"Then the rest of the customers go on rent-to-own, and a majority of those customers do end up buying it at some point," Mr. Seaburn said, adding, "There's a portion of the customers that want to stay on rent perpetually. They are interested in the latest and greatest product and so maybe every several months or so, they're asking about what's new that they can put on their car and they'll return the product that they have and just put on what's new."
Mr. Seaburn said his company is filling a need in the market. "We're just providing a tool, a leasing program that helps them to afford that.... We like staying in that part of the business."
"For us it's really just a way to make the product affordable for customers. We really like the 90-day-same-as-cash. That works very well for us. Our customers like it a lot and that's really our driving program."
Is a rental operation a profitable business plan?
"It depends. There's profit and then there's cash flow. From a profit perspective, renting can be good. But from a cash flow perspective, it's extremely expensive,..." Mr. Seaburn admitted. He gave the example that if a dealer buys a tire for $100 and rents it out, the initial investment won't be seen for many months.
"Like any leasing transaction, there is bad credit. And that is a big part of our business. So our ability to work with customers and collect is very important to our profitability," he said.
"2008 and before, we had some better credit numbers than we've seen since 2008, so it's deteriorated a little bit, but it didn't get as bad as we thought was possible. We did a pretty good job collecting," he added.
Mr. Seaburn said the strategy is to work out payments directly with each customer, noting that everybody has unique issues. "We work through those issues and find a way to make it affordable. Sometimes it doesn't work out, most of the time it does."
That may be because the dealership draws a customer base that differs from traditional rent-to-own businesses that offer furniture and appliances. "In this case it's more middle income than lower income; more urban than suburban; and more car enthusiasts than anything else. So our customer base, in terms of demographics, is pretty wide based."
Many of Rent-A-Wheel's customers are looking for custom rims and then they add UHP tires to the package. In some of the dealership's markets, off-roading is popular but the wheel packages can be expensive.
"We see people in those parts of the country coming in for off-road tires and maybe some rims to go with it," he said.
Rent-A-Wheel also is boosting its marketing efforts. The dealership has used customer surveys to identify its customer base and developed marketing to answer customers' questions, said Stephan Longo, director of marketing.
The company is using a combination of radio spots, Google pay-per-click search advertising, highly targeted online behavioral advertising specific to mobile platforms, social media promotions through Facebook and Twitter, and an internal email campaign.
Mr. Longo said the social media component is the easiest part of the marketing program. "If we got the right content out there, our customers help us spread that word. We're just trying to make that connection. Coming from the customer, whether it's word-of-mouth or online reviews or whether it's viral spread online, it's all positive for us."
Several times a year Rent-A-Wheel joins one of its wheel suppliers in providing customers with exclusive offers. "We go out with that message and social media is definitely one of the key arsenals that we use," Mr. Longo said.
The company's stores advertise a choice of more than 50 wheel brands, along with Cooper-, Falken-, Hankook-, Nitto-, Pirelli- and Sunny-brand tires, according to the firm's website.
Rent-A-Wheel, founded in 1996, is the 11th largest tire dealership in North America, based on company-owned outlets, according to Tire Business rankings, and 15th largest based on 2011 sales of $98.2 million. Last year the dealership boosted its sales to $106.3 million.
Rent-A-Wheel acquired the Rent-A-Tire chain in Texas and Arizona in 2002. The combined dealership has expanded to states on the West and East Coasts and throughout the South. As the company expands, it plans to add more stores in the South before looking northward.
At first, having stores split between the West and East Coast was difficult to manage, Mr. Seaburn admitted, "but now we have a good amount of stores in each region and we have a good management structure in place. So now, actually, we feel like we need to pick up the pace and put in more stores to in-fill those areas as fast as we can. I think we have the structure, now we just need more stores."
On average the company has grown by 10 to 12 stores a year. "Most of our growth will be in-fills," he said, "but we are looking at expanding in Louisiana, South Carolina and North Carolina."
Sales increased about 9 percent last year and profits grew more than 10 percent. The company expects similar results this year; same-store growth is expected in the 5- to 7-percent range while top-line growth is expected to be 7 to 9 percent.
The only automotive service the stores provide is mounting and balancing. While the company has considered adding alignment services, for now it plans to stick with tire and wheel sales, Mr. Seaburn said.
"There is so much growth ahead of us in our core business here that we've decided to stay focused there at the moment...We realize we could expand into other parts of auto service but we're not going to do that right now. We're going to put our money and effort into the physical growth of the existing business."
The company is also focusing on maintaining sales momentum amid a sluggish economy.
"I think we have some headwinds in front of us. It's really combating the decline of discretionary income for all consumers," Mr. Seaburn said. "So the tax rates going up, the payroll tax and the slow tax refunds, coupled with gas prices going up—those things all hit our customer base pretty hard. And we have Obamacare that's coming out next year, we're concerned about that and how that will hit consumers."
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To reach this reporter: [email protected]; 330-865-6127.
