Atlanta-based Home Depot currently has 1,500 stores and about 600 tool rental departments and has plans to add 200 this year. Numbers like that may seem daunting to the independent general tool rental centers that compete with Home Depot, but with a little extra care and attention to detail these small rental-only stores can still compete.
Arguably the biggest area where a general tool rental store can stand out above a large retail home improvement chain is in customer service. “Generally, those customers that come to us instead of HD say we offer more help, customer service and a better inventory,” says Chuck Button, president, Button's Rent-It, Royal Oak, Mich. “They also don't have to wait in line for a great deal of time before getting their equipment.”
Doug Schumacher, owner of A-1 Rental West, Cedar Rapids, Iowa, plans to stay competitive with Home Depot by offering better service in all areas of his business as well as maintaining a broader inventory than the large retail-type stores.
Recently Home Depot has encountered some scrutiny over the quality of its customer service. A keen focus by Wall Street analysts on the weakness of its service has the company scrambling to develop customer service initiatives and requiring all its store managers to complete a one-week leadership course.
In further reaction, the company, whose fourth quarter 2002 results reveal that profit is down 3.4 percent, launched a new marketing campaign that focuses on teaching people how to complete projects, rather than just selling the supplies. The campaign, which began airing late last month, is designed around a central theme, “The Home Depot is more than a store — You can do it. We can help.”
But small rental companies aren't sitting back casually while HD strives to make improvements. One small rental store with a Home Depot situated about a half mile away plans to capitalize on an area where it knows it can compete. “As always we strive on good pricing and customer service to go the extra mile,” says Timothy Johnson, president, Janesville Rental, Janesville, Wis. Though the HD store near Janesville doesn't yet have a Tool Rental Center, the company's plans to aggressively expand could soon change that.
“We're getting more aggressive in tool rental expansion,” Tom McCormick, director of tool rental for Home Depot says. “Our customers love it and are coming to expect it, it's a very good business for us. It draws customers and promotes one-stop shopping for our customers so professional and do-it-yourself customers can get merchandise as well as rent tools.”
While the small rental centers may have won the customer service war, they simply can't win the battle over convenience. “What I can't offer is a one-stop shopping experience,” says Button. “If they are getting their materials at HD, it is often more convenient to get the tools needed to get the job done at the same place.” And that is exactly what Home Depot is banking on. Contractors who shop at HD everyday for their supplies can now rent tools and other equipment there as well.
“As far as small contractors go, convenience is our enemy,” Button explains. “HD's lack of service during the rental is our friend. If they have trouble with the equipment, HD wants them to bring it back and they may not have a replacement. Also, if they need a piece of equipment it may not be available for two or three days because of service. This is an area we can beat them at. This covers the larger equipment rentals too. So far they haven't put that equipment in the stores in our immediate area.”
Some general tool rental companies are concerned about losing both their contractor and homeowner customers to the big box stores. If a do-it-yourself customer goes to Home Depot as a first time rental customer and has a good experience, then that customer will return to HD for his other equipment renting needs and the small rental store may never succeed in wooing him away. If the customer has a bad experience, however, he may be turned off to renting equipment permanently, explains Button. Either way, Home Depot's rental departments are sure to have an impact on general tool rental stores.
As with any competition in the rental industry, Home Depot poses a threat in enticing employees away from their humble beginnings at the smaller, general tool rental stores. Button has seen two of his former employees migrate to Home Depot. One of these employees is now the rental manager at the HD store near Button's. The other left a year ago to work at the same HD store. Though losing employees to the competition is never a positive, both of Button's former employees refer customers to his store when they can't fill their needs in the Home Depot rental department. Taking advantage of these referrals can help Button grow his business.
“Even though HD is not going to go away I think we have the advantage of being able to think and innovate on the fly, which goes against large corporations' grain,” Button says.
A new Home Depot, with a Tool Rental Center, recently opened in Cedar Rapids, Iowa, about five miles away from A-1 Rental West, so the impact it will have on business has yet to be revealed. “I anticipate it reducing our bottom line for the next two years,” says Schumacher.
Just as Schumacher anticipates, the impact of Home Depot opening near Button's Michigan store did jolt its bottom line. “We were very big in floor refinishing rentals and they killed us,” Button says. “Since that initial hit we have slowly picked up again. A good share of the reason is that we really do know what we are doing when it comes to floor finishing and refinishing. Our business came from a floor sanding business some 50 years ago and we know how to instruct the customer so that they get great results from their project.” It all comes back to customer service.
Another weapon small rental centers may have against the large retail chains is the ease with which they can partner with other smaller scale home improvement/hardware companies in the area. Button is working on trying to hook up with a lumber yard in his area to create a mutually beneficial relationship. Button's Rent-It would offer the lumber yard customers a discounted rental and the lumber yard would offer discounted supplies to Button's customers.
“The big misconception is that HD is all about lower prices, which is not always true,” Button says. “You better know what you're getting and what you are paying because HD isn't above leading you in and then charging even more than you can get it elsewhere. This applies to rentals too. Once you add in the extras needed the price difference is negligible — not just the same or higher.”
The fact is, Home Depot is losing ground in terms of revenue growth to Lowe's, a large retail home improvement chain with its own tool rental offering that last month reported a fourth quarter 2002 earnings increase of 46 percent. In 2000, Wilkesboro, N.C.-based Lowe's formed a strategic alliance with NationsRent to open 60 rental departments adjacent to the entrance's of Lowe's stores in 22 markets by the end of 2001. Subsequent to its Chapter 11 bankruptcy filing in 2002, NationsRent received approval from the U.S. Bankruptcy Court to continue its strategic alliance. The company currently operates 76 NationsRent locations within Lowe's stores.
Home Depot is banking on its growing rental departments to keep its head above water in the sinking economy. But with home improvement and new home sales proving to be a bright spot in the ailing economy, there's plenty of room for the independent general tool rental stores to compete. Large, one-stop retail stores such as Home Depot and Lowe's do provide formidable competition for general tool centers, but these rental-only stores have a unique service to provide their customers as well — personalized, dependable customer service; a broad range of equipment; and expertise.
“Being a small rental yard, we can be flexible and change things if needed pretty easy,” Johnson says. “We also keep very well maintained, newer equipment, which is a big key to a good operation.”
