The inception of the rent-to-own (RTO) industry in the 1960s was to cater to the needs of consumers who couldn’t afford the upfront costs or an extended credit line to purchase items such as electronics and major appliances. It’s one of the fastest-growing industries in the marketplace. Today, the $6.7 billion industry offers products from full bedroom suites to musical instruments to automobile rims and wheels.
The attraction of renting-to-own is the ease of getting that product at no obligation and without accumulating debt or putting ones credit at risk. Usually purchase is hassle-free and comes with a free delivery and free repair package – in most cases, the purchase can be returned for any reason without penalty. Then there’s the payment plan – most stores offer weekly, bi-weekly or monthly options.
According to the Association of Progressive Rental Organizations (APRO) (www.static.rtohq.org), the RTO transaction is one of the fastest growing industries in the marketplace. The industry serves about 2.8 million customers a year through 8,300 stores across all 50 U.S. states.
Mizati Luxury Alloy Wheels Inc. (Pink Sheets: MZTI) distributes alloy wheels for passenger cars, SUVs, vans and light trucks. The company distributes to over 300 dealers domestically, including major retailers such as Discount Tires and Sears.
Hazel Chu, Mizati CEO, founded the company based on her ideas drawn out on a sketch pad in her college apartment; for the past three years, Mizati has averaged a growth rate of 102 percent and is profitable.
Since 2004, company Chu has recognized the potential opportunities found in the RTO industry. After two years of market study and research, the company is ready to step into the rapidly moving industry stream as a new, publicly traded company.
Mizati recently announced it has secured a $1 million credit line to allow the company to initiate its RTO business. As part of its expansion efforts, the company today announced the location of its first RTO store is Inland Empire, a 20-minute drive from its headquarters in Walnut, Calif.
Mizati Spokeswoman and VP of Investor Relations Grace Wang told Market News First the location was chosen because of its large population of about four million people and its proximity to the California Speedway in Fontana. The speedway hosts the major NASCAR Busch Series and NEXTEL Cup events, opening Mizati’s opportunity to target the automotive market.
Wang said two additional stores will be opening but declined to comment on the locations. Remaining tight-lipped for now gives the company some headway against competitors.
“This is a good market … people know that RTO is making money, it’s a good business, but not a lot of people know how to do it,” she said. “And we want to share at the right time, but not right now.”
Then there’s using the funding for raising brand awareness. Wang said there are a few avenues of possible advertising strategies; for now, the company plans on local newspaper advertising and maybe radio advertisement – Wang is looking into how much she can allocate each month for marketing.
“It’s very preliminary right now,” she said in a phone interview. “I want to make sure my bullets bending in the right way.”
The company expects to recruit four or five new hires to assist in operating the new store and has its eyes on a new management team.
“They are experienced, they’ve been in the industry for awhile; these people are able to generate some traffic for the store as well,” she said.
The research devoted to watching the market, the choice of location and the consideration of new hires comprise a plan and expectation of growth and success.
“We need to be able to explore to a different area – right now we’re a public company, we can’t be doing just one thing,” Wang said. “We want to be able to diversify ourselves and to make sure we’re able to deliver good performance for our shareholders.”
Mizati reported $4.16 million in sales for 2006. Wang said the company intends to increase domestic sales between $7 and $8 million by next year. International expansion is also on the horizon. Wang added the company has a contract with a dealer distributor in Latin America to generate an additional $2 million. Again, researching the RTO industry, the company expects each RTO store to bring in about $720,000 annually.
But there’s also controversy surrounding the RTO industry. In both 1983 and 2006, members of Congress introduced legislation to put a cap on the RTO industry. Many claim the system takes advantage of consumers who are unable to produce money upfront to purchase larger items. When the product is paid off, sometimes the consumer has paid three times its retail value.
Wang said if the customer doesn’t have the money upfront, RTO is the way to go – even if they may be paying more in the end.
“The thing is – if you don’t have the $2,000 up front you aren’t going to be able to have the whole sets of wheels – a lot of people cant come up with that $2,000 upfront but they are able to pay $50 to maybe $80 a week,” said Wang.
Still, there’s a barrier between legislative push and the RTO industry.
Since 1980, APRO has worked alongside lawmakers to implement what they see as fair regulations on the industry that balances both consumer and manufacturer protection, while catering to the industry as a whole. It is a non-profit trade organization “advocating and representing the rent-to-own industry before the U.S. Congress, state legislatures, courts, media, Wall Street and the public.
“Rent-to-own has grown and matured as an industry and we take our social responsibility very seriously. Since 1984, we have worked with state legislatures from Maine to California to establish consumer protections and better define our transaction for what it truly is – a lease with an ownership option. Forty-seven states now have rent-to-own laws in place. For 14 years, we have been urging Congress to pass responsible federal rent-to-own legislation,” states the APRO website.
Mizati has grown from an idea and some sketches to a multi-million dollar business in a few short years; however, it remains to be seen how the company will perform in the RTO industry. There’s a lot more to starting up an RTO store than meets the eye – and much more legislative involvement than one might expect. Mizati seems to be driven and supported both financially and executively as it launches the first of three RTO stores.