Most Stephenson's departments are near the front, easily seen as soon as the customer enters the store.
The rental industry is now on the inside looking out. Consolidation has reduced the number of independent rental businesses but also has spread the message about the benefits of renting equipment. The emergence of Home Depot, TruServ, Ace and the rental programs of other hardware co-ops has propelled the rental concept into the retail environment. The future of equipment rentals will include business outside the traditional stand-alone rental center.
While Home Depot operates its own rental program, partnerships figure to play a major role in the future. Lowe's is partnering with NationsRent; Scotty's is teaming with Rental Service Corp. Other alliances are, undoubtedly, being considered.
With this article, RER begins an ongoing series examining the concept of rental departments inside home-improvement or building-supply centers. The two companies profiled in the following pages, both of which are working with retail chains, are quite different. Stephenson's Rent-All in Canada is oriented toward the homeowner and light tradesman, with a style easily adapted to the retail environment. Las Vegas-based Ahern Rentals targets contractors of increasingly large size, with a wide-ranging inventory specializing in aerial work platforms and earthmoving equipment. Stephenson's saw the home-improvement partnership as the wave of the future and sought it out. Ahern initially was skeptical and had to be convinced.
But both companies are making their programs work. We look at how in the following pages. And we will look at other rental department programs in future issues.
The Stephenson's Blueprint
Back in the 1980s, a Mississauga, Ontario-based rental company began experimenting with small retail-type rental outlets in strip malls around Toronto. The stores were staffed with clean-cut young people trained to emphasize customer satisfaction. The inventory was mostly small equipment and tools. The customers were either small tradesmen or homeowners who weren't always sure they had the knowledge and skill to complete do-it-yourself, home-improvement projects. The counter staff had to know which tools were right for the jobs and be skilled at communicating that knowledge to customers. And in many cases, the staff's job was to patiently convince people that with the right tools they could indeed do the project.
By and large, the concept worked, and although the company endured challenging years in the early to mid-’90s — with ownership changes and a fierce Canadian recession — it emerged still viable as one of Canada's leading rental players, by far the biggest in the light contractor/homeowner segment. And for years, Stephenson's Rent-All alone had a blueprint that might define the industry's future.
What Stephenson's managers recognized was that big changes were brewing. Atlanta-based home-improvement giant Home Depot decided to experiment by setting up rental departments within its stores, beginning with a pilot department in Nashville, Tenn. Home Depot determined its rental departments — managed by two former Stephenson's executives — to be the wave of the future. Home Depot now has rental departments in nearly 300 outlets, and nearly all newly constructed Home Depot outlets — Home Depot plans to add more than 1,000 new stores by 2004 — include rental sections.
Competitors and observers of the Home Depot rental program say the biggest weakness in its rental program is staffing — that its rental counter personnel don't understand the mechanics of the rental business and aren't well-schooled in explaining applications to customers. As one critic says, it's easy to pull a tool off a shelf when a customer requests one but quite another thing to explain in detail the many steps that might be involved in a home-improvement project. Whether it be building a backyard deck or patio, putting up a fence, installing a faucet, fixing a pipe or tiling the kitchen floor, most jobs require different tools at each step. Not only is it important to choose the right tool for each step, but knowing how to operate each tool is essential.
Employees of rental centers that cater to experienced construction companies don't always have to concern themselves with whether their customers know what they're doing. But personnel in home-improvement centers typically deal with inexperienced clientele who might not know what tools they need and often require detailed instruction and encouragement.
Home-improvement centers are looking to take advantage of the public's growing interest in rentals but recognize that a huge learning curve is required to hire and train qualified staff and operate rental departments. So why not contract with a rental company that can run the rental department for them?
Lowe's chose to partner with NationsRent. Scotty's looked to Prime Equipment (now merged into Rental Service Corp.). Payless Cashways, operating in the western United States, linked with Las Vegas-based Ahern Rentals. And several Canadian home-improvement chains looked to a company that already had put together the formula and proved it could work successfully — Stephenson's Rent-All.
“Home Depot had the greatest impact on the homeowner trade business than anybody else in the history of rentals,” Stephenson's CEO Chris McKay says. “By and large, for the do-it-yourselfer, the destination point now is the home-improvement center. That's where the traffic is. So what better than to bring the two together? But to be successful, you have to have expertise. The guys who work at our stores are seasoned and can give knowledge to the customer, whereas in some of these other big-box locations, staff is working in the flooring department today and in the rental department tomorrow. So they don't have that expertise.”
As the home-improvement industry discovered its natural synergy with rentals, Stephenson's became the partner of choice for several Canadian building chains, beginning with Toronto-based Lansing Buildall, with which it established its first rental department in the spring of 1998. It also partnered with Surrey, British Columbia-based Revy Home Centres (which recently merged with Lansing), Montreal-based Cashway and Montreal-based Building Box, whose stores contain Stephenson's three newest departments. And for Stephenson's, which already had made the transition from the traditional rental center to a more retail strip-mall environment, adapting its rental culture to the culture of the home-improvement center was not that big of a stretch.
Still, Stephenson's executives — including McKay, and Wayne MacNeall, general manager of leased rental departments — studied the environment of the home-improvement center to understand its dynamics. They recognized that rental was a natural alternative for many customers of home-improvement centers.
“When a customer is looking at something that costs $300, it's important [for the home-improvement center's staff] to have the ability to say to them, ‘Hey, I understand that's a lot of money when you've just got one job to do, so here's an alternative,’” MacNeall says.
“The most important part for the home-improvement center is satisfying its customer,” McKay adds. “They want to be able to tell them that they can buy the equipment or they can rent it. Suppose a customer is doing a job and the materials cost $1,500 and the equipment costs $3,000. What if they can't afford it? They can rent that equipment for $300. So the home-improvement center sells the materials, and we supply the rental.”
“A lot of the customers who come see us at these home-improvement centers aren't really sure they want to do the job themselves,” MacNeall says. “They're looking at the pros and cons of hiring a professional or doing it themselves, and if we do our job properly from the equipment perspective, they'll walk away thinking that they can do it. It's a matter of relaying the right information to them.”
“Suppose a customer is doing a job and the materials cost $1,500 and the equipment costs $3,000. What if they can't afford it? They can rent that equipment for $300.”
— Chris McKay, Stephenson's Rent-All CEO
Stephenson's employees take a proactive approach in directing traffic toward their rental departments. Instead of just sitting at the rental counter waiting for potential customers to show up, they take to the store aisles, approaching people and letting them know about their rental department. For example, if they see customers looking at tile, they might approach them, ask if they are considering installing a tile floor and let them know that the option of renting a tile saw or related accessories is available.
“It's a way of doing business that never really existed in the rental industry before,” says Bob Carroll, a Stephenson's executive who played a major role in launching the rental department program. “It's a great opportunity.”
McKay says the costs of running a leased department — including the per-square-foot rental fee and labor costs — are about the same as running a stand-alone rental center. “And the home-improvement center gets a portion of the rental as well as what we pay to lease the space, so the profit-per-square-foot they receive competes favorably with most of their other departments,” he notes.
Stephenson's rental departments range from 800 square feet to about 1,500 square feet. They showcase as much equipment as possible within the confines of the small space, benefiting from Stephenson's ability to deliver equipment from nearby stand-alone stores if needed. Each home-improvement center provides a small outdoor storage area for larger items such as small loaders, scissor lifts and scaffolding equipment.
Location in the store is important, the Stephenson's staff says. The department Stephenson's opened with Lansing Buildall is at the back of the store, not easily seen by most store visitors, because that was the only space available. Now most Stephenson's departments are near the front, easily seen as soon as the customer enters the store, and new Revy's Home Centres, Lansing Buildalls, Cashways and Building Box stores are being constructed to include Stephenson's departments near the front.
Stephenson's for years has done its maintenance at strategically placed service centers rather than at the strip-mall outlets and has continued that system with its departments in home-improvement centers. Machines are picked up and returned daily by Stephenson's vehicles. MacNeall and McKay recall visits to other home-improvement centers where they watched service personnel take apart equipment and attempt to do repairs in the middle of aisles with customers squeezing by. They prefer to maintain a retail environment without the odors of grease and solvents and the possibility of accidents.
Stephenson's, No. 58 on the RER 100, now operates rental departments in 17 home-improvement centers in and around Toronto; Calgary and Edmonton, Alberta; and Vancouver, British Columbia. It hopes to move the concept to the Maritime Provinces in eastern Canada this year and is exploring opportunities in Quebec as well. Stephenson's also has looked at potential partnerships with home-improvement centers in the United States.
McKay and company are convinced that the rental department inside the home-improvement and building-supply centers is the way of the future for do-it-yourself renters. Although many of the departments are too new to chart financial results accurately, Stephenson's management says it has been pleased by the results. And, McKay says, the large number of visitors to home-improvement stores, seven days a week, will expose many people to the benefits of renting.
“It increases the awareness and acceptance of rental, which is very positive,” McKay says. “In the long run, it builds the rental business.”
The Ahern Evolution
Don Ahern wasn't a math major. But he didn't have to be to know the idea didn't add up.
When Payless Cashways first approached him to set up and operate rental departments inside its home-improvement centers, he looked at the store hours — 6:30 a.m. to 9 p.m., with slightly shorter hours Sunday. He figured that a rental department in those stores could operate about 11 hours a day, but he'd still be looking at 70 to 80 hours a week. Requiring four or five people to operate each department effectively at a given time, including inside staff and outside delivery personnel, he'd need about eight people per department, totaling about $20,000 a month in salaries, not including the costs of recruiting and training new staff. Based on a formula of labor costs equaling no more than 25 percent of total volume, the department would need to bring in $80,000 a month just to break even, on equipment and tools that could be showcased inside on shelves.
Ahern determined he couldn't make a profit without significant outside space where he could offer small earthmoving equipment, aerial work platforms and other items too big for an indoor showroom. What did Payless management say? “How much outside space do you want, and what do you need to make it work?”
Before the relationship with Payless Cashways, Ahern seemed as likely to open a dental clinic as set up a rental department in a building-supply center. The largest independent, family-owned rental company in the United States, Las Vegas-based Ahern Rentals, No. 18 on the RER 100, increasingly was oriented toward large contractors, with an emphasis on aerial work platforms and earthmoving equipment. The leading player in the construction of a number of large hotel-casino projects in the Las Vegas area, Ahern Rentals extended its reach as far away as Denver, Salt Lake City and Eugene, Ore., when the Vegas building boom slowed. But it had never considered the home-improvement or contractor-supply business as an option.
Surveys said ‘rental’
Like many other home-improvement and building-supply chains, Lee's Summit, Mo.-based Payless Cashways — which also operates stores under the names Furrow, Lumberjack, Hugh M. Woods, Knox and Contractor Supply — recognized the growing importance of rental as an option for its customers. Payless' customer surveys indicated rental was one of the most requested services that it didn't provide.
Already evolving its focus from the homeowner to the small contractor, Payless Cashways management recognized renting as an important part of doing business with that customer segment. It hired a consulting firm to recommend the best way to enter the rental business.
The consulting firm quickly realized that operating a rental business is different from running a building-supply retail chain. It recognized that staff training in a specialized set of skills, with a distinct way of relating to customers, would be required along with different inventory, computer and inventory-management systems. It realized that hiring equipment rental experts would be smarter than learning the rental business from scratch.
With Payless Cashways stores doing business in the Midwest, Southwest, Pacific Coast and Rocky Mountain regions, the consultants recommended Ahern Rentals as the ideal candidate with the size, geographic spread and expertise to be Payless Cashways' partner on the rental side.
Ahern Rentals established its first department in October 2000 in Las Vegas, closing a nearby facility and moving the inventory into a 1,500-square-foot area close to the front of a Payless store. The rental department also has 2,000 square feet beneath an outside canopy along with an additional 6,000 square feet of yard space. A customer can walk through the outdoor area and enter the building right next to the rental department. Customers entering through the front door immediately see a large sign that directs them toward the rental department, which is plainly visible from the front entrance.
The Ahern Rentals design team set up an orange entryway designed to look like the gate of a ranch. “This concept was to have an industrial feel using steel but to look like a ranch and have a welcoming feeling when you walk in,” Ahern says.
Ahern put together a special team of employees to build rental departments in various Payless Cashways stores. Ahern Rentals has its own construction department with a contractor's license that handles all company needs. That department includes a carpenter, concrete experts, electricians, plumbers and laborers. Ahern's brother and co-owner, Paul, a retired architect, designs the departments. Ahern's “Payless team” visits each store to prepare the department physically, and the Ahern Rentals purchasing department buys the equipment, supplies and parts needed to run it. The company recently bought a specially designed trailer for shipping all the ingredients of a new department to each new facility. Ahern's training department develops staff especially for work in the new rental departments.
Ahern Rentals began a cooperative cross-promotional effort with its new Payless Cashways partners almost immediately upon entering into the arrangement. Each has a dozen salespeople in the Las Vegas area promoting one another's business. “We're putting out fliers saying, ‘Meet our new friends at Payless,’ trying to promote their business, introducing our customers to them,” Ahern says. “They have their sales force doing the same thing.”
Ahern has noticed the natural synergies that exist between the two businesses. “We've been amazed at how many of our customers come and buy materials here at Payless,” Ahern says. “I've seen a lot of people in here that come in to our places to rent.”
Payless Cashways customers find a lot of tools, but they're less heavy-duty than Ahern's inventory. Ahern also handles specialized items such as carpet stretchers that normally wouldn't be sold at Payless stores. The Ahern inventory goes as large as 37-foot booms and 25-foot scissor lifts, skid-steer loaders, mini-excavators and small backhoes.
The Ahern staff does minor maintenance on site, unlike Stephenson's departments, but sends most of its equipment to service facilities in what Ahern calls “mother stores” — larger, stand-alone rental centers. Ahern will establish departments only in areas where a “mother store” is within a short drive. He plans to establish mother stores this year in a couple of cities where Payless wants to put a department but Ahern Rentals has no branch established.
The size, style and contractor orientation of Payless Cashways stores appears to fit well with Ahern Rentals. “Payless doesn't really subscribe to the big-box theory,” Ahern says. “They have a lot of outside space, so we'll be able to inventory more items than a Home Depot can. Home Depot typically has about 2,000 square feet. We're looking at as much as 20,000, more like a lumber store.”
Payless Cashways has about 150 stores and, Ahern says, about 100 of them are candidates for Ahern Rentals. His goal is to establish about 17 departments during the next two to three years. Ahern hopes to open his second and third departments in Reno, Nev., and Denver this month and expects that by later this year the company will add departments at a rate of about one a month.
Initially skeptical about the project, Don Ahern is now an enthusiastic proponent.
Although not quite what it ultimately needs to be, volume has been steady during the program's first three months, averaging more than 25 contracts per day during the winter season, which is traditionally slower than the rest of the year. Ahern is especially hopeful about the program because about half of the rentals have gone to customers who hadn't done business with Ahern Rentals.
“Rental is going to become a part of a lot of other people's business,” he says. “It will evolve to become more than just stand-alone rental centers. I'm glad they made us a part of that evolution.”
Michael Roth can be reached at [email protected]
INSIDE THE BOX
Rental company: Ahern Rentals
Partner: Payless Cashways
Location: Las Vegas
Coming soon: Reno, Nev.; Denver
