By Andrew Chambers, Renterval LLC
Sharing — it’s one of the first lessons we learn as children.
We’re rewarded when we do it willingly, and we expect others to do the same for
us. While it’s instilled in us from an early age, the notion of sharing has
come a long way since the playground.
Sharing in the adult world has evolved substantially. The goods
that adult customers want to “share” span the spectrum from electronics to
automobiles to vacation homes. These customers are much more willing to pay a
fraction of the ownership cost for the benefit of a product for a short time
rather than buying, storing and eventually disposing of a purchase.
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As consumer attitudes have changed when it comes to fractional
ownership, the ease of offering fractional ownership at traditional retail
businesses has progressed.
Several e-Commerce darlings have built strong businesses around
rental and subscription models. They use their proprietary technology and investment
in inventory to serve customers nationwide with everything from toys to tuxes.
For a monthly fee, customers subscribe to the benefit of getting what they need
for the time that they need it.
However, without making a significant investment in real estate,
these e-Commerce companies miss an important element that customers expect:
instant gratification.
Amazon.com is the de facto leader in the “get it to you fast”
business, but unless customers live in major metropolitan areas, the earliest they
can expect the product is two days. The gap between “I need it now” and “it’ll
be there in a few days” represents an opportunity for companies that have the
retail footprint, the items customers want and the mindset to do new things to
grow their business.
Adding a rental component to a retailer’s business offers a
variety of opportunities to grow foot traffic, improve customer loyalty and
increase the retailers’ margins on products that consumers buy.
A rental transaction with a customer ensures at least two visits
to a retailer’s location: one to pick up an item and another to return it.
These visits represent a valuable opportunity to merchandise inventory
(particularly inventory the retailer chooses not to offer for rent). The
customer interested in renting products is oftentimes a different consumer than
the one interested in buying, which permits a retailer to serve a new type of
guest.
Offering a new twist to the traditional retail model provides an
opportunity to boost a customer’s opinion of, and loyalty to, their
neighborhood retailer. As retailers solve customers’ needs for a variety of
product usages, top-of-mind awareness naturally translates to more transactions
and a greater customer lifetime value.
An added rental component creates a new opportunity to boost
revenue and profitability. Assume a retailer buys a product for $60 wholesale
and sells it for $100. When a customer makes a purchase, the retailer makes $40
gross profit, which is then allocated to the selling, general and administrative
expenses associated with running the business. However, if that item were to be
offered for rent the wholesale cost would remain the same, but the usable life
of a rental item can exceed months, permitting the retailer to quickly recoup
the product costs and earn more income over the long run. Customers have no
expectation of a rental item to be in “new” condition (as they only need it for
a short term), making a rental inventory “holdback” a great use of returned
items previously purchased by customers (thereby avoiding the lengthy returns
and true-up processes with vendors).
Because a rental transaction is a “closed loop” process, the
addition of a rental-capable point of sale system is a necessary investment for
the retailer. Unlike a purchase, a rental requires not only the functions of a
traditional POS (reporting, receipting, CRM, etc.), but also a requirement to
maintain real-time inventory status and availability to ensure items aren’t
overbooked. Software tailored for the “renting for retail” model is available
in a locally installed model as well as a cloud model, which offers the added
benefits of online rental and delivery/pickup scheduling. Strong consideration
should be given to a solution that complements a retailer’s current POS to
avoid costly training and integration expenses.
The sharing economy is here to stay, and there is no reason for
retailers to miss out on the biggest trend in consumer behavior since the e-Commerce
revolution. Having a physical retail location, healthy relationships with
suppliers and customers, and the will to serve a new segment of their local
market puts retailers in a strong and defensible position against e-retailers
and represents a sustainable growth model.
Andrew Chambers is an
entrepreneur and the founder of Renterval, a cloud-based inventory management application for traditional rental
businesses. His latest venture, Renterval for Retail, uses the rental
technology developed from his original application and applies it to retail
businesses of all sizes, allowing them to offer an added rental component to
their existing operation.
