Retail Observer

RETAILOBSERVER.COM JANUARY 2017 76 T his recent election cycle has forced all sides to look at and face the reality that many Americans are suffering economically. Wages are just now starting to recover from nearly a decade of stagnation and many people have seen their credit scores slide or have been unable to build a profile that would lead to a credit score high enough to make them a good credit risk. As members of the Rent-to-Own industry well know, the lower 40% of income earners today don't have the credit options enjoyed by those in the middle of the pack, and this group has grown since the economic recession that began in 2008. Many are working two or three part time jobs to replace once better-paying, more secure positions. The riskiest borrowers have been closed out of credit options as lending practices tightened. These customers have the same needs as any other household. Appliances and electronics break down, furniture wears out. This is the niche that we in the industry serve. Almost anything that is for sale in retail is available to those without the ability to make a down payment or few credit options. Much has been written by critics of the RTO business model, but is this criticism fair? Do opponents that seek to limit and legislate the industry understand what is being offered? The most common complaint against RTO is that the final price paid for an item is much higher than the original retail price. It is also much higher than a final price, they claim, when purchased through traditional credit channels. The reason this isn't an apple to apple comparison is that RTO's pricing isn't an interest rate. The contract is a leasing agreement, and with those agreements come many benefits that traditional purchases don't include. One is product warranty. Most rent to own retail outlets employ service and repair technicians to maintain the products. Most offer free delivery and set-up, service on computers and other devices. When a customer uses a traditional retail method of buying a product they don't get this level of service or protection unless it is offered and they pay extra for it. When you buy something and it breaks, unless it is covered under a manufacturer's warranty, you are out of luck. Customer's buying via RTO don't take on that kind of risk during the life of the lease. Another advantage to the customer is the convenience of being able to obtain items immediately without having to come up with a down payment. Those who suffer a job loss or another economic hardship can opt out of the agreement and return the items. There is no long-term commitment. Embedded in the cost of rent to own is the risk that the retailers take on by offering agreements to customers without credit. While most rent to own customers love to purchase this way and successfully pay off their items and subsequently choose other items, retailers must be able to cover losses from those who don't fulfill their payment obligations. Providing pricey electronics, furniture, appliances without pulling credit reports involves capital risk, and that comes at a cost. Still, for many hardworking people in our economy as it now stands, the RTO option is the only avenue open that allows them have the same things everybody wants and needs and for them, that's a good thing. THE HIDDEN ADVANTAGES OF RENT TO OWN RO Dennis Shields Rent-to-Own Trends Dennis Shields, executive director of the TRIB Group

• Cover