There is more than sufficient evidence to kill the myth that recession benefits the RTO industry in any meaningful way.

There is no evidence that the rent-to-own industry is recession-proof or that a down-economy results in any significant benefit for rent-to-own companies. In fact the evidence points to the opposite conclusion - the recession has had a negative affect on the RTO industry albeit to a smaller degree than retail.

The three publicly held rent-to-own and leasing companies in North America, Rent-A-Center (NASDAQ:RCII), Aaron's (NYSE:AAN), and easyhome (TSX:EH), have all been negatively affected to some degree by the economy. Accurately sourced financial information for independent rental dealers is not available, but there is no evidence that they are fairing any better as a group.

Rent-A-Center's same store sales decreased over 6% in the third quarter despite a marked increase in customer count (see story). Mark Speese, CEO of Rent-A-Center attributed the decrease in same store sales to a drop in the number of units-on-rent per customer.

Aaron Rents increased both customers and same store sales in Q3, however revenue per customer is down 12% from 2008. According to CFO Gil Danielson (archived podcast), the average Aaron's customer pays $138 per month, down from $150 in Q3 2008. Aaron's recession strategy has been focused on maintaining customer-count and units on rent by lowering monthly rates while extending agreement terms.

"Many people think that our company is recession proof. We like to use the term recession resistant," explained Aarons COO Ken Butler on a recent earnings conference call (listen). "We can fly through thunderstorms and turbulence and still maintain altitude and speed. But at the end of the day I think everyone would rather fly when the skies are clear." Butler describes consumers as skittish. "Our customers are not exempt from unemployment or cutting back on expenses."

"Consumers have reduced their overall expenditures on discretionary items," said David Ingram, President and CEO of easyhome Ltd. in a statement yesterday (see story).  "In the third quarter, we began to scale back our infrastructure, which had been constructed to meet higher consumer demand, to better reflect the realities of the market."

Cash-strapped consumers are buying necessities and avoiding luxury items. Rental customers are no different. Commercial credit remains extremely tight causing some independent operators to decrease inventory purchases and most companies to delay new store openings. These are precisely the same issues facing traditional retailers. The only difference is scale.

No one would argue that rental dealers are affected to the degree that traditional retailers have been. Some speculate that RTO dealers will see some benefit as the recession eases. The logic being that traditional retail consumers will continue to rent for a period of time while traditional RTO consumers on the low end of the income scale return and units-per-customer increases.

Despite the evidence, press accounts claiming that the recession will result in significant rent-to-own industry growth continue to be published regularly.

Whether or not there will be a bubble at recessions' end remains to be seen. Will the business recover? Yes. Are we happy to be in rent-to-own versus retail? Absolutely. But there is more than sufficient evidence to kill the myth that the current combination of negative economic factors benefit the RTO industry in any meaningful way.

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