Furniture Rental can be logically divided into two major industry divisions, rent-to-own, and rent-to-rent.
Rent-to-Own Furniture Rental is primarily a retail lease/purchase operation that targets consumers who are experiencing critical shortages of available cash and credit. The primary benefit of rent-to-own is that it reduces initial cash outlay and allows cash-strapped consumers to use and eventually own, furniture that is newer and more expensive than they could otherwise afford or finance.
Rent-to-Rent Furniture Rental serves those who have a specific temporary need for furnishings. Rent-to-rent is true rental, not a means to purchase. Furniture is rented for a specific term and returned to the rental company at the end of that term. Furniture rental agreements are usually for a term of three months to three years.
This article examines the rent-to-rent facet of the furniture rental industry.
The furniture pieces offered in rent-to-rent tend to be of higher quality than those used in rent-to-own. Rent-to-rent caters to clients who are less likely to be overly concerned with price. Many customers want high-end furnishings and can afford such luxury. The rental furniture has to be of higher quality in order to withstand the effects of repeated rental and the usage and moving involved. And, rent-to-rent furniture rental companies can offer better quality to their customers because these companies experience fewer losses from lack of payment and damage to their goods.
In the United States the rent-to-rent furniture rental industry is dominated by a small number of national/regional companies. Individual metropolitan areas and regions may be served by several local companies, but regional and national providers are few in number.
Historically, Furniture Rental companies have grown through acquisition and new market entry. Typically in an acquisition, larger companies buy smaller companies. The acquired company may be in direct competition with the purchaser or may be an established market leader in a geographical market that the purchaser has not previously served. When Furniture Rental companies enter new markets, typically a company will start out by gaining some potential customers in a new market and then when the company determines that there is enough scale, the Furniture Rental Company will establish a warehouse or distribution center to support the customer base.
Furniture rental allows providers to realize substantial returns on their investment in cost of goods. Since each piece of furniture is rented several times, to multiple clients, the original cost of goods becomes a relatively small portion of the cost of doing business in furniture rental. However, this margin is overwhelmed by the cost of flooring, maintaining, and transporting these goods. Furniture rental is an extremely physical industry. Inventories are huge, requiring large warehouse facilities. Furniture is heavy and bulky, requiring numerous employees, as well as a fleet of trucks and considerable other equipment, to move, clean, and maintain this inventory. Fulfilling a single rental order involves an enormous amount of physical effort and infrastructure. Each furniture rental agreement involves several pieces of furniture. Each piece must be pulled from its storage place in a warehouse and placed on the loading dock for shipment. From the loading dock, the entire accumulated order is loaded onto a truck for delivery. Upon arrival at the customer’s location, the furniture is unloaded and placed within the customer’s residence or office. At the end of the rental term, the process is repeated with the addition of a stop for cleaning and wrapping before being placed back into storage. By the time this one furniture rental agreement is completed, each piece of furniture will have been moved at least seven times. The physical requirements of the furniture rental business are enormously costly and quickly offset the high return on cost of goods that typifies the furniture rental business.
Furniture rental companies incur huge costs in storage and distribution. Distribution centers are large warehouse facilities. Because of cost of transportation, each distribution center can efficiently serve only a limited area. The largest distribution areas in the industry cover a radius of less than 500 miles. This means that a rental furniture provider must maintain a separate distribution center for virtually every metropolitan area served.
The scale at which the furniture rental industry operates presents a significant entry barrier to companies thinking of entering this niche market. Existing furniture rental companies compete for shares of a stable market that is showing recent signs of slightly accelerated growth. As the general business world becomes more mobile, temporary housing and office space is more a part of the normal operation of business, use of rental furniture is likely to expand.