Aarons 2015 Annual Report Download - page 8

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, many 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 reviews 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.
Manufacturing
Woodhaven Furniture Industries, our manufacturing division, was established in 1982, and we believe it makes us the largest major furniture lease-to-own
company in the United States that manufactures its own furniture. Integrated manufacturing enables us to control critical features such as the quality, cost,
delivery, styling, durability and quantity of our furniture products, and we believe this provides an integration advantage over our competitors. Substantially
all produced items continue to be leased or sold through Company-operated or franchised stores.
Our Woodhaven Furniture Industries division produces upholstered living-room furniture (including contemporary sofas, chairs and modular sofa and
ottoman collections in a variety of natural and synthetic fabrics) and bedding (including standard sizes of mattresses and box springs). The furniture designed
and produced by this division incorporates features that we believe result in reduced production costs, enhanced durability and improved shipping processes
all relative to furniture we would otherwise purchase from third parties. These features include (i) standardized components, (ii) reduced number of parts and
features susceptible to wear or damage, (iii) more resilient foam, (iv) durable fabrics and sturdy frames which translate to longer life and higher residual value
and (v) devices that allow sofas to stand on end for easier and more efficient transport. The division also provides replacement covers for all styles and fabrics
of its upholstered furniture, as well as other parts, for use in reconditioning leased furniture that has been returned.
The division consists of five furniture manufacturing plants and nine bedding manufacturing facilities totaling approximately 818,000 square feet of
manufacturing capacity.
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Operating Strategy
Our operating strategy is based on distinguishing our brand from those of our competitors along with maximizing our operational efficiencies. We implement
this strategy for our store-based operations by (i) emphasizing the uniqueness of our sales and lease ownership concept from those in our industry generally,
(ii) offering high levels of customer service, (iii) promoting our vendors' and Aaron’s brand names, (iv) managing merchandise through our manufacturing
and distribution capabilities and (v) utilizing proprietary management information systems.
We believe that the success of our store-based operations is attributable to our distinctive approach to the business that distinguishes us from both our lease-
to-own and credit retail competitors. We have pioneered innovative approaches to meeting changing customer needs that we believe differ from many of our
competitors. These include (i) offering lease ownership agreements that result in a lower "all-in" price, (ii) maintaining larger and more attractive store
showrooms, (iii) offering a wider selection of higher-quality merchandise, (iv) providing an up-front cash and carry purchase option on select merchandise at
competitive prices and (v) establishing an on-line platform that provides access to our product offering. Many of our sales and lease ownership customers
make their payments in person and we use these frequent visits to strengthen the customer relationship.
Furthermore, our Progressive and DAMI operating strategies are based on providing excellent service to our retail and merchant partners and our customers,
along with continued development of technology-based solutions. This allows us to increase our retail and merchant partner’s sales, drive demand for our
service, and scale in an efficient manner. Specifically with Progressive, we believe our ability to service a retailer with limited labor costs allows us to
maintain a cost of ownership for leased merchandise lower than that of other options available to our customers.
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