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Who are We
Buddy’s Home Furnishings is the third largest Rent-To-Own (“RTO”) furniture, appliance, electronic and computer provider in the United States. Buddy’s was founded in 1961 in Tampa, Florida and for the first 30 years of existence the Company operated 21 stores in the Greater Tampa Area. Over the past five years, Buddy’s has aggressively expanded its footprint by adding new company-owned and franchised stores outside of its home area. As of July 1, 2015, 103 franchise, 54 company, and 45 partnership stores located in the South, Southeastern and Southwestern regions of the U.S. The Company plans to continue this rapid growth over the next several years by opening new company-owned stores, acquiring independently operated RTO stores and franchising stores.

Industry Overview
 
The Rent / Lease-To-Own retailing model was introduced in the 1960s to provide customers with poor credit and limited access to cash the opportunity to acquire high-ticket household items without needing to secure traditional financing. These customers were not served by traditional retail companies because they did not qualify for credit. Through the use of lease agreements consumers were able to acquire previously unattainable products on a monthly or weekly payment basis, with no long-term debt obligation. Terms gave customers the unconditional right to return the product at any time with no further obligation. The RTO industry provided this customer demographic with the only viable way to acquire high-ticket items such as consumer electronics, appliances and furniture. Since inception, the industry has grown significantly; based on the most current industry data, there were 8,700 RTO stores in the U.S. and Canada generating $7.6 billion in revenue in 2010.1 Despite the industry’s size, it continues to generate consistent growth, as shown in Exhibit 2.1. The RTO industry now fulfills three primary customer needs: (i) short-term needs, due to seasonal work or travel plans; (ii) uncertain needs, no large or long-term commitment is feasible before the situation is definite; (iii) providing access to products that would otherwise be unavailable in traditional retail stores due to the inability to get consumer credit. Products initially offered in the RTO industry included furniture, appliances and consumer electronics. The success of these products has fueled expansion of the products offered. The primary RTO providers now offer furniture, home electronics, appliances, computers and jewelry. More non- traditional products such as purses, video games, sporting equipment and tires are also being offered on a RTO basis.

The primary competitors to RTO industry participants are traditional retail stores and internet marketplaces. The RTO market differentiates itself from these competitors in a number of ways that are particularly important to the industry’s target customers. Exhibit 2.2 illustrates the benefits that consumers receive via the RTO channel.

overview

The financial flexibility of the RTO model is the most significant industry differentiator, although other advantages such as free maintenance and trial periods also attract customers. It is important to note that RTO industry margins have not been impacted by the internet in the same way margins of many traditional retailers have. While the Company believes that the e-commerce channel will become increasingly important, an integrated model including stores is necessary. RTO operators must maintain a local market presence to facilitate the merchandise collection process given that only 32% of lease agreements result in ownership

Business Model
Flexibility is a key attribute of the RTO business model, enabling an agreement to be tailored to a customer’s particular financial situation. Standard leases are offered on a weekly and monthly basis and if paid to term (usually 12 – 24 months) result in a significantly higher cost than a typical retail sale. Typically, total agreement value (the sum of all rental or lease payments required before ownership) is 2x to 5x times the cost of the product. The availability of weekly and monthly leases provides some differentiation among industry players.

Monthly agreements require customers who, although credit constrained, still have the financial discipline to maintain a monthly budget, and generally appeal to the top one-third of the RTO customer base. The monthly rental payment results in a lower all-in cost to the customer compared to weekly payments over the same time period in order to compensate RTO providers for the incremental labor costs of processing weekly payments. In addition, weekly renters typically have a higher propensity to stop making their payments, requiring the operator to collect and refurbish the merchandise more often.

Although RTO operators will recoup 2x to 5x their initial investment if a lease is paid to term, the significant premium to the cash purchase price is not relevant to most RTO customers as their focus tends to be on the affordability of the weekly or monthly payment. In addition, approximately 75% of rented items are returned within the first four months of the agreement.

Only 8% of RTO customers make all payments over the full lease term. Most customers interested in owning a product will exercise one of the many early purchase options that are provided by RTO operators. Standard industry promotions include “same as cash” offers and early payment option discounts. Typically the RTO provider will offer a 60 – 120 day same as cash promotion in which the customer has the specified time period to pay the retail price. Early payment option discounts are also offered to reduce the cost of owning a product. After expiration of the same as cash period, the customer can exercise the EPO and take ownership of the product. The EPO enables the customer to purchase the product for a discount to their remaining agreement balance. The discount received is usually 20% – 40% of the outstanding agreement balance at the time the EPO is elected. Currently, Buddy’s is at the high end of the EPO discount, offering a 40% discount on the outstanding agreement balance at the time the EPO is elected. Recently, Rent-A-Center dropped their EPO discount from 50% of outstanding agreement balance to 20% of outstanding agreement balance. RTO businesses have the ability to flexibly change the discount associated with the EPO offered to customers. The early purchase option or same as cash option is exercised by about 17% of all RTO customers.
Future Outlook
Industry sources believe the recent accelerated growth of the RTO industry represents the beginning of a secular shift in consumer demand and supply of “financing” which would meaningfully benefit the industry. While the recession and resulting decline in the availability of consumer credit marginally increased industry productivity, more apparent was the shift in consumer demographic. During the recession, many pre-recession clients were no longer able to afford their payments and stopped renting, while consumers who previously qualified for traditional financing, due to the excess of subprime lending, became new RTO customers when the credit markets contracted. As the financial condition of RTO clients continues to improve post-recession, they are able to enter the RTO consumer base again. On the other hand, the availability of subprime lending is not expected to reach pre- recession levels, leaving many clients who switched to RTO during the recession unable to obtain traditional financing and therefore remain within the RTO customer base. As a result, the post- recession economic environment has increased the RTO customer base to include both historical RTO customers and the slightly more affluent consumers who previously qualified for subprime lending.

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Why Choose Us?
Buddy's Advantages

Join the Fastest Growing Lease Purchase / Rent to Own Company in America

Exclusive Territories Available – You as a franchisee will represent Buddy’s in your marketplace!  As a growing Brand we understand that knowing you will have the rights to your marketplace and will not have to worry about another Buddy’s branded store opening up right down the street will help you rest easy at night!

Multi-Unit Development Opportunities – The opportunity to secure a multi-unit development territory for your Buddy’s Home Furnishings stores will allow you to leverage the benefits of economies of scale in our business.

Recession Resistant – Based on Industry research, since 2008 the industry is growing annually 2-3 times faster than it had leading up to the most recent down turn in the US economy!

In Business for over 50 years! – Although we may be a new name to franchising we are veterans of the industry.  Buddy’s Home Furnishings has been in business since 1961 and although the times have changed our core business principles and philosophies remain the same.

Cash Flow Business with Tremendous ROI Potential – Because we are in the leasing business the benefits of depreciation are very attractive, and the typical store payback period is only about 3 years!

Team Members
Ben Green
Director of Franchise Sales
813-321-0423 (O)

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