Consumer interest having a rental or subscription option for products normally available only for purchase is reaching a fever pitch. Examples of startup rental companies disrupting traditional retailers can be found not just in tech blogs, but increasingly in national press outlets and even in commercials during the biggest televised events.
Dollar Shave Club (DSC), a Venice, California company, created a subscription model for the most basic of consumable products: shaving razors. Boasting more than 3.2 million customers, DSC has sliced significant market from industry giants Gillette and Schick.
Retailers are particularly well-positioned to benefit from offering a rental or subscription component to their businesses, given your familiarity to customers (brand recognition), a physical presence where customers can easily (and safely) rent and return items, and your variety of SKUs.
Picking the best rental model for your business
The best rental option for your business depends upon the type of inventory you offer, along with what you hope to gain from adding rentals to your operation. The most common (but certainly not the only) options include:
- Transactional (simple rent & return where rental duration will vary)
- Relationship (subscriptions to product categories with tiers of access)
- Rent to own
In a transactional rental model, you can stock your rental counter with unsold or returned items, providing a profitable alternative to deeply discounting or returning the items to the distributor for a refund. Borrowing from the traditional rental playbook, you may offer hourly/daily/weekly intervals. Customers book and pay for the equipment for a predefined rental period and return the equipment at the conclusion of the term. Users of this approach will generally enjoy a greater return on investment of rental inventory resulting from the number of transactions for a single product.
Relationship models seek to develop a loyal customer base and usually provide an offering of “staple” inventory on a subscription basis. While profitable in the long run, this model requires a greater investment in duplicate inventory in order to satisfy subscribers who have a greater expectation from the relationship. A retailer considering this model should budget for a higher cost to acquire subscribers.
Rent-to-Own (and ongoing) Rentals
Rent-to-own is the most complex variety, as there is a need for customer credit applications, financing, collections and more. The primary consideration for this approach is that customer expect to receive new items that they can pay for over time. Assuming you have the relationships with manufacturers and finance companies (or you have software which brings the necessary components together seamlessly), this is the most natural extension of the traditional retailer.
Six “Must Haves” For Adding Rentals To A Retail Business
Picking the right technology to handle the complexities of merchandising, pricing, and reflecting real-time availability is an important first step to adding a rental component to your business. The following functions are essential to running and managing your rental department.
- Intuitive Inventory management: Regardless of how many products you plan to offer for rent, ensure your rental software supports a variety of ways to add products to your inventory. Adding thousands of products should be as simple as adding just one. Be sure you have options to add items individually or in bulk from your current inventory management system.
- Online (including mobile) merchandising & booking: Making it easy for staff and customers to find, schedule and rent is critical to a successful rental option. You can save time and money by choosing a program that includes an integrated mobile-friendly web store, where customers can see the variety and availability of your rental inventory and easily find and book complementary products all in a single system.
- Point of Sale booking & merchant processing: The ideal inventory management system will not require your staff to learn an entirely new process. Pick a system that manages inventory similar to your current system (for example, one that can accept by barcodes & serial numbers).
- Dynamic pricing options: Renting, by definition, includes an element of time-based pricing. You have the opportunity to earn more from a rental the longer the time the item is with a customer. The latest rental management systems permit products to be priced at an initial rental period (for example: $10/day) and an additional tier for “extra” time (like, $10 for the 1st day, and $6 each additional day). The key to improving rental profitability is to generating marginal profit from each transaction.
- Pickup, Delivery & Shipping: Getting your products to your customers is an essential element of managing and growing the rental component of your business. Find a system that makes each fulfillment method simple for your customers and staff. Especially in the days of social-distancing, the more ways to get your products, the more business (and loyalty) you can enjoy.
- CRM & Communication Suite: Renting products entails a “closed loop” transaction; the item is picked up, used, and returned to the retailer. Ensure the system you choose includes a communication suite to keep both staff and customers apprised of upcoming rental, when its due back, and confirmation that the item was returned on schedule. Features including email and SMS (text) alerts capabilities results in a better customer experience.
As renting & subscribing becomes more popular with customers, retailers can seize the opportunity to differentiate themselves from local competition while providing a great value to customers. Picking the right technology to manage the process will ensure a smooth addition of a potentially significant revenue source to retail businesses.