Rent-Way, Inc.

views updated May 08 2018

Rent-Way, Inc.

One Rentway Place
Erie, Pennsylvania 16505
U.S.A.
Telephone: (814) 455-5378
Toll Free: (800) 736-8929
Fax: (814) 461-5400
Web site: http://www.rentway.com

Public Company
Incorporated: 1981
Employees: 3,929
Sales: $503.8 million (2004)
Stock Exchanges: New York
Ticker Symbol: RWY
NAIC: 532310 General Rental Centers

Rent-Way, Inc. operates a chain of approximately 800 rental-purchase stores in 34 states, renting merchandise such as home entertainment equipment, computers, furniture, major appliances, and jewelry on a weekly or monthly basis. Rent-Way stores are typically located in low- to middle-income neighborhoods in high-traffic strip malls; the typical Rent-Way customer, often with limited credit or cash-on-hand, finds it easier to make weekly or monthly payments than to purchase merchandise outright. The company offers its customers rental agreements ranging from one week to several years, with an average rental agreement lasting 16 weeks. Customers also have the option to purchase merchandise at the conclusion of a rental agreement, or they can return the merchandise at any time during the agreement without penalty. The company offers free pickup and delivery of merchandise and does not charge customers for normal wear and tear. Rent-Way also offers prepaid local phone service to customers on a monthly basis through its subsidiary dPi Teleconnect LLC.

The First Store in 1981

Company cofounders William E. Morgenstern and Gerald A. Ryan opened their first rental-purchase store in Erie, Pennsylvania, in 1981. Morgenstern was first introduced to the industry in 1979 while he worked as a store manager and then district manager for Rent-A-Center in Fort Worth, Texas. Ryan, on the other hand, came to the new venture from a different background, having been instrumental in forming Spectrum Control, Inc., a company that produced electronic components.

Like other rental-purchase stores, Rent-Way would offer its customers merchandise via weekly or monthly agreements. Agreements could be canceled at any time without penalty, and customers were offered the option to purchase merchandise at the end of a rental agreement. The store made its profit through mark-ups on merchandise. Although the majority of Rent-Way's customers had little or no credit and very little cash on hand and found Rent-Way a financially convenient option, some were furnishing temporary or vacation homes only a few months a year, and some wished to test electronic equipment before purchasing it. Whereas the store offered furniture, appliances, and jewelry, the bulk of its rental agreements were for home entertainment equipment. The average customer returned merchandise after 16 weeks, and most merchandise could be rented several times during its lifetime. Rent-Way did not charge its customers for normal wear and tear and sometimes offered free repairs. The store offered free pickup and delivery of merchandise.

Morgenstern and Ryan had ambitious plans for the company. They believed bigger was better and strove to capture a significant portion of the industry's market share. Since acquired stores generated a profit more quickly than newly opened stores, the company concentrated on acquisitions. By 1993, Rent-Way had 19 stores in three states and had completed its initial public offering (IPO) on the New York Stock Exchange. After the IPO, the company set a goal to capture between 6 and 10 percent of the estimated $4.4 billion rental-purchase industry by the year 2000.

Rapid Expansion in the Mid-1990s

In 1994, the company acquired DAMSL Corporation, which doubled the number of stores it owned from 20 to 40. The following year, Rent-Way purchased a 45-store chain from McKenzie Leasing Corporation. The McKenzie acquisition made Rent-Way the tenth largest rental-purchase company in the United States.

Rent-Way realized that in order to succeed in the competitive rental-purchase market, it needed to offer its customers outstanding service. The company's "Welcome, Wanted, and Important" program was one way it strove to set itself apart from the roughly 1,500 to 2,000 independently owned mom-and-pop rental-purchase shops throughout the country. "We think it's critical that our customers feel satisfied by the products we offer and the treatment they receive," explained Morgenstern in Management Review. He added: "In most service industries, customers who have limited purchasing power are viewed pejoratively. Rent-Way puts all its entry-level employees through an intensive 13-week program that puts a strong emphasis on customer service." Customers who experienced problems in Rent-Way stores could call headquarters using a special customer hotline that rang through to the president's office. "Out of 26,000 customers, we average about 15 calls a week," Morgenstern said in Management Review. The company also impressed its customers with its clean, well-stocked stores.

During this time, while acquisitions were fast and furious, Rent-Way focused on making its new employees as comfortable as its customers. Whenever Rent-Way acquired a new chain, it initiated a "pal system," where management from Rent-Way stores visited new stores to make employees feel welcome. Their aim was to develop a sense of loyalty rather than risk the usual mistrust that occurred when one company took over another. Explained Morgenstern in Management Review, "We want to end up with the best of both cultures and we realize each company can learn from the other."

Rent-Way employees also were allowed to take part in problem-solving task forces made up of three to five people. Regional managers conducted regular meetings with store managers to make upper-level management aware of problems within the company. Upper-level management then organized employee task forces to solve each problem.

Rent-Way continued its breakneck pace in 1996 and 1997. In 1996, the company purchased the 11-store Diamond Leasing Corporation, which had stores in Delaware, Maryland, and Pennsylvania. The purchase expanded Rent-Way's portfolio to 104 stores. In January 1997, the company acquired the 70-store Rental King chain. The move was a good one for Rent-Way; Rental King stores were nearly as profitable as Rent-Way stores. A Rental King store typically earned $400,000 a year as compared with the $500,000 a typical Rent-Way store earned. Also in January, Rent-Way spent $6.7 million for Bill Coleman TV's 15 Michigan-based stores. In July, the company acquired R.A. Wolford, Inc., a four-store chain in Pennsylvania. Rent-Way paid about ten times the target company's monthly revenue for each acquisition.

Rent-Way believed the smooth integration of its new stores was paramount to its success. Using its point-of-sale software, Rent-Way was able to get an acquisition's operating systems working with its own in a short period of time. "The key to our success has been the way we assimilate companies into our organization," remarked CFO Jeffrey Conway in Investor's Business Daily. "We don't put the Rent-Way name on it until it's operating the way we like it," Conway said.

Further Growth in 1998 and 1999

Rent-Way continued its tremendous growth in 1998. In January, the company added 50 more stores to its portfolio when it purchased the South Carolina-based Ace T.V. Rentals; 46 of these stores were in South Carolina and four were in California.

In February, the company acquired the Daytona-based Champion Rentals. The 145 Champion Rental stores gave Rent-Way access to new markets in Alabama, Arkansas, and Georgia. In July, the company acquired Fast Rentals, Inc., a rental purchase chain with six stores in Alabama and two in Georgia. In September, Rent-Way purchased Cari Rentals, a 23-store chain with stores in Iowa, Missouri, Nebraska, and South Dakota.

Also that month, Rent-Way entered into its largest purchase agreement ever, signing a merger agreement with Home Choice Holdings, Inc., an enormous chain with 459 stores in 26 states. The $330 million acquisition opened new markets for Rent-Way in 11 states, including 100 Home Choice stores in Texas. Rent-Way kept the Home Choice name in newly renovated stores but planned to switch eventually to a single banner. Also in September 1998, Fortune magazine named Rent-Way the tenth fastest growing stock in the United States and the nation's 56th fastest growing company.

The acquisition program continued in 1999. In June of that year, Rent-Way purchased America's Rent-to-Own Center, a 21-store chain in Arkansas, Kansas, Missouri, and Oklahoma with revenues of $18. Later in the year, Rent-Way purchased rival RentaVision for $250 million. RentaVision had 250 stores.

Since Rent-Way's IPO in August 1993, the company had more than tripled its size and had exceeded its goal of capturing 6 to 10 percent of the industry's market share. As of 1999, it had 11 percent of the estimated $4.4 billion rental-purchase market.

Company Perspectives:

Rent-Way's marketing strategy revolves around a unique approach to customer service. Our "Welcome, Wanted and Important" philosophy emphasizes customer satisfaction and positions Rent-Way as a friendly, easy solution to our customers' rental needs.

In 2000, the company planned to roll out new products and services, including prepaid telephone service and computers. Toward that end, in January 2000, Rent-Way acquired a 49 percent interest in dPi Teleconnect, a privately held provider of prepaid local phone service. Rent-Way agreed to acquire an additional 21 percent interest upon receipt of regulatory approvals. dPi was licensed to offer prepaid local phone service in 21 states and had planned to expand to more than 40 states by the end of 2000. dPi provided service to customers who could not afford the fees required by their local telephone service. Even though dPi was only one year old, it already had 14,000 customers who were paying about $50 a month for the prepaid phone service. Both dPi and Rent-Way felt the partnership was a good one: About six million households in the United Sates were wired for phone service but did not have it; a significant portion of these homes were near Rent-Way stores.

Commenting on dPi's mission, David Dorwart, company president, said in a press release, "Historically individuals who for whatever reason could not meet the credit or deposit requirements of the local phone company have done without a phone. The service dPi offers provides them with access to local phone service, 911, and the Internet. Partnering with Rent-Way will allow dPi to grow more quickly and become a leader in the prepaid local phone service industry." Rent-Way would receive the benefit of extra traffic in its locations as well as 10 percent commission from the sale of dPi's service. Rent-Way's investment in dPi was expected to total $7.5 million.

Around the same time, Rent-Way negotiated a deal with Compaq to rent computers to customers on a 15-month contract. Rent-Way paid $950 per Compaq computer and was hoping to negotiate a similar deal with Dell Computer. The company's computer rentals were successful from the start. "We are very optimistic about the potential of bringing computers to our customer base in a much bigger way in the months and years ahead," Conway said in a February 14, 2000 news release. Conway, who was formerly vice-president and chief financial officer of Rent-Way, was promoted to president of the company in January 2000. As it approached a new century Rent-Way looked toward increasing its annual sales to the $1 billion mark.

A Disastrous Start to the 21st Century

Conway did not enjoy his promotion for long, nor did any Rent-Way executive particularly relish the beginning of the new century. The hope of reaching the $1 billion-in-sales plateau was replaced with the hope of staving off bankruptcy, and the agent of the dramatic alteration in intent was Conway. In October 2000, the specter of accounting malfeasance, a trend in corporate America at the turn of the 21st century, hovered over the company, triggering federal criminal and civil investigations, inquiries by the Securities and Exchange Commission (SEC), and a shareholder lawsuit. At the center of the scrutiny was Conway, who, during the course of the investigations and court proceedings that dragged on for three years, was found to be the architect of the accounting scandal. Conway, the allegations charged, began implementing his scheme in 1998 in an effort to meet or to exceed analysts' expectations of Rent-Way's financial performance. He directed Matthew Marini, the company's controller, to understate expenses to inflate profits, court records revealed. Further, Conway enlisted the help of Rent-Way's senior vice-president of operations, Jeffrey Underwood, instructing him to defer the recording of the company's expenses at the end of 1999 and 2000, again in an attempt to make the company appear more profitable than it was. As investigators poured over the company's accounting books, Morgenstern, who was cleared of any involvement in the fraud, watched his company nearly collapse. Rent-Way posted a loss of $63.6 million in 2001. In 2002, its fifth consecutive year of losing money after earnings were restated, the company registered a $76.5 million loss, the largest loss in the five-year period. Amid mounting losses and increasing debt, shareholders filed a lawsuit against the company, venting their fury at the plummeting value of their stock. Rent-Way, battered from all fronts, teetered on the brink of bankruptcy, dethroned from its position among the industry's elite.

Rent-Way's nightmarish ordeal reached its resolution in 2003, leaving Morgenstern with the daunting task of rebuilding his company. In March 2003, the company settled the lawsuit filed by shareholders in a $25 million deal. In July 2003, Conway, Marini, and Underwood pleaded guilty to the charges against them, with Conway receiving the stiffest sentence of 13 months in federal prison. The trio was found to have inflated reported earnings by roughly $60 million and to have made an additional $35 million in fraudulent entries during the fourth quarter of 2000.

Key Dates:

1981:: The first Rent-Way store opens in Erie, Pennsylvania.
1993:: Rent-Way, with 19 stores in three states, completes its initial public offering (IPO) of stock.
1994:: The size of the company doubles with the acquisition of DAMSL Corp.
1995:: Rent-Way doubles in size again after acquiring a 45-store chain from McKenzie Leasing Corp.
1998:: Rent-Way completes its largest acquisition, purchasing Home Choice Holdings, Inc. and its 458 stores.
1999:: The company acquires America's Rent-To-Own Center Inc. and RentaVision.
2000:: Allegations of accounting fraud are made public in October, touching off a three-year period of federal criminal and civil investigations and shareholder lawsuits.
2003:: Three Rent-Way executives plead guilty to manipulating the company's accounting books in an effort to inflate profits; to help reduce mounting debt, 295 stores are sold to rival Rent-A-Center, Inc.
2004:: Rent-Way opens ten new stores, its first expansion since 2000.
2005:: Founder William Morgenstern steps down as president and chief executive officer.

Morgenstern began implementing turnaround measures while Rent-Way was embroiled in legal difficulties. The company's merchandising mix underwent an overhaul, its pricing strategy was altered, and a new, more aggressive marketing and advertising campaign was created. Meanwhile, the company began reducing its store count from a peak of 1,147 stores in November 2000 to roughly 750 stores, closing underperforming units and selling others, including the sale of 295 stores to its main competitor, Rent-A-Center, Inc., in February 2003. Morgenstern's actions soon realized their intent, as Rent-Way began to demonstrate renewed vitality. After posting a net loss of $29.4 million in 2003, the company reported a profit of $9.2 million in 2004. Buoyed by its improved financial health, the company opened ten new stores in the fall of 2004, the first expansion since 2000, and announced plans to open 100 more stores in 2005 and 2006. After restoring hope in a profitable future for Rent-Way, Morgenstern left the day-to-day task of fulfilling that objective to the company's chief operating officer. In mid-2005, Morgenstern relinquished the titles of president and chief executive officer, appointing William Short as the company's new leader. Short spent a dozen years at Rent-A-Center before joining Rent-Way in 1996 to manage the company's stores in western New York, earning a promotion to chief operating officer in July 2002. As the company began to expand in earnest midway through the decade, the challenge of returning Rent-Way to the top of its industry fell to Short and his senior managers, all of whom were determined not to repeat the failures of the past.

Principal Subsidiaries

Rent-Way of Michigan, Inc.; Rent-Way of TTIG, L.P.; dPi Teleconnect LLC (83.5%).

Principal Competitors

Rent-A-Center, Inc.; Aaron Rents, Inc.; Wal-Mart Stores, Inc.

Rent-Way, Inc.

views updated Jun 11 2018

Rent-Way, Inc.

One Rentway Place
Erie, Pennsylvania 16505
U.S.A.
Telephone: (814) 461-5225
Toll Free: (800) RENT-WAY
Fax: (814) 455-3267
Web site: http://www.rentway.com

Public Company
Incorporated: 1981
Employees: 944
Sales: $494.35 million (1999)
Stock Exchanges: New York
Ticker Symbol: RWY
NAIC: 532299 All Other Consumer Goods Rental

A leading operator of rental purchase stores in the United States, Rent-Way, Inc. rents such merchandise as home entertainment equipment, computers, furniture, and major appliances on a weekly or monthly basis. Since its initial public offering in 1993, the company has grown from 19 stores in three states to over 1,000 stores in 41 states. Rent-Way stores are typically located in low- to middle-income neighborhoods in high-traffic strip malls; the typical Rent-Way customer, often with limited credit or cash-on-hand, finds it easier to make weekly or monthly payments than to purchase merchandise outright. The company offers its customers rental agreements ranging from one week to several years, with an average rental agreement lasting 16 weeks. Customers also have the option to purchase merchandise at the conclusion of a rental agreement, or they can return the merchandise at any time during the agreement without penalty. The company offers free pickup and delivery of merchandise and does not charge customers for normal wear and tear. In 1998 Rent-Way made Fortune magazine’s annual list of America’s 100 fastest-growing companies. The following year, Rent-Way became second only to Rent-A-Center in the fragmented rental purchase industry, having completed a merger with industry giant Home Choice Holdings, Inc.

The First Store in 1981

Like other rental-purchase stores, Rent-Way would offer its customers merchandise via weekly or monthly agreements. Agreements could be canceled at any time without penalty, and customers were offered the option to purchase merchandise at the end of a rental agreement. The store made its profit through mark-ups on merchandise. While the majority of Rent-Way’s customers had little or no credit and very little cash-on-hand and found Rent-Way a financially convenient option, some were furnishing temporary or vacation homes only a few months a year, and some wished to test electronic equipment before purchasing it. While the store offered furniture, appliances, and jewelry, the bulk of its rental agreements were for home entertainment equipment. The average customer returned merchandise after 16 weeks, and most merchandise could be rented several times during its lifetime. Rent-Way did not charge its customers for normal wear and tear and sometimes offered free repairs. The store offered free pick up and delivery of merchandise.

Morgenstern and Ryan had ambitious plans for the company. They believed bigger was better and strove to capture a significant portion of the industry’s market share. Since acquired stores generated a profit more quickly than newly opened stores, the company concentrated on acquisitions. By 1993, Rent-Way had 19 stores in three states and had completed its initial public offering (IPO) on the New York Stock Exchange. After the IPO, the company set a goal: to capture between six and ten percent of the estimated $4.4 billion rental-purchase industry by the year 2000.

Rapid Expansion in the Mid-1990s

Rent-Way realized that in order to succeed in the competitive rental-purchase market, it needed to offer its customers outstanding service. The company’s “Welcome, Wanted, and Important” program was one way it strove to set itself apart from the roughly 1,500 to 2,000 independently owned mom-and-pop rental-purchase shops throughout the country. “We think it’s critical that our customers feel satisfied by the products we offer and the treatment they receive,” explained Morgenstern in Management Review. He added: “In most service industries, customers who have limited purchasing power are viewed pejoratively. Rent-Way puts all its entry-level employees through an intensive 13-week program that puts a strong emphasis on customer service.” Customers who experienced problems in Rent-Way stores could call headquarters using a special customer hotline (1-800-RENT-WAY) that rang through to the President’s office. “Out of 26,000 customers, we average about 15 calls a week,” Morgenstern said in Management Review. The company also impressed its customers with its clean, well-stocked stores.

During this time, while acquisitions were fast and furious, Rent-Way focused on making its new employees as comfortable as its customers. Whenever Rent-Way acquired a new chain, it initiated a “pal system,” where management from Rent-Way stores visited new stores to make new employees feel welcome. Their aim was to develop a sense of loyalty rather than risk the usual mistrust that occurred when one company took over another. Explained Morgenstern in Management Review, “We want to end up with the best of both cultures and we realize each company can learn from the other.”

Rent-Way employees were also allowed to take part in problem-solving task forces made up of three to five people. Regional managers conducted regular meetings with store managers to make upper-level management aware of problems within the company. Upper-level management then organized employee task forces to solve each problem.

Rent-Way continued its breakneck pace in 1996 and 1997. In 1996, the company purchased the 11-store Diamond Leasing Corporation, which had stores in Delaware, Maryland, and Pennsylvania. The purchase expanded Rent-Way’s portfolio to 104 stores. In January 1997, the company acquired the 70 store Rental King chain. The move was a good one for Rent-Way; Rental King stores were nearly as profitable as Rent-Way stores. A Rental King store typically earned $400,000 a year as compared to the $500,000 a typical Rent-Way store earned. Also in January, Rent-Way spent $6.7 million for Bill Coleman TV’s 15 Michigan-based stores. In July, the company acquired R.A. Wolford, Inc., a four-store chain in Pennsylvania. Rent-Way paid an about ten times the target company’s monthly revenue for each acquisition.

Rent-Way believed the smooth integration of its new stores was paramount to its success. Using its point-of-sale software, Rent-Way was able to get an acquisition’s operating systems working with its own in a short period of time. “The key to our success has been the way we assimilate companies into our organization,” remarked CFO Jeffrey Conway in Investors Business Daily. “We don’t put the Rent-Way name on it until it’s operating the way we like it,” Conway said.

Further Growth in 1998 and 1999

In February, the company acquired the Daytona-based Champion Rentals. The 145 Champion Rental stores gave Rent-Way access to new markets in Alabama, Arkansas, and Georgia. In July, the Company acquired Fast Rentals, Inc., a rental purchase chain with six stores in Alabama and two in Georgia. In September, Rent-Way purchased Cari Rentals, a 23-store chain with stores in Iowa, Missouri, Nebraska, and South Dakota.

Also that month, Rent-Way entered into its largest purchase agreement ever, signing a merger agreement with Home Choice Holdings, Inc., an enormous chain with 459 stores in 26 states. The $330 million acquisition opened new markets for Rent-Way in 11 states including 100 Home Choice stores in Texas. Rent-Way kept the Home Choice name in newly renovated stores but planned to eventually switch to a single banner. Also in September 1998, Fortune magazine named Rent-Way the tenth fastest growing stock in America and the nation’s 56th fastest growing company.

Company Perspectives:

We believe that through the continued adherence to our “Welcome, Wanted and Important” business philosophy, we should be able to increase our new and repeat customer base, and thus the number of units we have on rent, thereby increasing revenues and net income. The “Welcome, Wanted and Important” philosophy is a method by which we seek to create a store atmosphere conducive to customer loyalty. We attempt to create this atmosphere through the effective use of advertising and merchandising strategies, by maintaining the clean and well-stocked appearance of our stores and by providing a high level of customer service. Our advertising emphasizes brand name merchandise from leading manufacturers. In addition, merchandise within each product category is periodically updated to incorporate the latest offerings from suppliers. Services we provide include home delivery, installations, ordinary maintenance and repair services and pick-up during the term of the contract at no additional charge. Store managers work closely with each customer in choosing merchandise, setting delivery dates, and arranging a suitable payment schedule.

The acquisition program continued in 1999. In June of that year, Rent-Way purchased America’s Rent-to-Own Center, a 21-store chain in Arkansas, Kansas, Missouri, and Oklahoma with revenues of $18. Later in the year, Rent-Way purchased rival Renta Vision for $250 million. Renta Vision had 250 stores.

Reaching Goals in 2000

Since Rent-Way’s IPO in August 1993, the company had more than tripled its size and had exceeded its goal of capturing six to ten percent of the industry’s market share. As of 1999, it had 11 percent of the estimated $4.4 billion rental-purchase market.

In 2000, the company planned to roll out new products and services, including prepaid telephone service and computers. Toward that end, in January 2000, Rent-Way acquired a 49 percent interest in DPI Teleconnect, a privately held provider of prepaid local phone service. Rent-Way agreed to acquire an additional 21 percent interest upon receipt of regulatory approvals. DPI was licensed to offer prepaid local phone service in 21 states and had planned to expand to over 40 states by the end of 2000. DPI provided service to customers who could not afford the fees required by their local telephone service. While DPI was only one year old, it already had 14,000 customers who were paying about $50 a month for the prepaid phone service. Both DPI and Rent-Way felt the partnership was a good one: about six million households in the United Sates were wired for phone service but did not have it; a significant portion of these homes were near Rent-Way stores.

Commenting on DPI’s mission, David Dorwart, company president, said in press release that “Historically individuals who for whatever reason could not meet the credit or deposit requirements of the local phone company have done without a phone. The service DPI offers provides them with access to local phone service, 911, and the Internet. Partnering with RentWay will allow DPI to grow more quickly and become a leader in the prepaid local phone service industry.” Rent-Way would receive the benefit of extra traffic in its locations as well as ten percent commission from the sale of DPI’s service. Rent-Way’s investment in DPI was expected to total $7.5 million.

Around the same time, Rent-Way negotiated a deal with Compaq to rent computers to customers on a 15-month contract. Rent-Way paid $950 per Compaq computer and was hoping to negotiate a similar deal with Dell Computer. The company’s computer rentals were successful from the start. “We are very optimistic about the potential of bringing computers to our customer base in a much bigger way in the months and years ahead,” Conway said in a February 14, 2000 news release. Conway, who was formerly vice-president and chief financial officer of Rent-Way, was promoted to president of the company in January 2000. As it approached a new century Rent-Way looked towards increasing its annual sales to the $1 billion mark.

Principal Competitors

Rent-A-Center, Inc.; Aaron Rents, Inc.; Bestway, Inc.

Key Dates:

1981:: The company’s first store opens in Erie, Pennsylvania.
1993:: Rent-Way, Inc. goes public.
1997:: Aggressive expansion continues through acquisitions, including Rental King, Bill Coleman TV, and R.A. Wolford.
1998:: Rent-Way purchases Champion Rentals, Ace TV Rentals, Fast Rentals, and Can Rentals and merges with Home Choice Holdings.
1999:: The company acquires America’s Rent-To-Own Center Inc. and RentaVision.