Riding the crest of increased customer demand and strong construction activity, coming on the heels of a period in which many companies trimmed overhead and costs, most rental companies are having the best year they've had so far this decade.
But this is an era of accelerated change. If you don't realize that, try to remember the world before September 11, 2001. Or buy a personal computer and see how long it takes to become obsolete. The ways rental companies are doing business are changing, and customers' expectations are changing as well. Computer technology is advancing quickly, the Internet has become a part of our daily life, and wireless management, once a distant futuristic concept, is now part of the accepted cost of doing business for many rental companies.
As we come close to the halfway point of the new millennium's first decade, RER launched the first in a series of readership surveys to see what our readers are thinking and how they view the essential issues facing the rental industry.
While we talk about change, it's clear that the essence of rental hasn't changed that much. It all comes down to service, just as it always has. And increasing numbers of rental companies are discovering that service and repair on equipment is as important, if not more important than ever, and more companies are placing emphasis on it. And that very phrase — “more companies” — is exactly what we're seeing, despite the many predictions in recent years that the independent rental center will soon disappear like the corner grocery store. The reality — so far — is the opposite, and although we could be on the cusp of a new wave of consolidation, the independent rental center appears to be making a concerted comeback, RER Industry Survey respondents believe.
The survey also revealed tremendous optimism about future penetration of rental, and more than 75 percent of respondents expect demand for rental services to increase in the next few years. And nearly half of respondents say rental rates are on the increase.
The RER Industry Survey couldn't cover all the important issues in the industry, and, in fact, one issue of RER couldn't cover the entire survey, which will be presented over two issues.
But, here is some of what we found.
Techno wizards
Now that the majority of rental companies are automated to some degree, RER's survey starts with computer usage. We found, not surprisingly, that first and foremost, automation is all about equipment and how to manage inventory. More than 90 percent of survey respondents said they use their computer software to manage inventory, with 48 percent managing inventory for a single store and 46 percent for multiple locations. Accounting and back-office functions are automated for 79 percent of respondents, and point-of-sale/counter functions by 60 percent of respondents.
Shop management is a fast-growing area, with shop-management functions used by nearly 50 percent of users. Concern for cutting maintenance costs yet still increasing service capability is on the minds of many, as about 60 percent of respondents say they have made efforts to grow this portion of their business over the past two years, with 61 percent saying they expect to concentrate on growing the service portion of their business in the coming years. Quite a few respondents emphasized the importance of computer software to help schedule equipment repair and maintenance, run their shops more efficiently and schedule deliveries more accurately and effectively.
Computer software is growing in importance as a sales and marketing tool. Sixteen percent specified using their computers for customer database management and many respondents cited the importance of managing sales staff effectively. Sales account management, sales analysis, sales contact databases, tracking leads, preparing and monitoring call reports, preparation of sales presentations and sending out sales quotes were all mentioned by survey respondents as important uses of their computer software. Rental centers do desktop publishing on their computers to produce brochures and direct mail pieces and use software to do market analyses. Budgeting software has grown in popularity as well.
RER's conversations with industry software providers reveal that advancement and change are taking place more rapidly than many people realize. For example, radio frequency identification devices might become a popular item in a few years to help rental companies keep track of what equipment goes out of and returns to the yard, as such devices become more efficient and affordable.
Purchase cards are another item that customers might expect rental companies to be equipped to use and are already being required by a number of government agencies that rent equipment. A type of credit card most often issued by major card companies, purchase cards automatically transmit information about each item on an invoice as well as taxes and damage waiver charges. Additional data, such as the seller's special status as a minority-owned or small business, is also transmitted. Many government agencies, educational institutions and public companies already require vendors to accept purchase cards and software systems will have to accommodate the special processing required. A number of rental companies are already accepting and processing purchase cards, and the practice is likely to become increasingly widespread in the coming years.
www.rental.com
The Internet is of growing importance and increasingly software systems are Web-based. RER's survey found that the Internet is growing in usage at work and most companies that have computer software systems also have Internet access at the workplace. Doing research and seeking information is the primary purpose rental companies have for Internet access in the workplace, with 89 percent of respondents using the Internet for that purpose. Follow-up interviews by RER staff show that sourcing equipment and parts is the most important piece of information sought by rental people, with 59 percent of respondents listing “shopping for equipment” as their primary purpose in using the Internet at work.
A considerable 74 percent of respondents use the Internet at work for “catching up on news.” While most users might be hesitant to admit that that would involve looking at sports scores or checking up on stocks, RER interviews show that many users do take a few minutes here and there to catch up on news about sports or the stock market and world events, and that many are paying attention to news about the rental industry and related information such as construction starts and construction spending.
A noteworthy 67 percent cited enhancing communication as a reason for using the Internet at work. Typically that would involve e-mail conversation with colleagues from the same company. Increasingly, as use of e-mail spreads throughout society, communication with customers is growing in importance as well, whether it directly involves orders for renting equipment, inquiries regarding the effectiveness of a piece of rented equipment and checking up on a customer's ongoing needs as they work on projects. Bidding on jobs is becoming an important e-mail function and some contractors, especially with larger companies, require bids to be submitted electronically.
Enhancing communication with suppliers is of great importance in the rental workplace as well. There are many reasons for communication with suppliers and not least among them is parts ordering, which was cited by 58 percent of survey respondents. A few years ago, only very advanced, forward-thinking manufacturers offered this service. Now it is fairly standard and manufacturers that don't offer parts ordering online to rental companies are, increasingly, at a competitive disadvantage. The submission of warranty claims is, increasingly, an electronic function as well.
Banking and paying bills online is becoming progressively more widespread, to the point where 32 percent of survey respondents use the Internet for company or personal banking and bill-paying, and 19 percent bill customers online. Both these numbers are likely to multiply in the years to come.
The Internet facilitates other functions as well. Owners and executives work at home on occasion and the Internet allows them the ability to stay in close touch even when traveling on business or vacation. Participation in online equipment auctions, buying and selling of used equipment, obtaining transportation permits, receiving and sending quotes, research on customers and competitors, keeping track of warranty, checking on orders, comparing pricing of manufacturers and competitors are just some of the additional Internet usages.
Competing with manufacturers
Fifteen years ago, manufacturers manufactured equipment, dealer/distributors distributed it and rental companies rented it after purchasing it either directly from the manufacturer or from their local dealer. This neat distribution chain has been forever transformed and not the least important reason has been the entry of manufacturers into the rental arena. The most dramatic has been Caterpillar, now the largest rental company in the world, but other manufacturers have played major roles in directly renting to the end user. Other leading players include Atlas Copco, with its acquisitions of Prime Equipment and Rental Service Corp.; Komatsu, many of whose distributors have become sizable rental players; and Volvo, which is developing a worldwide network of franchise rental centers. Deere was a minority owner in Phoenix-based Sunstate Equipment Rentals, a multi-region-al chain, but sold its interest last year.
Dealers and company stores representing other manufacturers, such as Ingersoll-Rand or Bobcat, have significant rental divisions as well.
A decade ago, rent-to-rent companies tended to see manufacturer rental programs as a relatively insignificant development, but that perception has changed. Fifty-five percent of RER survey respondents say they compete with manufacturers in the rental business, and 45 percent of respondents consider the competition very or extremely significant. Asked to rate this competition on a scale of 1 to 5, 5 being extremely significant and 1 being not at all significant, the mean significance rating was 3.4, with an additional 30 percent rating the importance level in the middle.
More telling in regard to the industry's future, an even larger majority of 70 percent said they expect more manufacturers to directly rent equipment in the future, while a mere 12 percent said they did not expect this trend to increase.
When asked to specify which manufacturers they competed against, not surprisingly Caterpillar led the way with more than a third of respondents naming it. Volvo came in second at 18 percent, followed by Deere at 16 percent, Komatsu at 10 percent, Ingersoll-Rand and Bobcat at 9, Case at 6 and Atlas Copco at 5.
Bright future for independents: The return
Contrary to the often-stated view by some industry participants that the independent rental center is disappearing — and some manufacturers and rental personnel still predict their ultimate demise — nearly three-fourths of the survey respondents indicated that they think the number of independent rental centers will either stay the same or increase over the next three years. This opinion contrasts with the response by about two-thirds that there are the same number or fewer independent rental centers now than three years ago.
The reasons given for the apparent turnaround in the fortunes of independent rental centers are led by the re-entry of former owners whose non-compete agreements expired or will expire. More than 25 percent of those predicting an increase cited the return of former owners as the primary reason. Nearly 20 percent cited dissatisfaction with the performance of national rental chains creating a space for new independents to appear, and nearly 15 percent pointed to growth in their market areas.
While 72 percent expect the same or more independent rental centers, about 25 percent predict a decrease, with 23 percent of those citing competition with national chains and big boxes as the primary reason. Of those who expect the number to remain about the same, the leading reason given was stable market conditions.
Other reasons given for potential increase in the number of independents include: the growing percentage of customers renting rather than buying; contractors' preference in dealing directly with owners and tiring of dealing with big companies; rental staff leaving consolidators to open their own rental companies; the expectation that national companies will close branches, thus creating space for independents; the attraction of market niches offering rental of specialized products; and overall economic growth.
Rate surprise
Rental rates have been the subject of much controversy in the rental industry over the past few years, especially given the widespread perception that rates have been plummeting feverishly. However, when asked if rental rates have decreased in their area over the past two years, a surprising 49 percent answered no, while 40 percent answered yes. Although one could attribute some no's to the possibility that rates had already plunged so low in previous years that they couldn't have gotten much lower, but the strong “no” response implies that the rate crisis is not as severe as we've been led to believe.
Of those who believe there has been a decrease, again the percentages were lower than anticipated. About 13 percent of those respondents said the decrease was less than 5 percent. Nearly 35 percent said is was between 6 and 10 percent and nearly 24 percent said it was between 11 and 15 percent, thus more than 70 percent of those respondents said the drop was 15 percent or less. Nearly 13 percent put the drop at between 16 and 20 percent and nearly 14 percent put the drop at more than 20 percent.
Nearly half of the survey respondents — 48 percent — answered affirmatively when asked if they thought rental rates are increasing in their area, compared to 34 percent who responded negatively. Of those expecting a rate increase in 2004-5, about 41 percent estimate a fairly modest increase in the 6- to 10-percent range, with an additional 33 percent seeing an increase of 5 percent or less. About 16 percent were more optimistic, seeing an 11- to 15-percent increase, with nearly 10 percent seeing a rate increase of more than 15 percent.
Rental will penetrate
Despite the difficulties over the past few years, survey participants express considerable optimism over business conditions and the future prospects of rental. A recent RER survey of manufacturers indicated a high expectation of increasing business coming from rental over the next few years.
Asked what percentage of equipment in their area is rented rather than purchased by the end user, about a third — 31 percent, estimated somewhere between 26 and 50 percent. A similar percentage — 34 percent — estimated rental penetration at higher than 50 percent, with 18 percent estimating equipment in their area as 51 to 75 percent rented, and a surprisingly impressive 16 percent estimating it at more than 75 percent rented.
When asked how much this percentage is likely to grow in the foreseeable future, a quarter of the respondents expect it to grow an additional 10 to 20 percent, with 13 percent predicting higher than 20-percent growth in rental penetration.
An overwhelming 76 percent expect demand for rental to increase during the next few years. That number was not extremely surprising, especially given the current business upswing, but more interesting were the reasons given for the expected increase in rental demand. The leading reason given for increase in demand is the cost/value of ownership.
Some of the reasons given for why rental demand is likely to increase include:
- Contractors' cost of doing business, increased availability of rental equipment, less pride of ownership, more pride of profits;
- Contractors streamlining their fleets to core equipment in order to conserve cash;
- Cost effectiveness and a wider selection from well-equipped outlets;
- Cost-effectiveness, time management, worry-free maintenance, increased cost of maintenance;
- Cost of capital, technician shortages, maintenance complexities;
- Contractors not working in their home areas, costs of transporting equipment;
- Awareness of rental;
- Equipment availability and contractors' reluctance to hire mechanics and drivers;
- Increase in large jobs proposed, bid or scheduled;
- Increased population and renovation needs.
Highlights of Part 2 of the RER Industry Survey will appear in January 2005 RER. The primary topics covered will include: the impact of “big-box” home-improvement rental centers; the potential increase in rental companies offering service contracts, fleet management services and repair of customer-owned equipment; the growth of parts inventory in rental companies; and the growing influence of wireless management and global positioning systems. For a more detailed report, visit RER's Web site www.rermag.com.
Methodology
The RER IndustrySurvey was sent via e-mail to 10,508 subscribers. There were 833 bouncebacks as undeliverables and 791 completed surveys, for an 8.2 percent effective response rate. The most conservative estimate of error at the 95 percent confidence level is within +/- 3.4 percentage points.
