Aarons 2013 Annual Report Download - page 19

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9
We believe that our manufacturing operations and network of 17 operating fulfillment centers provide us with a strategic
advantage over our competitors. Integrated manufacturing enables us to control the quality, cost, delivery, styling, durability
and quantity of a substantial portion of our furniture and bedding merchandise as well as providing us with a reliable source of
products. Our distribution system allows us to deliver merchandise promptly to our stores in order to quickly meet customer
demand and effectively manage inventory levels.
Finally, we use proprietary computerized information systems to systematically pursue collections, manage merchandise
returns and match inventory with demand. Each of our stores is network linked to our corporate headquarters enabling us to
monitor store performance on a daily basis.
Store Operations
Our Aaron's Sales & Lease Ownership division has 12 divisional vice presidents who are responsible for the overall
performance of their respective divisions. HomeSmart employs one senior vice president responsible for that division’s
performance. Each division is subdivided into geographic groupings of stores overseen by a total of 136 Aaron's Sales & Lease
Ownership regional managers and 14 HomeSmart regional managers.
At the individual store level, the store manager is primarily responsible for managing and supervising all aspects of store
operations, including (i) customer relations and account management, (ii) deliveries and pickups, (iii) warehouse and inventory
management, (iv) merchandise selection, (v) employment decisions, including hiring, training and terminating store employees
and (vi) certain marketing initiatives. Store managers also administer the processing of lease return merchandise including
making determinations with respect to inspection, repairs, sales, reconditioning and subsequent leasing.
Our business philosophy emphasizes safeguarding of Company assets, strict cost containment and fiscal controls. All personnel
are expected to monitor expenses to contain costs. We pay all material invoices from Company headquarters in order to
enhance fiscal accountability. We believe that careful monitoring of lease merchandise as well as operational expenses enables
us to maintain financial stability and profitability.
We use computer-based management information systems to facilitate collections, merchandise returns and inventory
monitoring. Through the use of proprietary software, each of our stores is network linked directly to corporate headquarters
enabling us to monitor single store performance on a daily basis. This network system assists the store manager in (i) tracking
merchandise on the showroom floor and warehouse, (ii) minimizing delivery times, (iii) assisting with product purchasing and
(iv) matching customer needs with available inventory.
Lease Agreement Approval, Renewal and Collection
One of the factors in the success of our sales and lease ownership operation is timely cash collections, which are monitored by
store managers. Customers are contacted within a few days of their lease payment due dates to encourage them to keep their
agreement current rather than returning the merchandise. Careful attention to cash collections is particularly important in sales
and lease ownership operations, where the customer typically has the option to cancel the agreement at any time and each
payment is considered a renewal of the agreement rather than a collection of a receivable.
We generally perform no formal credit check with third party service providers with respect to sales and lease ownership
customers. We do, however, verify employment or other reliable sources of income and personal references supplied by the
customer. All of our agreements for merchandise require payments in advance and the merchandise normally is recovered if a
payment is significantly in arrears. We do not extend credit to our customers.
Net Company-wide merchandise shrinkage as a percentage of combined lease revenues was 3.3%, 3.3% and 3.0% in 2013,
2012 and 2011, respectively. We believe that our collection and recovery policies materially comply with applicable law and we
discipline any employee we determine to have deviated from such policies.