Aarons 2014 Annual Report Download - page 22

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Seasonality
Our revenue mix is moderately seasonal for both our store-based operations and our Progressive business. 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 for store-based operations and in the
second quarter for our Progressive business 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
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.
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 7,200 square feet, which is significantly larger than the average size of our
largest competitor’s 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, ACH, debit card or credit
card. In conventional rent-to-own stores, cash is generally the primary payment medium. Our Aaron’s Sales and Lease
Ownership stores currently receive approximately 60% of their payment volume (in dollars) from customers by check,
debit card or credit card. For our HomeSmart stores, that percentage is approximately 54%.
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.