Aaron struggles with retail
By Clint Engel -- Furniture Today, February 10, 2003
Atlanta — Rent-to-own powerhouse Aaron Rents expects to report impressive fourth-quarter revenue growth and solid earnings, but its two small-scale retailing experiments continue to struggle.
Early this year, Aaron closed on its $8.5 million acquisition of 25-store Sight'n Sound, an Oklahoma City-based chain and its first pure retailing venture. And in late November, Aaron opened its first mall store, in metro Atlanta's Gwinnett Mall, again with an emphasis on retail.
Neither has performed up to expectations.
The company tweaked the name of the former to Sight & Sound and added an RTO option to the retail mix, but the chain, which was losing money at the time of the acquisition, has continued to lose money. In fact, declining sales during the fourth quarter "will negatively affect earnings slightly more than expected," said Charlie Loudermilk, Aaron chairman and chief executive officer.
But the company — which bills itself as the nation's second-largest RTO player with some 714 stores and total revenues expected to exceed $1 billion this year — is not ready to throw in the retail towel just yet.
Last month, Aaron hired Kevin Leary as vice president of retail. He has worked for Circuit City since 1974, most recently as its Southeast regional vice president in Atlanta. Leary has little furniture experience — Aaron's strength — but has the retailing background the company was seeking, Loudermilk said.
"With Kevin, we feel that we have an expert in retail, and when you combine that with (our expertise) in the rental business, we think it will be a big winner," he said. "We're optimistic that later this year, we'll see a very different picture than we're seeing today."
Last summer, when the company announced the Sight & Sound purchase, it labeled the move a test — to see if it could take a traditional retailer and expand its business by blending in Aaron's sales and lease ownership financing plans. If the test proved successful, Loudermilk saw it opening up all kinds of opportunities.
"Frankly, I wish we had bought a retailer that was being much better run," Loudermilk now says. The 33-year-old Sight & Sound had been losing money — about $1.8 million a year for the past two years — but "we didn't know how poorly run this operation was," he said. The originally announced purchase price of under $12 million dropped to $8.5 million after an inventory review.
Loudermilk said the Sight & Sound chain will lose more than $1.8 million this year, but wouldn't disclose the projected amount.
But Aaron has been pleased with results of the sales and lease ownership option. Sight & Sound had been turning down about 30% of potential customers because they were considered too much of a credit risk, Loudermilk said, and "we are capturing a large number of these people."
Similarly, while business at the Gwinnett Mall store hasn't fared well, the company has been satisfied with the sales and lease ownership contracts generated there, which are passed along to the Aaron's RTO store nearest the customer.
To help boost the retailing ventures, the company is bringing out new delivery trucks for Sight & Sound and putting up fresh signage. While it's too early to elaborate on the details, Loudermilk said it would take a combination of things to turn things around.
"There's no one magic bullet," he said. "It's merchandising. It's buying. It's the attitude of the employees. So many different things distinguish a loser from a winner in the retail business."
Even if it fails — which Loudermilk doesn't believe will happen — there is very little downside for Aaron.
The company is large enough to experiment without really hurting it's bottom line, he said.
Because it started out it such a deep hole, Sight & Sound isn't a fair test, Loudermilk said.
"As to how this idea will work — combining retailing and sales and lease ownership — we will have to let the clock tick quite a few more months than we thought we would, or we're going to have to purchase a well-run retailer to conduct our experiment," he said.
