Aarons 2013 Annual Report Download - page 17

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The typical HomeSmart store layout is a combination showroom and warehouse of 4,000 to 6,000 square feet, with an average
of approximately 5,000 square feet. Store site selection, delivery capabilities and lease merchandise range are generally similar
to those described above for our Aaron's Sales & Lease Ownership stores.
We believe that our HomeSmart stores offer prices that are lower than similar items offered by traditional rent-to-own
operators. Approximately 34% of our HomeSmart agreements have monthly terms, 7% are semi-monthly and the remaining
59% are weekly. We may also offer an up-front purchase option at prices we believe are competitive with traditional retailers.
At December 31, 2013, we had 81 Company-operated HomeSmart stores in 11 states.
RIMCO
In 2004, we opened two experimental stores under the RIMCO brand name that lease automobile wheels, tires and rims to
customers under sales and lease ownership agreements. Although the products offered were distinct from those in our Aaron's
Sales & Lease Ownership stores, the RIMCO branded stores were managed, monitored and operated substantially similar to
our Aaron's Sales & Lease Ownership stores. In January of 2014, we sold our 27 Company-operated RIMCO stores and the
rights to five franchised RIMCO stores.
Franchise
In addition to opening new Company-operated Aaron's Sales & Lease Ownership and HomeSmart stores and making selective
acquisitions of competitors, we franchise our Aaron's Sales & Lease Ownership and HomeSmart stores in markets where we
have no immediate plans to enter. As a result, our franchised stores do not compete with Company-operated stores. Our
franchise program adds value to our Company by allowing us to (i) recognize additional revenues from franchise fees and
royalties, (ii) strategically grow without incurring direct capital or other expenses, (iii) lower our average costs of purchasing,
manufacturing and advertising through economies of scale and (iv) increase consumer recognition of our brands.
Franchisees are approved on the basis of the applicant’s business background and financial resources. We seek franchisees who
will enter into area development agreements that will cover multiple stores, but will engage with franchisees for single stores
under certain circumstances. Most franchisees are involved in the day-to-day operations of their stores.
We enter into agreements with our franchisees to govern the opening and operations of franchised stores. Under our standard
agreement, we receive a franchise fee from $15,000 to $50,000 per store depending upon market size. Our standard agreement
is for a term of ten years, with one ten-year renewal option. Franchisees are also obligated to remit to us royalty payments of
5% or 6% of the weekly cash collections from their franchised stores.
Because of the importance of location to our store strategy, we assist each franchisee in selecting the proper site for each store.
We typically will visit the intended market and provide guidance to the franchisee through the site selection process. Once the
franchisee selects a site, we provide support in designing the floor plan, including the proper layout of the showroom and
warehouse. In addition, we assist the franchisee in the design and decor of the showroom to ensure consistency with our
requirements. We also lease the exterior signage to the franchisee and provide support with respect to pre-opening advertising,
initial inventory and delivery vehicles.
Qualifying franchisees may take part in a financing arrangement we have established with several financial institutions to assist
the franchisee in establishing and operating their store(s). Although an inventory financing plan is the primary component of
the financing program, we have also arranged, in certain circumstances, for the franchisee to receive a revolving credit line,
allowing them to expand operations. We provide guarantees for amounts outstanding under this franchisee financing program.
All franchisees are required to complete a comprehensive training program and to operate their franchised sales and lease
ownership stores in compliance with our policies, standards and specifications. Additionally, each franchise is required to
represent and warrant its compliance with all applicable federal, state and/or local laws, regulations and ordinances with respect
to its business operations. Although franchisees are not generally required to purchase their lease merchandise from our
fulfillment centers, most do so in order to take advantage of Company-sponsored financing, bulk purchasing discounts and
favorable delivery terms.
Our internal audit department conducts annual financial audits of each franchisee, as well as annual operational audits of each
franchised store. In addition, our proprietary management information system links each Company and franchised store to our
corporate headquarters.