The first of which is always, “are you going to be a day to day operator? Because if your not then you must invest time into finding the right person to do that job.” Aaron’s is very different than a traditional retail experience. In a traditional transaction a customer purchases a good or service with complete payment due on receipt of that item. Aaron’s has a customer paying for a item for 12, 18 or 24 months with the average monthly payment registering at $130.00 per customer. In the traditional model you are guaranteed payment. In contrast, at any point in the lifecycle of an Aaron’s customer there could be a financial hiccup that could derail payment. To all future franchisees, two of the most important traits are problem solving and risk management. In the interest of getting to full payment and customer retention, you have to learn to work with customers in the long term.

When asked for his secret to success Spencer replied, “It’s no secret. 50 years ago, no one could dunk the basketball, now you can’t make the high school squad if you can’t hangtime. What changed? Players aren’t taller today then they were then, the nets aren’t lower. The only difference is that they have consistently set ambitious goals and arrived to the dunk.” I try and do the same thing in my career, I set an what seems like an unattainable goal and try and put dunk it!” It his this goal setting and lock step continuous learning that will undoubtedly see him at the 100 store mark very soon.

For more information visit, www.aaronsfranchise.com


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