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Rent-A-Center: A Cheapster's Nemesis Print E-mail
(4 votes, average 4.75 out of 5)
Personal Finance - Credit Cards
Written by Omie Ismail   
Monday, 09 November 2009 09:23
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Rent-A-Center: A Cheapster's Nemesis
Inefficient and Expensive
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Its amazing to me that with the widespread availability of credit from both financial institutions and stores that the Rent-to-Own industry even exists.  Is it possible that there are enough uninformed Americans to make this a $7 billion plus industry each and every year?  Unfortunately, I know the answer to that question.

There are over 8,500 rent-to-own stores in America and the 800 lb gorilla is Rent-A-Center (RAC) which is a publicly traded company.  RAC (ticker: RCII), operates over 3,000 stores and has nearly $3 billion in revenue.  They have a spokesperson, Magic Johnson, who's friendly mug dorns their website.  But analyzing their most recent Annual Report shows no magic for consumers and will give you an idea of how absurd their rental agreements are.

RAC breaks out their revenue as follows:

Rent_a_Center_2008

These amounts are in thousands so add three more zeros and this is how much money one company is making by renting.  You can see that about 10% of all the revenue is from purchases.  People who decide they will buy that TV before the 90 days is up.  In that case, "Merchandise Sales" you can see that RAC is making a 24% margin.  In other words, they are buying a product for $100 and selling it for $131 ($31/$131 = 24%).  Now that's a pretty good margin for most retail items but it pales in comparison to the financial metrics for the top line.

Renting is how RAC makes the big bucks and the numbers are staggering.  77% margins are the kind of margins that people associate with the software industry and RAC is doing it with TVs and couches.  Basically, RAC is buying a product for $1,000 and renting it out for $4,380! ($3,380 / $4380) =77%.  Super profitable for them but painful if you are the guy paying the extra $3,380.



 
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