Given the hype that surrounds all things Internet these days, e-rental and market innovation might appear virtually synonymous to some. But they're not. The Internet is merely one means to an end. That end in the rental business is a higher return on capital investment, hinging on an ability to sell more units of time without sacrificing margins.
E-rental might prove to be a valid mechanism for increasing rental business, particularly for multibranch operations. But is it the only one? Or has the rush to e-commerce actually narrowed our vision? A British-born rental business model called centralized booking offers food for thought.
During the past 15 years, a handful of regional and national rental companies in Great Britain have established operations whose sole purpose is to channel rental revenue through toll-free call centers. They pursue commercial prospects ranging from large national accounts, unions and associations to individual repeat renters.
While exact duties differ from company to company, the typical call center is responsible for sourcing the rental equipment, arranging availability at the branch closest to the customer, generating invoicing and handling collections. The phone call is the single point of contact for the rental reservation.
Despite a 15-year track record in the United Kingdom, no national rental company in the United States promotes this kind of full-fledged, centralized, toll-free reservations program to the market at large. Yet it might become viable as renting patterns change in certain industries.
The use of centralized booking in U.K. rental is concentrated, although not exclusively, in tool hire a term that typically encompasses everything from hand tools to portable power units. The largest U.K. player in this milieu, HSS Hire Shops, declined to be interviewed, although the company strongly promotes its toll-free Hire Direct and One Call centralized booking services.
Initially alone in offering centralized booking, HSS now has several national and regional competitors in the United Kingdom such as The Hire Station and Speedy Hire Direct. The Hire Station is a relative newcomer, while Speedy Hire Direct has more than five years under its belt.
Both companies operate under less-than-ideal market conditions. An oversupply of inventory relative to demand has been exacerbated by drastic rate cutting in some sectors, tepid market activity and more than 75 percent market saturation. Utilization rates are sliding in many key categories. Powered access rental has been hit particularly hard, with the glut of iron reaching near-crisis proportions. Given little room to move, many rental nationals are rethinking their market initiatives.
A new twist
Enter The Hire Station, a call-center operation launched in October 1999 by Vibroplant Plc. A longtime player in heavy equipment, Vibroplant reported US$49.7 million in equipment rental revenue for the fiscal year ended March 31, 2000. Recently, the company narrowed its focus, concentrating on the telehandler and rough-terrain forklift rental sectors in which it has established strength and on tool and specialty rentals.
Vibroplant appears intent on building a substantial tool rental network. The company dipped a toe in the water in 1996 and then climbed to $23.4 million in tool rental revenue this past fiscal year, largely on the back of acquisitions. Last April, Vibroplant sold its powered access fleet for $5.4 million and purchased a 25-branch hire chain for roughly the same amount. (Vibroplant once owned aerial work platform specialist American Hi-Lift but divested all U.S. operations in 1996.) Its tool rental network now stands at 78 branches, with many still operating under their acquired brand names.
The Hire Station is not Vibroplant's first foray into centralized booking. In 1997, the company launched National Hire and Service Centres for its equipment rental business unit while stripping away much of the traditional branch infrastructure a radical centralization that reduced outlets to little more than warehouses. Described by chairman Jeremy Pilkington at the time as the future of plant hire (Plant Hire Executive, July 1997), the strategy appears to have foundered on several rocks, including structural imbalances and Vibroplant's admitted underestimation of the natural self-regulating mechanisms within the [branch] structure, which enabled problems to be solved at a local level.
In effect, the National Hire and Service Centres of four years ago represented a somewhat extreme market experiment, not really typical of the centralized booking model as a whole. The centers still operate, although limited to Vibroplant's heavy equipment divisions.
Vibroplant has entrusted its newest centralized booking venture The Hire Center to a 21-year veteran of the British rental industry. Managing director Ian Weston cut his teeth at HSS, eventually moving into the position of operational director in the late 1980s. Weston is considered an industry pioneer of the centralized booking concept, having developed HSS' Hire Direct program in 1985. A decade later he moved on to Speedy Hire, where he created Speedy Hire Direct, and then last year he joined Vibroplant. He views the call-center concept as a home run for the customer, the local branch and the call center itself.
We pursue the tradesman almost exclusively, explains Weston, who says the customer profile is the smallish subcontractor working for a shop-fitting or construction company. This customer is highly mobile and often finds himself working in a region where the local hire outlet doesn't know him from Adam. He's not getting the best deal, and he may not be getting the best service. When he deals with us, we can organize the equipment availability and delivery for him wherever he goes.
There's just one telephone number to ring, one invoice format, one statement, one call-center team that he gets to know and depend on all the value-added things you don't get when you walk into an unfamiliar hire outlet. We present ourselves as a one-stop hire shop. The moment a customer telephones us with a request, we input it into our computer, then we communicate with the outlet that will be [supplying the equipment]. At the same time, a fax automatically goes from our computer to the customer, confirming all the details of the transaction. Communication between the call center and branches varies by phone, fax or computer, depending on the capabilities of the branch.
While a similar system could be set up online using e-mail, Weston says the U.K. market isn't ready to embrace that yet. These are very traditionally minded people in a number of ways, he notes. We're working on that behind the scenes; we'll get into it at some point. But right now the majority of the market base is not oriented that way. If they used the Internet to book, they'd probably pick up the phone anyway to make sure it's going to happen.
Human interaction, albeit not face to face, is key to the call-center concept, says Weston, who invokes a team approach to building customer relationships. Assigning one call-center operator to a given customer is problematic because it's physically impossible for that person to be always accessible. We promote a general knowledge of the customer throughout the team. This makes the relationship and his satisfaction less vulnerable. Everybody at The Hire Station can use our [information technology] to look up the details of any customer's account and service it.
A fixed menu
Weston has tried to bring a new dimension to each call-center program in his care. Under his direction, The Hire Station has taken the unusual step of establishing a fixed menu rental rate structure that he estimates is about 30 percent to 35 percent below average market rates at the branch level. Weston insists the company has held fast to the menu, even with high-volume customer accounts.
Everyone who does business with The Hire Station pays the same price for products and services, Weston says. We tell a customer that we've netted our pricing down to a very competitive rate, taking into consideration the fact that we don't have the expense of outside sales representatives and hard-nosed negotiations. We say, This is the return we need to get in order to keep servicing you, and it's less than you'd pay if you walked into a [branch]. For example, we charge a flat [$7-plus] transport fee each way, and we fix our optional damage waiver at a flat 5 percent.
Under the program's revenue split, the branch gets 60 percent of the total revenue including rentals, resales and service fees and The Hire Station takes 40 percent. Weston's staff is responsible for collections and assumes 100 percent of the liability for bad debts. That's only fair since we're the ones accepting the transaction, Weston says. The fledgling operation had about 850 contracts open in December, and Weston estimates that its four to five operators will generate about $3.6 million in revenue its startup year.
For the most part, Vibroplant's tool hire branches welcome the call-center contracts, according to Weston, who says he has seen virtually no cannibalization of existing branch business. There's no selling cost for the [branch manager], no bad-debt risk for him, he gets a good return on his capital equipment, and we've found customers for him that he normally wouldn't get [because they would tend to use one of the national chains]. It's cream on the cake in terms of incremental business. The service incentive is there.
In the saturated British rental market, Weston acknowledges that success for The Hire Station depends largely on capturing existing share from other national tool rental chains. This is where he has focused his energies. We're not going after the tradesman who stays in a local or regional mode, and [we're not] trying to convert him from using his local tool hire supplier. More and more contractors are traveling around these days. We can attack that market.
Convenience above all
In contrast to Vibroplant, Speedy Hire always has focused on tool rental under the ownership of parent company Allen Plc. Allen aggressively has expanded Speedy Hire's tool rental network by almost 20 percent in the past year to 175 branches, selling off its house-building division and earmarking the proceeds for Speedy Hire and its specialty rental divisions. It was a vote of confidence for a good performer: In the fiscal year ended April 2, 2000, Speedy Hire accounted for just 23.7 percent of Allen's total revenue but contributed 63 percent of the total profit. Allen has since disclosed plans to float its hire services division as a separately quoted company.
Speedy Hire Direct is the centralized booking arm of Speedy Hire, and its managing director, Denis Martin, has seen the market from both sides of the fence. Employed by regional and national construction groups before Allen, he primarily was involved with those companies' externally focused equipment rental divisions. Speedy Hire Direct's operation was already well-established when Martin took the reins a year ago, and he defines his job in terms of new markets and customer retention.
Martin estimates the potential U.K. market for call-center activity to be more than $145 million annually. If this is true, the penetration rate is much less than 50 percent. There are a large number of potential customers who I believe would be receptive to a call center but simply haven't been made aware of the benefits, he says.
That segment and the segment currently using our competitors are viable growth avenues for us. We're not regurgitating Speedy [branch-level] customers through a different strategy. Occasionally that happens, but it is a very small portion of our business.
In addition to tradesmen, Speedy Hire Direct also focuses on large-scale, national account relationships. The whole selling platform for Speedy Hire Direct is convenience, Martin says. Our structure is evolving more toward value-added technology for the customer. We have to make things simpler and more convenient otherwise I fail to see why someone would choose to use a call center. It's pure ease of use. There are limited financial benefits in fact, we're a premium service.
Speedy Hire Direct uses the same rate catalog as the regular branches but with a different cover wrap. Is this simply a starting point for negotiation? In some cases, but certainly not in all, Martin concedes. The annual volume and efficiencies have to be there to bring value to both sides. He says an up-front discount platform decreases rates to many customers who are occasional users of the call center and who don't necessarily justify that consideration.
Speedy Hire Direct negotiates reduced rate structures for national accounts but professes a conservative approach to rate negotiation. In a market that's as close to a commodity as you can get, Martin insists he is willing to go only so far on price. Some regions are more price-sensitive than others, and certain equipment categories are able to hold rates better than others. We take all these factors into consideration.
A relationship may be structured around volume rebates rather than rate reductions. An analogy here in the U.K. would be a supermarket no matter how many packets of butter you buy, they are still 59 pence per pack when you purchase them. But if you use your customer loyalty card each time, eventually some value will be returned to you.
The marketing challenge, Martin says, lies in selling the call-center concept to prospects who might not fully appreciate the services call centers offer. To many of the contractors, tool hire is a very small part of the whole project. There's not much money to be saved by doing it better or smarter. So we sell the convenience of our services, the one-stop aspect, the single-source invoicing and added features like our periodic on-hire reports. In effect, we provide a seamless procurement system from start to finish. We make life easier.
One convert to centralized booking is N.G. Bailey & Co., the largest electrical and mechanical contractor in the United Kingdom, ranging from $430 million to $575 million in annual revenue. Its approximately 3,800 employees are hired outright by the firm and supplemented with specialist subcontractors as needed. Mobility is part of the job, making the company's relationship with Speedy Hire Direct advantageous, confirms plant (equipment) manager Tony Rodway. We can control things far better through fewer sources, Rodway says, and the partnership relationship has proved it is a good way to do business.
Rodway uses the Speedy Hire Direct network to supplement Bailey's owned equipment about 40 percent of usage often on jobs far removed from the company's offices. Employees are given identity cards so they can walk into a Speedy Hire branch in an emergency and rent equipment over the counter. Those transactions then are processed through the call center to retain the benefits of centralized invoicing and any pre-negotiated rates.
Speedy Hire Direct uses an outside sales force to drive new business and is more likely than The Hire Station to assign individual account managers to significant customers. The booking process relies heavily on faxes and manual documentation at the branch level because Speedy Hire Centres are not computerized at the counter. Call-center operators automatically assume equipment availability on all but the most specialized items, as most branches maintain sufficient depth of inventory and have equipment-sharing systems.
Like The Hire Station, Speedy Hire Direct assigns a significant portion of the revenue from each contract to the branch involved and assumes responsibility for invoicing, collection and bad debt. With Speedy Hire Direct's more than five years of operating history, its staff of 30 furnishes the branches with 25 percent of their business on average and zero selling expense for that business, Martin says. [The branches] rarely let us down. We're their best customer.
Martin describes Speedy Hire's overall market position in tool rental as comfortably second and climbing in terms of rental revenue. The division posted a 22 percent increase in revenues for the six months ended October 1. The call center is no small part of that. We find that our penetration is enormous. We target given customers, and if they're not using a call center at the moment, we can usually convince them to try it. If they're using one of our competitors, there's a good chance we can convert them.
The typical British model provides for little or no contractual obligation to keep dealing with one call center, Martin says. That's why we're so strongly focused on relationship management, on conveniences and retention. Historically, service has been devalued in our industry, and that is something the entire industry is trying to address.
Who's the hardest sell? The hardest customer to convince is the one who has good, solid, local relationships, Martin says. The independents are always going to be our strongest competitors.
New initiatives, new challenges
Although relatively young, Vibroplant's call center already is branching out in new directions. Weston plans to expand The Hire Station's one-stop concept to include outsourcing of tools, equipment and consumables not carried by the company's branches. We can control the whole package for the customer be the broker, take the margin and he's happy because he has no administration problems.
In what is effectively a re-rent program, Weston says he wouldn't hesitate to outsource to competitors. We may turn to a regional hire outfit who is technically a competitor, but this is a customer he is unlikely to get anyway. Everyone's just happy for the bit of extra business. And for the most part, we'd be looking at things that are not in our product range: cabins or fencing, for example.
HSS already has its One Call multisourcing service in place in the United Kingdom and at its HSS Rental Stores in Florida. Speedy Hire Direct also engages in supplying products outside its existing portfolio. Generally we procure most of this equipment from companies who would not normally be regarded as competitors, Martin says. For example, over 90 percent of our powered access requirements [are fulfilled by] a single supplier where there is no overlap in our product ranges. Open to renting from competitors in certain situations, Martin says the type of service we supply is normally a sufficient barrier to protect our income streams.
The idea of centralized booking also has been adopted by some third-party administrators who are not affiliated with any one rental company but who route business to independent rental operators on a commission basis. While the objective is presumably to level the playing field for the independent, the similarity appears only skin-deep. Inventory sharing, a key cog in the centralized booking wheel, can be much less elastic among loosely affiliated competitors.
There can be other problems as well, such as difficulty in guaranteeing that a specific brand of equipment will be supplied. Third-party call centers centralize the actual telephone conversation, Martin says, but then they just pass the information on to another point of contact. They have no assets and no overriding control of the transaction.
The e-Kingdom?
So where does all of this leave e-rental in the United Kingdom? It's certainly not being ignored; it just doesn't seem to have found its footing in tool and equipment rental. Speedy Hire, for example, has a sophisticated online ordering process in place but so far has netted mostly inquiries from competent Web surfers who happen to need garden equipment, Martin says. More dynamic is Speedy's participation in a market site for Bass Breweries, a community of suppliers to Bass linked by e-commerce.
Orders [through Bass online] are deemed as accepted, and there is a delivery standard of X hours after the order has been placed, Martin explains. We have to check the Web site at designated times during the day; then we route the transactions as we would any call. Although embryonic as a percentage of business, this is the direction our top accounts are taking. We need to be ready for that.
The Hire Station is moving e-rental in a different direction with the trial launch of a do-it-yourself direct rental program called The Hire Station at Home. Consumers can place reservations seven days a week through a toll-free call. There is no showroom; rental requests for the DIY-type items are fulfilled from a centralized warehouse. We've defined a catchment of about a 20-mile radius, which might translate into 3 or 4 million people, Weston says. A product catalog will be mailed to homes every few months.
The only method of payment is electronic; it's done with a credit card authorization. We arrange delivery, we arrange to collect it, we make a courtesy call on Friday to see if the customer wants to extend the rental period. The driver will be able to offer the same level of instruction as a rental outlet would. You don't need the glossy showroom. All you need is a very efficient warehouse and delivery system.
Weston says that pure e-rental ultimately might prove to be better-suited to the consumer than the contractor or tradesman. Consumers are used to making decisions from their armchairs, he says. They're willing to pay for convenience. And they're more flexible about delivery because they're used to accommodating home deliveries that have a morning or afternoon time range. The ability to consolidate home deliveries is crucial to margins, says Weston, who adds that The Hire Station at Home charges about $5 for delivery each way and a 10 percent damage waiver/insurance fee.
Parallels across the Atlantic?
Would U.K.-style centralized booking translate to the U.S. market? Despite the geographic disparity between the countries, it's difficult to see how size would pose a problem as long as sufficient branch density exists. The model itself is flexible enough to accommodate national and regional programs and open-market and national account applications. Superior information technology would be needed, of course, and the complications of regional rates and seasonality addressed.
Still, roadblocks exist. There is a general feeling in the United Kingdom that centralized booking is best-suited for tool and small equipment rental, in part because it's easier to keep call-center workers up to speed on the product lines. How often is the call-center operator asked for expertise or advice? That answer varies widely.
Big-box stores aside, the United States lacks a major national player in tool rental. Denver-based consolidator RentX comes closest, and has a U.K. affiliation to boot. But many of its 75 branches are widely spaced, which can make it difficult to realize inventory-sharing efficiencies. Compare this to Vibroplant's 78 branches in a dramatically smaller area.
We've taken a look at centralized booking, says Tony Sabo, RentX's director of purchasing and marketing. But there are no plans to implement it at the moment. RentX, No. 15 on the RER 100, does centralize other functions associated with charge transactions, including credit approvals, invoicing and collections.
Centralized booking is by nature a big-player's game, best played in large numbers over large areas. In the United States, that means contractor equipment rental. While no consolidator has brought call centers to the open market, it's reasonable to assume that the concept hasn't gone unnoticed. Many are playing it close to the vest, but Fort Lauderdale, Fla.-based NationsRent, No. 4 on the RER 100, has gone public promoting single-source contact for national accounts on its Web site.
We've had it in place for about six months, says Gerry Weber, Nations Rent's executive vice president of operations. He describes his company's program as a great added-value service for national accounts. The customer has the option of walking into a branch or calling us [to book equipment]. As we sign up new national accounts, we find that most are opting for the service.
Weber predicts that the current team of two operators based in Fort Lauderdale will expand with demand. The call-center's policy, like that of its British counterparts, is to assume availability. We're very good at sharing equipment, Weber says. If the customer needs it, we'll find a way to fulfill it.
Customers receive post-call confirmation of the booking by phone, fax or e-mail, according to their preference. Would such a program be appropriate for the market at large? It's something we may come to down the road, Weber says.
As stand-alone profit centers, call centers are likely to struggle more in the United States than in the United Kingdom because of America's slower adoption of renting. The facility cost is modest, but so is the percentage take of the booked revenue under the British model. Thus, financial viability turns on volume and volume in the United States is in some part market development, a more costly exercise than share shifting. As an internal or external service initiative, however, a call-center's competitive advantage can far outweigh its numbers.
Given the appropriate branch network, I believe there is no reason why the principle of call centers could not work in the U.S. Martin says. The benefits of a single point for sourcing, administration, invoicing and relationship management can provide significant efficiencies in procurement. There is a definite benefit to transient contractors who work over large geographic areas and would not necessarily have sufficient knowledge of suppliers in those areas.
While at first glance British contractors might appear to be more mobile than their American counterparts, scale is deceptive. A contractor who works on job sites across Great Britain covers ground approximately the size of New England. But there are market similarities, and some U.S. rental segments might be shifting toward a need for these services.
For the past several years, specialty contractor industries in the United States have undergone massive consolidation, affecting everything from roofing to concrete mixing. The roll-up activity peaked in 1998-99, creating mega-companies such as Integrated Electrical Services (IES) and Encompass. Like many rental consolidators, these firms now face the challenge of extracting synergies from a potpourri of business cultures.
Specialty contractor consolidation has meant more mobility in some cases, less in others. IES has left its acquired companies largely in place to serve their immediate markets but also has expanded its roster of traveling companies teams that are highly mobile and oriented toward niche markets. They specialize in specific types of projects such as big-box construction and go wherever the business is. All rentals are booked locally at the discretion of the IES employee. The company does have preferred rental vendor relationships, but field personnel are not required to use them.
Dennis Pryor, IES' director of support services, says the company hasn't seriously considered centralizing the equipment rental process. A lot of our guys have built strong local [rental] relationships that are worth maintaining. This hands-off perspective is shared by many consolidators but might dim over time as companies built on an acquisition mode settle into an operational mode. Locality becomes less of an issue while the enhanced efficiencies of centralized booking cost control, procedural control and convenience become more inviting.
In the end, the greatest attraction of centralized booking might be that it doesn't sacrifice human interaction at the altar of efficiency. Seemingly low-tech, the call-center approach actually represents a blend of information technology and human relations a middle ground in the search for new ways to rent. Perhaps it's worth a harder look.
Peterson is president of Balboni Associates, a rental marketing, public relations and consulting firm in Springfield, Mass. She can be reached at [email protected]
PULLQUOTES U.K.:
***The typical call center is responsible for sourcing the rental equipment, arranging availability at the branch closest to the customer, generating invoicing and handling collection.
***Human interaction, albeit not face to face, is key to the call-center concept, says Weston, who invokes a team approach to building customer relationships.
***Martin estimates the potential U.K. market for call-center activity to be more than [US]$145 million annually.
***We make things simpler and more convenient otherwise I fail to see why someone would choose to use a call center. It's pure ease of use.
Denis Martin
Speedy Hire Direct
The model itself is flexible enough to accommodate national and regional programs and open-market and national account applications.
***Speedy Hire Direct negotiates reduced rate structures for national accounts but professes a conservative approach to rate negotiation.
***If they used the Internet to book, they'd probably pick up the phone anyway to make sure it's going to happen. Ian Weston, The Hire Station
The greatest attraction of centralized booking might be that it doesn't sacrifice human interaction at the altar of efficiency.
