Competition is a factor in any business. Henry Schutz and his wife Mary, who own E Z Rentals in Onalaska, Wis., compete with The Home Depot, and big rental giants, such as RSC. With just he and his wife as employees, Henry says he hasn't yet had a problem with Home Depot taking employees from his store.
E Z Rentals, which has been open since 1993, felt an impact when Home Depot moved into the neighborhood. “For about a year we definitely knew they were there,” Schutz says. “But it was almost like a fad, we got it all back.” Schutz says that losing business to a Home Depot is usually a matter of convenience for the customer, with the new store having a closer location to customers.
To compete, Schutz redoubled his efforts to serve the customer because service and experience keep the customer coming back, he says. “If you go to a store for a concrete saw, and you've got a 17-year-old trying to explain it, you've got a problem.” Experience and expertise will win a customer over. As Schutz says, “When the elephants start to fight, the mice go hide — and we're the mice. Don't tangle with the big guys.” Schutz knows when he can't compete with a bigger corporation in a certain area, so he tries to offset that with the strength he has — his experience.
Small rental businesses rely heavily on their customer service, delivery services and years of experience to make the difference for their customers when choosing a rental provider.
“If a customer of ours has a problem with a piece of our rental equipment, we are able to go to the jobsite and repair it or replace it quickly,” says George Hettman, president, Star Rental, Missoula, Mont.
Debbie Ray, office manager, A-1 Rentals in Kansas City, Mo., says that being a small, family-owned rental business allows them to be more flexible with rates than some of the larger companies, and they rely on personalized delivery services to set themselves apart from the pack.
Littleton, Colo.-based Adams Rental Service tries to offer better individual service to its customers as well as a broader array of specialized equipment. Since some customers go to competitors like Home Depot because they can both rent equipment and buy materials at the same time, Jim Holt, Adams' owner, works hard to be friendlier and offer better quality equipment. Holt rents trailers and offers delivery — both services help his small business compete.
Competing with the store hours of large companies can also be a challenge, says Michael Tonry, owner of Milford-495 Rental Center in Milford, Mass. “What challenges us is that HD has low rates and long hours that we cannot duplicate,” Tonry says. “We know rental and have been doing it for a long time. For continued success, you need to have a diverse inventory, a trained, experienced workforce that knows the inventory and knows what they are doing. Provide great customer service and be willing to deliver equipment if necessary.”
In some ways, small rental centers have more flexibility than larger stores. “We don't have to lock the door at 5 o'clock,” Schutz says. “We can stay open until 5:30 or 6 o'clock. We don't mind waiting or coming down after hours.” Schutz says customers even stop by their house to pick up or drop off equipment.
Keith Willett, president of A to Z Rentals & Sales in Goose Creek, S.C., is considering limited Sunday hours when a Home Depot moves to town, which he anticipates will happen in the future. But he has a positive outlook on the store's possible impact: “I'm hoping that it will expose people to rental who haven't been exposed before.”
And that's a common attitude among small rental operators. Tony Beringer, president of Costa Mesa, Calif.-based Baker Rentals & Sales says, “Big box stores such as Home Depot, Lowe's etc., are to some extent a competitive factor, but in general, we consider them to be a positive force for our business because they help keep the public informed on products that can be rented.”
Because many large contractors have existing contracts with larger rental players such as United Rentals and RSC, small rental stores can instead capitalize on the small contractors that may feel alienated by these companies. In addition, smaller customers aren't always able to pay the hefty deposits often required by larger rental chains. Fred Pouche, owner of Platte Rental & Supply, Parkville, Mo., doesn't require deposits, which has won him customers who weren't willing or able to pay high deposits. His no-deposit policy has also helped him keep customers who would go somewhere else in search of lower or no deposits.
Insurance rates
The impact of rising insurance rates on the small rental center cannot be overstated. It's a necessary expense that can't be avoided for any rental center. From health insurance premiums for employees to liability and worker's compensation, insurance rates are increasing across the board. For many smaller rental companies insurance costs cut directly into profits, lowering the bottom line. The businesses often have no choice but to pass the burden of the expense on to their customers via rental rates.
For Beringer, workman's comp costs doubled in 2003. As a result, 15 percent of gross sales go to pay for insurance premiums. Beringer was told to consider himself lucky that those costs will stay the same for 2005.
With such a steep burden, however, Beringer had no choice but to increase rental rates to help offset the cost. In addition, he holds monthly safety meetings with his employees to discuss new and recurring issues such as back strains and safe equipment operation.
“We've been real fortunate,” Beringer says. “Our loss ratios are down 10 to 15 percent.”
Liability insurance is a major issue for small rental operators as well. Despite having a flawless safety record, rising insurance rates have hurt Parkville, Mo.-based Platte Rental & Supply over the past two or three years. No matter. “Insurance companies blame the increases on outside factors,” says owner Fred Pouche.
“We explain the operation of the equipment to our customers and take all the precautions in the world, but when you are renting equipment to inexperienced operators, anything can happen,” says Ray. “Insurance is a major expense for our business.”
Adams Rental Service raised its deductibles and reduced its coverage to better cope with its increasing insurance premiums. Platte Rental & Supply also recently raised its deductibles in an effort to save a few bucks.
“We had no alternative but to raise our prices and to put on hold some equipment purchases,” says Star Rentals' Hettman. “We know you can't just keep passing the buck before your customer says enough is enough.”
Tonry's prior insurer started restricting certain items from coverage, which included some fun and games pieces like small moonwalks and dunk booths. Tonry didn't think this was fair, so he moved to a new insurance carrier. “The higher premiums cost us more than the profit on the products,” he says. “This was not a good financial move, but we felt obliged to maintain our image as a general rental center with a diverse inventory and we wanted to maintain our relationships with families and organizations in the community. We don't want the insurance company to dictate too much of our rental inventory.”
Willett agrees. “Insurance rates are killing us,” he says. He's moving to a higher deductible and a less attractive plan for employee health insurance, because it's a business necessity. “It's not something you can eliminate and keep a quality employee.”
Costs and other challenges
Increases in the cost of raw materials have caused manufacturers to increase the price of new equipment. Steel shortages and manufacturer surcharges have also contributed to this trend. For many small rental centers these factors are impacting current buying decisions.
Platte Rental & Supply's Pouche has adjusted the quantity of his equipment purchases for the coming year. Instead of buying three or four of some units, he will now only buy two or three, he says.
For others, however, the need for equipment outweighs the issue of higher prices. “I have noticed steel surcharges on several pieces of equipment we've purchased lately, but that increased fee alone has not affected what we need to purchase,” says Ray.
While some challenges face many rental centers, some complications are store-specific. Richard Datzman, owner of Lawrence Tool Rental in Indianapolis, Ind., has had road construction in front of his store for several months now. While he doesn't think the construction has had a huge negative impact, he says that it has probably trimmed growth. “Ever since they got started our numbers have remained the same,” Datzman says. “Who knows what growth we would have had?”
Despite the challenges facing the small independent rental businesses in today's market, there's still plenty of room in the market and customers to fill the niche.
