Hardware Retailing The Industry's Source for Insights and Information
Recently, Brian Buswell, owner of All American Do it Center, talked with a contractor who wanted to buy an auger. The cost for the auger and bit would be about $1,500—a prohibitive price tag for a piece of equipment the contractor only planned to use once a year.
The cost to rent the auger from All American Do it Center, however? Less than $100. “If you’re renting it, you don’t have to worry about maintenance, repair or storage,” Buswell adds. “Now, if you’re going to use it 30 or 40 times per year, that’s a different story, but when you talk with the contractors, they find that many times, renting makes a whole lot of sense.”
Buswell wasn’t thinking as much about the rental category when he built his first store in Tomah, Wis., in 1994. But almost 20 years later, and with a second location in Sparta, Wis., both stores boast booming rental businesses.
While Buswell’s story isn’t necessarily a road map for every retailer, it does offer a very candid documentary of one retailer’s obstacles and triumphs in the rental business.
Making a Comeback
According to the American Rental Association, rental revenue in North America was $35.7 billion in 2012 and is expected to hit $38 billion in 2013. That’s growth of roughly 6 percent—more than the general growth of the home improvement market—in just one year. It’s a strong turnaround from a few years ago, when rental, like many categories, took a hit during the recession.
“Sadly, during 2008, our rental business dropped off about 30 percent,” Buswell says. “It hit many of our contractors hard, and it hit DIYers as well.”
Fortunately, times have gotten better. Buswell has gotten that 30 percent back, and then some. “We’re having our best year ever this year,” he says.
A boost to the business is the steady stream of pro customers who rent large pieces of equipment. “We’ve had contractors tell us how glad they are that we have equipment for rent so they don’t have to purchase it,” says Mike Schroeder, rental manager at the Tomah store. “I think our business has really helped them during these times.”
It helps retailers, too—the revenue earned from multiple rentals on a piece of equipment can far exceed the margins from a sale of that same piece.
Getting Started
When Buswell began planning his rental business a couple of years after opening the Tomah store, he knew he needed some advice. He turned to his co-op, Do it Best, and its rental consultant, Bruce Campbell, who has traveled the country visiting rental stores and testing equipment, for a market analysis.
“Bruce told us there wasn’t another rental store in Tomah at the time, which was good, because it meant it was needed,” Buswell says. “But it was bad, too, because no one knew what a rental store was, so it would take time for business to respond. However, it’s moving at quite a clip now.”
Part of the analysis was a suggestion of what product mix the store should stock, so Buswell took Campbell’s advice as he added equipment. “We continued to expand our inventory little by little, and now we have everything a homeowner or a contractor would need.”
Buswell advises other retailers to find a reliable mechanic to maintain and repair equipment, whether that be a third party or someone in-store. His rental managers—Schroeder in Tomah and Tom Hinz in Sparta—are able to do most repairs.
“I call Mike ‘Miracle Mike’ because he can fix anything,” Buswell says. “There are people machines talk to, and they talk to Mike. Tom is the same. We’re lucky to have them.”
By hiring managers with strong mechanical backgrounds, Buswell saved time and money. “If you send your equipment out to be fixed all the time, that cuts into your gross margin. We specifically hired managers to also be our mechanics.”
In addition, Buswell does monthly checks of service records to be sure maintenance on all pieces is up-to-date. “We’re constantly greasing and oiling equipment, so it’s good to make sure we’ve done our oil changes and other work,” Schroeder says.
In with the New
Buswell, Schroeder and Hinz meet regularly to discuss equipment purchases, running ideas by Campbell first. “Bruce has seen and tested all the equipment,” Buswell says. “Having him there helps us make fewer mistakes.”
Buswell’s goal is to collect enough money through the rental of each piece to cover the cost of that piece. Typically after the rental sales have paid for the initial cost of the equipment, though, he sells the piece—sometimes online, and sometimes to a regular customer.
He knows it’s not a strategy every retailer will choose. “But if someone wants to buy something, they’re going to buy it—from you or someone else.”
Schroeder says the store has built a good reputation for used equipment sales. “People know if they buy a piece from us, it will be in good shape.”
Mark Pierce, owner of The Carpenter’s Touch in Tomah, is a regular rental customer who has purchased a few pieces from the store as well.
“If it’s something we know we’ll be using for a while, we can buy it from their rental department, and it’s at a discounted price, which is nice,” Pierce says. “It’s cheaper than buying new, and the equipment is still in good condition.”
Adding to the Bottom Line
Buswell says the biggest margins in this category comes through add-on sales. “You can see 30- to 40-percent margins on sandpaper, cleaners and paint.
“We’ve found $100,000 worth of rental equipment provides about the same profit to the bottom line as $1 million of retail sales in a retail store,” he says. “That’s been our experience.”
Buswell sets rental prices by comparing national averages and doing local price checks. “Our co-op sends national numbers, and we do local checks. We don’t necessarily try to be the lowest guys on the block, so we price-match when we know items are comparable.
“We sell ourselves as having great service and great equipment,” he says. “You can’t have those and then give the equipment away.”
Pierce says he rents all different kinds of equipment: mini-excavators, trailers and more. “If there’s a piece we don’t have, they probably do,” he says. “It’s easier for us to rent from them that day, rather than having to do research and make a purchase.
It’s especially helpful if it’s a piece we won’t use more than once or twice a year.”
At All American Do it Center, the rental minimum is two hours. “There’s paperwork, cleaning and maintenance associated with each rental, so you want a minimum to make it worth your time and money,” Buswell says.
In addition to an hourly rate beyond that, there are half-day, full-day, weekly and monthly rental prices, with costs varying by piece of equipment.
Store staff also offers a grace period of 30 minutes on returns. “If someone calls and had an emergency or is stuck in traffic, we give them that 30 minutes as a courtesy,” Buswell says.
When Accidents Happen
Any time retailers deal with large equipment rentals, they must be familiar with the liabilities involved. Buswell has a $3 million umbrella insurance policy that covers all equipment. “Everything is covered for any liability issues,” he says. “We call our insurance company whenever we buy any new equipment, and it’s added to our policy.”
Occasionally, a customer returns a piece damaged. “We try to sympathize, but we explain it has to be repaired and he’s responsible for covering those costs,” Buswell says. “We explain this before anything is rented.”
Before each rental, an employee shows the customer how to use the equipment and educates him on any safety-related concerns, and the customer signs a contract specifying the date and time the equipment is taken and when it’s expected back.
That contract also says the customer must cover any damages; his signature verifies he’s been shown how to safely use the equipment.
If a piece is improperly cleaned, the customer can clean it again or pay for staff to do so.
“It’s our responsibility to educate the customer on how a piece should look when it’s returned,” Buswell says. “For example, when a customer returns a paint sprayer, if you can tell what color paint he used, it’s not clean enough.”
The pieces must be well-maintained and cleaned after each use so they continue to run properly, Buswell says, and it’s important that store staff check each piece as soon as it’s returned.
“If a paint sprayer wasn’t cleaned correctly and sits overnight, the dried paint will clog it and it will be unusable,” he says. “It’ll make you wish you were never in the rental business. It’s a great business to be in, but you have to know what you’re doing.”
Getting the Word Out
Buswell advertises his rental center on the radio, on cable TV and in his circulars. Most rental ad spots feature a husband-and-wife team, the Hardaways, and Captain All American. “The Hardaways always do things the hard way,” he says. “Captain All American saves the day by showing how to do projects more easily and efficiently by renting equipment from our store.”
He says rental fits in well with the retail store. “Many contractors like our business because when we have equipment for them to rent, they don’t have to buy or maintain it. I think the business is well-received in our community.”
Consumers like it, too: Customers at All American Do it Center are comprised of a 50-50 split between contractors and DIYers.
“In terms of dollar volume, we see more money from contractors’ rentals,” Schroeder says. “However, we have lots of weekend warriors who rent from us, and a lot of them rent large pieces, such as Bobcats and telehandlers.
A rental business has its challenges, though.
“Our biggest challenge is knowing at different times how much equipment you need and if you’ll have enough,” Schroeder says. “People want to work on their lawns as soon as the frost is gone. They all want equipment then.”
If a customer can’t get a piece of equipment when he comes in to rent it, the staff offers a 20-percent discount on a raincheck.
“This way, customers are more willing to come back,” Buswell says. “Generally people are pretty happy about this policy.”
Buswell also draws traffic into the store by hosting Twenty Tuesday, a promotion where rentals are 20 percent off every Tuesday.
Buswell sees his rental business not only as a money maker for the store but also a solution for his customers facing expensive equipment costs. And that is a good business model for any retailer.
