Aarons 2014 Annual Report Download - page 16

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• Moderating new Company-operated store growth to result in no net store growth after store closings - We open
sales and lease ownership stores in existing and select new geographic markets. When opportune, we explore
acquisitions of other rent-to-own operations and select franchised stores and, when attractive, we also seek to convert
the stores of existing independent operators to Aaron's Sales & Lease Ownership franchised stores. Additional stores
help us realize economies of scale in purchasing, marketing and distribution. Since the beginning of 2010, we have
added a net of 244 Company-operated sales and lease ownership stores. We expect in the near term a small number of
Company-operated store openings in strategic markets, which are expected to result in no net growth after the
anticipated closures of underperforming stores.
• Strengthening and growing the franchise store base - We believe that our franchise program allows for strategic
growth and increased brand exposure in new markets. In addition, the combination of Company-operated and
franchised stores creates a larger store base that generally enhances the economies of scale in purchasing, distribution,
manufacturing and advertising. Franchise fees and royalties represent an important source of revenues for us. We have
added a net of 185 franchised stores since the beginning of 2010.
Business Segments
As of December 31, 2014, the Company had five operating and reportable segments: Sales and Lease Ownership, Progressive,
HomeSmart, Franchise and Manufacturing. The results of Progressive, which is presented as a reportable segment, have been
included in the Company’s consolidated results from the April 14, 2014 acquisition date. In January 2014, the Company sold
the 27 Company-operated RIMCO stores and the rights to five franchised stores. In all periods presented, RIMCO has been
reclassified from the RIMCO segment to Other.
All of our Company-operated stores are located in the United States. Our franchise operations are located in the United States
and Canada. Additional information on our five reportable segments may be found in (i) Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations and (ii) Item 8. Financial Statements and Supplementary Data.
Sales & Lease Ownership
Our Aaron's Sales & Lease Ownership operation was established in 1987 and employs a monthly payment model to provide
durable household goods to lower to middle income consumers. Its customer base is comprised primarily of consumers with
limited access to traditional credit sources such as bank financing, installment credit or credit cards. Customers of our Aaron’s
Sales & Lease Ownership division take advantage of our services to acquire consumer goods they might not otherwise be able
to without incurring additional debt or long-term obligations.
We have developed a distinctive concept for our sales and lease ownership stores including specific merchandising, store
layout, pricing and agreement terms all designed to appeal to our target consumer market. We believe these features create a
store and a sales and lease ownership concept that is distinct from the operations of both the rent-to-own industry generally and
of consumer electronics and home furnishings retailers who finance merchandise.
The typical Aaron’s Sales & Lease Ownership store layout is a combination showroom and warehouse comprising 6,000 to
8,000 square feet, with an average of approximately 7,200 square feet. In addition, we are testing a smaller concept in urban
markets comprising 4,500 to 5,000 square feet. We select locations for new Aaron’s Sales & Lease Ownership stores by
focusing on neighborhood shopping centers with good access that are located in established working class communities. In
addition to inline space, we also lease and own several free standing buildings in certain markets. We typically locate the stores
in centers with retailers who have similar customer demographics.
Each Aaron’s Sales & Lease Ownership store usually maintains at least two trucks and crews for pickups and deliveries. We
generally offer same or next day delivery for addresses located within approximately ten miles of the store. Our stores provide
a broad selection of brand name electronics, computers, appliances and furniture, including furniture manufactured by our
Woodhaven Furniture Industries division.
We believe that our Aaron’s Sales & Lease Ownership stores offer prices that are lower than the prices for similar items offered
by traditional rent-to-own operators, and substantially equivalent to the “all-in” contract price of similar items offered by
retailers who finance merchandise. Approximately 96% of our Aaron's Sales & Lease Ownership agreements have monthly
terms and the remaining 4% are semi-monthly. By comparison, weekly agreements are the industry standard. In addition, we
believe our agreements generally provide for a shorter time to customer ownership of the merchandise.
We may re-lease or sell merchandise that customers return to us prior to the expiration of their agreements. We may also offer
up-front purchase options at prices we believe are competitive with traditional retailers. At December 31, 2014, we had 1,243
Company-operated Aaron’s Sales & Lease Ownership stores in 28 states and the District of Columbia.