Aarons 2013 Annual Report Download - page 22

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customer leases the item through the completion of the full term, he or she then obtains ownership of the item. The customer
may also purchase the item at any time by tendering the contractually specified payment.
The rent-to-own model is particularly attractive to consumers who are unable to pay the full upfront purchase price for
merchandise or who lack the credit to qualify for conventional financing programs. Other individuals who find the rent-to-own
model attractive are consumers who, despite access to credit, do not wish to incur additional debt, have only a temporary need
for the merchandise or desire to field test a particular brand or model before purchasing it.
We believe that the decline in the number of traditional furniture stores, the limited number of retailers that focus on credit
installment sales to lower and middle income consumers and the prolonged tightening of the consumer credit market have
created a market opportunity for the industry. The traditional retail consumer durable goods market is much larger than the
lease market, leaving substantial potential for industry growth. We believe that the portion of the population targeted by the
rent-to-own industry comprises approximately 50% of all households in the United States and that the needs of these
consumers are generally underserved.
Aaron’s Sales and Lease Ownership versus Traditional Rent-to-Own
We blend elements of rent-to-own and traditional retailing by providing customers with the option to either lease merchandise
with the opportunity to obtain ownership or to purchase merchandise outright. We believe our sales and lease ownership
program is a more effective method of retailing our merchandise to lower to middle income consumers than a typical rent-to-
own business or the traditional method of credit installment sales.
Our model is distinctive from the conventional rent-to-own model in that we encourage our customers to obtain ownership of
their leased merchandise. Based upon industry data, our customers obtain ownership more often (approximately 45%) than in
the rent-to-own businesses in general (approximately 25%).
We believe our sales and lease ownership model offers the following distinguishing characteristics versus traditional rent-to-
own stores:
• Lower total cost - our agreement terms generally provide a lower cost of ownership to the customer.
• Wider merchandise selection - we generally offer a larger selection of higher-quality merchandise.
• Larger store layout - our stores average 9,000 square feet, nearly twice the size of conventional rent-to-own stores.
• Fewer payments - our typical plan offers semi-monthly or monthly payments versus the industry standard of weekly
payments. Our agreements also usually provide for a shorter term for the customer to obtain ownership.
• Flexible payment methods - we offer our customers the opportunity to pay by cash, check, debit card or credit card. In
conventional rent-to-own stores, cash is generally the primary payment medium. Our Aaron's Sales & Lease
Ownership stores currently receive approximately 61% of their payment volume (in dollars) from customers by check,
debit card or credit card. For our HomeSmart stores, that percentage is approximately 51%.
We believe our sales and lease ownership model also compares well against traditional retailers in areas such as store size,
merchandise selection and the latest product offerings. As technology advances and home furnishings and appliances evolve,
we intend to continue to offer our customers the latest product developments at affordable prices.
Unlike transactions with traditional retailers, where the customer is committed to purchasing the merchandise, our sales and
lease ownership transactions are not credit installment contracts. Therefore, the customer may elect to terminate the transaction
after a short, initial lease period. Our sales and lease ownership stores offer an up-front “cash and carry” purchase option and a
120 day same-as-cash option on most merchandise at prices that are competitive with traditional retailers.
Government Regulation
Our operations are extensively regulated by and subject to the requirements of various federal, state and local laws and
regulations. In general such laws regulate applications for leases, late fees, other finance rates, the form of disclosure
statements, the substance and sequence of required disclosures, the content of advertising materials and certain collection
procedures. Violations of certain provisions of these laws may result in material penalties. We are unable to predict the nature
or effect on our operations or earnings of unknown future legislation, regulations and judicial decisions or future interpretations
of existing and future legislation or regulations relating to our operations, and there can be no assurance that future laws,