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The Fractional Ownership Of Everything

  • Written by  Andrew Chambers, Renterval

0aaAndrew Chambers RentervalThe “modern” consumer is rethinking the value of ownership. Over the last several years they’ve come to realize that the sharing of items and services is cheaper, less burdensome, more convenient and better for the environment than traditional ownership.

While this peer-to-peer (P2P) way of sharing may seem like an entirely new concept, that couldn’t be further from the truth. The sharing of goods and services has taken many forms throughout history. In fact, Benjamin Franklin is credited with founding the first modern library some 300 years ago. His concept embodied how we think of “fractional ownership” today: A central body (a library) acquires assets (books) and makes them available to consumers (readers) for a sufficient amount of time so that he or she can glean value from the asset without buying it themselves. It took nearly 240 years after Mr. Franklin’s concept to take root in a commercially viable way in the United States, when the rental company as we know it today began popping up in towns across the U.S. soon after World War II.

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Between the government’s huge investments in infrastructure and Americans buying homes, this was perfect timing for newly established rental businesses. Neither party had the ability to buy everything they needed to make the improvements they wanted, so resourceful entrepreneurs invested in machinery and tools and offered them for rent for a short period of time. By appropriately pricing their available equipment and diligently maintaining their fleets, businesses profited by renting the equipment for much more than the initial purchase price.

Fast-forward to today’s marketplace, where the needs of consumers have dramatically shifted. Consumers have placed priority on reducing their usage and ownership “footprints” out of a concern for the environment, and particularly the younger generation is much more cost-conscious. Increased interest in sustainability is resulting in a greater adoption of the “fractional ownership” lifestyle. With this lifestyle, consumers place more value on benefiting from temporary usage of an item rather than buying and owning a product they may use a handful of times, only to collect dust in an attic or garage for years to come. While these new buying behaviors may appear threatening to traditional retailers, this actually presents a huge opportunity for growth and profit.

Benefits To The Retailer

By simply adding a rental component, retailers can offer not only the product, but also a more engaging customer experience that an online retailer can’t offer — certainly not with the immediacy that customers demand.

Benefits to the retailer:

  • Multiple store visits. Customers opting to rent an item from a retailer are guaranteed to make at least two visits to the store — one visit when picking up the item and another when they return the item. Multiple store visits allow retail employees to build a rapport with customers, show off new products and promote overall customer loyalty.
  • Instant gratification. Customers can see, try and rent an item all in one visit, which meets their needs for convenience and negates buyer’s remorse.
  • A new life for returned or refurbished items. Instead of waiting for a refund from the supplier for returned goods (or marking down an item’s purchase price), retailers can immediately generate recurring income from these items by making them available for rent.
  • A reputation for innovation. Competing on price alone will always be a challenge for the brick-and-mortar retailer. Adding a rental component further differentiates a retailer from their competitors such as e-Commerce giant Amazon and P2P service Rent the Runway.

Picking The Right Rental-Retail Model For Your Business

There is a wide spectrum of “rental” approaches that businesses can add to their retail operation. Depending upon the inventory offered by retailer, each of these models can further the business’ objective. The most commonly implemented models include:

  • Transactional (simple rent and return where rental duration will vary);
  • Relational (subscriptions to product categories with tiers of access); and
  • Path to purchase (rent to own).

In a transactional rental model, the business can supply their rental stock with previously unsold items, returned purchases, or even items purchased with the intention of renting them. Borrowing from the traditional rental playbook, the retailer will offer items for rent in hourly, daily or weekly intervals. Customers book and pay for the equipment for a predefined rental period and return the equipment at the time determined by the retailer and customer. Operators of this approach will generally enjoy a greater return on investment of rental inventory given the frequency of transactions.

Relational models seek to develop a loyal customer base and usually provide an offering of unattainable or unique inventory on a subscription basis. While profitable in the long run, this model requires a greater investment in duplicate inventory in order to successfully satisfy subscribers who have a greater expectation from the relationship. A retailer considering this model should budget for a higher cost to acquire subscribers.

Path to purchase, also known as “rent to own,” is the most complex of the models, as there is a need for customer credit applications, financing, collections and more. The other primary consideration for this approach is that customers will expect to receive brand new items. Provided your business has the relationships with manufacturers and finance companies (or that have selected a software which brings the necessary components together seamlessly), this is the most natural extension of the traditional retailer.

Until recently, the “winners” in a fractional ownership business were the companies with the expertise, resources and bankroll to pay for and build the back-office management systems to control the features necessary to success in the market, such as:

  • Merchandising inventory on a dynamic, mobile-friendly web site;
  • Managing inventory availability in real time (to prevent overbooking);
  • Maintaining customer profiles in a manner that creates loyalty and reveals upsell/cross-sell opportunities;
  • Integrating back-office systems that avoided duplicate reporting, duplicate inventory management and duplicate employee training; and
  • Deep analytics to understand the business’ performance and provide insights for product extensions.

Today, firms without the resources needed to build the tools themselves can add this bundle of services from PaaS (Platform as a Service) software companies. And as you may expect, the software can be rented/subscribed to for a low cost of entry and ongoing support and feature upgrades.

Rather than turning to limited-time only sales and gimmicks, retailers can overcome the challenges posed by the various sharing marketplaces by simply adding a rental component to their existing business. Forward thinking retailers have the opportunity to penetrate the rental industry and grow their business dramatically with the right rental-retail model and technology.


 

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.

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