Rent-Way, Inc. History

Company Perspectives:

We believe that through the continued adherence to our 'Welcome, Wanted and Important' business philosophy, we should be able to increase our new and repeat customer base, and thus the number of units we have on rent, thereby increasing revenues and net income. The 'Welcome, Wanted and Important' philosophy is a method by which we seek to create a store atmosphere conducive to customer loyalty. We attempt to create this atmosphere through the effective use of advertising and merchandising strategies, by maintaining the clean and well-stocked appearance of our stores and by providing a high level of customer service. Our advertising emphasizes brand name merchandise from leading manufacturers. In addition, merchandise within each product category is periodically updated to incorporate the latest offerings from suppliers. Services we provide include home delivery, installations, ordinary maintenance and repair services and pick-up during the term of the contract at no additional charge. Store managers work closely with each customer in choosing merchandise, setting delivery dates, and arranging a suitable payment schedule.

Company History:

A leading operator of rental purchase stores in the United States, Rent-Way, Inc. rents such merchandise as home entertainment equipment, computers, furniture, and major appliances on a weekly or monthly basis. Since its initial public offering in 1993, the company has grown from 19 stores in three states to over 1,000 stores in 41 states. Rent-Way stores are typically located in low- to middle-income neighborhoods in high-traffic strip malls; the typical Rent-Way customer, often with limited credit or cash-on-hand, finds it easier to make weekly or monthly payments than to purchase merchandise outright. The company offers its customers rental agreements ranging from one week to several years, with an average rental agreement lasting 16 weeks. Customers also have the option to purchase merchandise at the conclusion of a rental agreement, or they can return the merchandise at any time during the agreement without penalty. The company offers free pickup and delivery of merchandise and does not charge customers for normal wear and tear. In 1998 Rent-Way made Fortune magazine's annual list of America's 100 fastest-growing companies. The following year, Rent-Way became second only to Rent-A-Center in the fragmented rental purchase industry, having completed a merger with industry giant Home Choice Holdings, Inc.

The First Store in 1981

Company cofounders William E. Morgenstern and Gerald A. Ryan opened their first rental-purchase store in Erie, Pennsylvania, in 1981. Morgenstern was first introduced to the industry in 1979 while he worked as a store manager and then district manager for Rent-A-Center in Fort Worth, Texas. Ryan, on the other hand, came to the new venture from a different background, having been instrumental in forming Spectrum Control, Inc., a company that produced electronic components.

Like other rental-purchase stores, Rent-Way would offer its customers merchandise via weekly or monthly agreements. Agreements could be canceled at any time without penalty, and customers were offered the option to purchase merchandise at the end of a rental agreement. The store made its profit through mark-ups on merchandise. While the majority of Rent-Way's customers had little or no credit and very little cash-on-hand and found Rent-Way a financially convenient option, some were furnishing temporary or vacation homes only a few months a year, and some wished to test electronic equipment before purchasing it. While the store offered furniture, appliances, and jewelry, the bulk of its rental agreements were for home entertainment equipment. The average customer returned merchandise after 16 weeks, and most merchandise could be rented several times during its lifetime. Rent-Way did not charge its customers for normal wear and tear and sometimes offered free repairs. The store offered free pick up and delivery of merchandise.

Morgenstern and Ryan had ambitious plans for the company. They believed bigger was better and strove to capture a significant portion of the industry's market share. Since acquired stores generated a profit more quickly than newly opened stores, the company concentrated on acquisitions. By 1993, Rent-Way had 19 stores in three states and had completed its initial public offering (IPO) on the New York Stock Exchange. After the IPO, the company set a goal: to capture between six and ten percent of the estimated $4.4 billion rental-purchase industry by the year 2000.

Rapid Expansion in the Mid-1990s

In 1994, the company acquired DAMSL Corporation, which doubled the number of stores it owned from 20 to 40. The following year, Rent-Way purchased a 45-store chain from McKenzie Leasing Corporation. The McKenzie acquisition made Rent-Way the tenth largest rental-purchase company in the United States.

Rent-Way realized that in order to succeed in the competitive rental-purchase market, it needed to offer its customers outstanding service. The company's 'Welcome, Wanted, and Important' program was one way it strove to set itself apart from the roughly 1,500 to 2,000 independently owned mom-and-pop rental-purchase shops throughout the country. 'We think it's critical that our customers feel satisfied by the products we offer and the treatment they receive,' explained Morgenstern in Management Review. He added: 'In most service industries, customers who have limited purchasing power are viewed pejoratively. Rent-Way puts all its entry-level employees through an intensive 13-week program that puts a strong emphasis on customer service.' Customers who experienced problems in Rent-Way stores could call headquarters using a special customer hotline (1-800-RENT-WAY) that rang through to the President's office. 'Out of 26,000 customers, we average about 15 calls a week,' Morgenstern said in Management Review. The company also impressed its customers with its clean, well-stocked stores.

During this time, while acquisitions were fast and furious, Rent-Way focused on making its new employees as comfortable as its customers. Whenever Rent-Way acquired a new chain, it initiated a 'pal system,' where management from Rent-Way stores visited new stores to make new employees feel welcome. Their aim was to develop a sense of loyalty rather than risk the usual mistrust that occurred when one company took over another. Explained Morgenstern in Management Review, 'We want to end up with the best of both cultures and we realize each company can learn from the other.'

Rent-Way employees were also allowed to take part in problem-solving task forces made up of three to five people. Regional managers conducted regular meetings with store managers to make upper-level management aware of problems within the company. Upper-level management then organized employee task forces to solve each problem.

Rent-Way continued its breakneck pace in 1996 and 1997. In 1996, the company purchased the 11-store Diamond Leasing Corporation, which had stores in Delaware, Maryland, and Pennsylvania. The purchase expanded Rent-Way's portfolio to 104 stores. In January 1997, the company acquired the 70 store Rental King chain. The move was a good one for Rent-Way; Rental King stores were nearly as profitable as Rent-Way stores. A Rental King store typically earned $400,000 a year as compared to the $500,000 a typical Rent-Way store earned. Also in January, Rent-Way spent $6.7 million for Bill Coleman TV's 15 Michigan-based stores. In July, the company acquired R.A. Wolford, Inc., a four-store chain in Pennsylvania. Rent-Way paid an about ten times the target company's monthly revenue for each acquisition.

Rent-Way believed the smooth integration of its new stores was paramount to its success. Using its point-of-sale software, Rent-Way was able to get an acquisition's operating systems working with its own in a short period of time. 'The key to our success has been the way we assimilate companies into our organization,' remarked CFO Jeffrey Conway in Investors Business Daily. 'We don't put the Rent-Way name on it until it's operating the way we like it,' Conway said.

Further Growth in 1998 and 1999

Rent-Way continued its tremendous growth in 1998. In January, the company added 50 more stores to its portfolio when it purchased the South Carolina-based Ace T.V. Rentals; 46 of these stores were in South Carolina and four were in California.

In February, the company acquired the Daytona-based Champion Rentals. The 145 Champion Rental stores gave Rent-Way access to new markets in Alabama, Arkansas, and Georgia. In July, the Company acquired Fast Rentals, Inc., a rental purchase chain with six stores in Alabama and two in Georgia. In September, Rent-Way purchased Cari Rentals, a 23-store chain with stores in Iowa, Missouri, Nebraska, and South Dakota.

Also that month, Rent-Way entered into its largest purchase agreement ever, signing a merger agreement with Home Choice Holdings, Inc., an enormous chain with 459 stores in 26 states. The $330 million acquisition opened new markets for Rent-Way in 11 states including 100 Home Choice stores in Texas. Rent-Way kept the Home Choice name in newly renovated stores but planned to eventually switch to a single banner. Also in September 1998, Fortune magazine named Rent-Way the tenth fastest growing stock in America and the nation's 56th fastest growing company.

The acquisition program continued in 1999. In June of that year, Rent-Way purchased America's Rent-to-Own Center, a 21-store chain in Arkansas, Kansas, Missouri, and Oklahoma with revenues of $18. Later in the year, Rent-Way purchased rival RentaVision for $250 million. RentaVision had 250 stores.

1981:The company's first store opens in Erie, Pennsylvania.

1993:Rent-Way, Inc. goes public.

1997:Aggressive expansion continues through acquisitions, including Rental King, Bill Coleman TV, and R.A. Wolford.

1998:Rent-Way purchases Champion Rentals, Ace TV Rentals, Fast Rentals, and Cari Rentals and merges with Home Choice Holdings.

1999:The company acquires America's Rent-To-Own Center Inc. and RentaVision.

Reaching Goals in 2000

Since Rent-Way's IPO in August 1993, the company had more than tripled its size and had exceeded its goal of capturing six to ten percent of the industry's market share. As of 1999, it had 11 percent of the estimated $4.4 billion rental-purchase market.

In 2000, the company planned to roll out new products and services, including prepaid telephone service and computers. Toward that end, in January 2000, Rent-Way acquired a 49 percent interest in DPI Teleconnect, a privately held provider of prepaid local phone service. Rent-Way agreed to acquire an additional 21 percent interest upon receipt of regulatory approvals. DPI was licensed to offer prepaid local phone service in 21 states and had planned to expand to over 40 states by the end of 2000. DPI provided service to customers who could not afford the fees required by their local telephone service. While DPI was only one year old, it already had 14,000 customers who were paying about $50 a month for the prepaid phone service. Both DPI and Rent-Way felt the partnership was a good one: about six million households in the United Sates were wired for phone service but did not have it; a significant portion of these homes were near Rent-Way stores.

Commenting on DPI's mission, David Dorwart, company president, said in press release that 'Historically individuals who for whatever reason could not meet the credit or deposit requirements of the local phone company have done without a phone. The service DPI offers provides them with access to local phone service, 911, and the Internet. Partnering with Rent-Way will allow DPI to grow more quickly and become a leader in the prepaid local phone service industry.' Rent-Way would receive the benefit of extra traffic in its locations as well as ten percent commission from the sale of DPI's service. Rent-Way's investment in DPI was expected to total $7.5 million.

Around the same time, Rent-Way negotiated a deal with Compaq to rent computers to customers on a 15-month contract. Rent-Way paid $950 per Compaq computer and was hoping to negotiate a similar deal with Dell Computer. The company's computer rentals were successful from the start. 'We are very optimistic about the potential of bringing computers to our customer base in a much bigger way in the months and years ahead,' Conway said in a February 14, 2000 news release. Conway, who was formerly vice-president and chief financial officer of Rent-Way, was promoted to president of the company in January 2000. As it approached a new century Rent-Way looked towards increasing its annual sales to the $1 billion mark.

Principal Competitors: Rent-A-Center, Inc.; Aaron Rents, Inc.; Bestway, Inc.

Further Reading:

• Breskin, Ira, 'Rent-Way Tackles Its Market Through Streak of Acquisitions,' Investor's Daily, September 5, 1997.
• 'How a Winning Strategy Helps Pay the Rent,' Management Review, October 1995, p. S4.
• Milite, George, 'Short-Term Teams Yield Long-Term Results,' Supervisory Management, September 1995, p. 7.
• Pachuta, Michael J., 'Rent-Way Gobbles Up Rivals to Double Its Market Share,' Investor's Business Daily, May 6, 1998.
• 'Rent-Way and Home Choice Merging,' Consumer Electronics, September 14, 1998.
• 'Rent-Way Completes Acquisition of 70 Rental Purchase Stores and Issues $20 Million of Convertible Subordinated Debentures,' Business Wire, February 6, 1977.
• 'Rent-Way Completes Merger with Home Choice; Enters Into New Credit Facility,' PR Newswire, December 10, 1998, p. 7282.
• 'Rent-Way, Continuing Breakneck,' Television Digest, January 12, 1998, p.17.
• 'Rent-Way, Inc. Acquires Twenty-One Store Chain,' PR Newswire, June 30, 1999, p.2992.
• 'Rent-Way Inc. Acquires Twenty-Three Store Chain,' PR Newswire, September 10, 1998.
• 'Rent-Way Stock Offering,' Television Digest, April 29, 1996, p. 20.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.

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