Aarons 2013 Annual Report Download - page 21

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Aaron’s targets new and current customers each month distributing over 28 million, four-page circulars to homes in the United
States and Canada. The circulars advertise brand name merchandise along with the features, options, and benefits of Aaron’s
no-credit-needed lease ownership plans. We implement grand opening marketing initiatives, designed to ensure each new store
quickly establishes a strong customer base. We also distribute millions of email and direct mail promotions on an annual basis.
Aaron’s sponsors motorsports teams and event broadcasts at various levels along with select professional and collegiate sports,
such as NFL and NBA teams, SEC and ACC college athletic programs, and an IMG collegiate sports national sponsorship
package of 37 schools. We also begin our 15th year as a NASCAR Sprint Cup team sponsor of Michael Waltrip Racing in the
NASCAR Sprint Cup Series. From a meager, six-race, part-time sponsorship of Michael Waltrip in the Nationwide Series in
2000, Aaron’s sponsorship and activity in the sport has grown every year. In 2013, Aaron's announced an exciting development
as the Company's NASCAR commitment expanded to a new level. Aaron’s has committed to a full-time sponsorship of the
Michael Waltrip Racing No. 55 with driver Brian Vickers in the NASCAR Sprint Cup Series beginning in the 2014 race season.
Our premier title sponsorship continues to be the Aaron’s Dream Weekend at Talladega Superspeedway consisting of the
Aaron’s 499 NASCAR Sprint Cup Series Race and the Aaron’s 312 NASCAR Nationwide Series Race. These races are
broadcast live on national television and are among the most watched events on the NASCAR circuit.
All of our sports partnerships are supported with advertising, promotional, marketing and brand activation initiatives that we
believe significantly enhance the Company’s brand awareness and customer loyalty.
Competition
The rent-to-own industry is highly competitive. Our largest competitor is Rent-A-Center, Inc. Aaron’s and Rent-A-Center,
which are the two largest rent-to-own industry participants, account for approximately 5,500 of the 10,400 rent-to-own stores in
the United States, Canada and Mexico. Our stores compete with other national and regional rent-to-own businesses, as well as
with rental stores that do not offer their customers a purchase option. We also compete with retail stores for customers desiring
to purchase merchandise for cash or on credit. Competition is based primarily on store location, product selection and
availability, customer service and lease rates and terms.
Working Capital
We are required to maintain significant levels of lease merchandise in order to provide the service demanded by our customers
and to ensure timely delivery of our products. Consistent and dependable sources of liquidity are required to maintain such
merchandise levels. Failure to maintain appropriate levels of merchandise could materially adversely affect our customer
relationships and our business. We believe our operating cash flows, credit availability under our financing agreements and
other sources of financing are adequate to meet our normal liquidity requirements.
Raw Materials
The principal raw materials we use in furniture manufacturing are fabric, foam, fiber, wire-innerspring assemblies, plywood,
oriented strand board, and hardwood. All of these materials are purchased in the open market from unaffiliated sources. We are
not dependent on any single supplier. None of the raw materials we use are in short supply.
Seasonality
Aaron’s revenue mix is moderately seasonal. The first quarter of each year generally has higher revenues than any other
quarter. This is primarily due to realizing the full benefit of business that historically gradually increases in the fourth quarter as
a result of the holiday season, as well as the receipt by our customers in the first quarter of federal and state income tax refunds.
Our customers will more frequently exercise the early purchase option on their existing lease agreements or purchase
merchandise off the showroom floor during the first quarter of the year. We tend to experience slower growth in the number of
agreements on lease in the third quarter when compared to the other quarters of the year. We expect these trends to continue in
future periods.
Industry Overview
The Rent-to-Own Industry
The rent-to-own industry offers customers an alternative to traditional methods of obtaining electronics, computers, home
furnishings and appliances. In a standard industry rent-to-own transaction, the customer has the option to acquire ownership of
merchandise over a fixed term, usually 12 to 24 months, normally by making weekly lease payments. Subject to any applicable
minimum lease terms, the customer may cancel the agreement at any time by returning the merchandise to the store. If the