How to Add Rental Products to Your Retail Business
Retailers face a series of uphill battles when it comes to staying ahead of emerging trends such as e-commerce and the sharing economy. These trends are fueling consumers’ feverishly high desire for rental or subscription options for products normally only available for purchase.
In the last several years we’ve seen several startup rental companies like Uber and Rent the Runaway achieve a massive amount of success through their subscription models. Another great example? Dollar Shave Club (DSC) created a subscription model for the most basic of consumable products: razors. Boasting more than 3.2 million customers, DSC has sliced significant market from industry giants Gillette and Schick.
Given their familiarity to consumers (i.e., brand recognition), physical presences where customers can easily and, more importantly, safely rent and return items, and their variety of inventory, retailers are particularly well-positioned to benefit from offering a rental or subscription component to their businesses.
Picking the Best Rental Model for Your Business
As a retailer, the best rental option for your business depends upon the type of inventory you offer, along with what your goals are for adding a rental component. The most common options include:
- transactional (simple rent and return, where rental duration will vary);
- relationship (subscriptions to product categories with tiers of access); and
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 pre-defined rental period and return the equipment at the end 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, but can expect long-term profit.
Rent-to-own is the most complex variety, as there's a need for customer credit applications, financing, collections and more. The primary consideration for this approach is that customers will 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.
5 ‘Must Haves’ for Adding Rentals to a Retail Business
Picking the right technology to handle the complexities of merchandising, pricing and reflecting real-time product availability is an important first step to operationalizing 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 and 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 real-time system.
- Point of sale booking and merchant processing: The ideal inventory management system won't require your staff to learn an entirely new process. Pick a system that manages inventory similar to your current system — e.g., one that can accept by barcodes and serial numbers.
- Dynamic pricing options: Renting, by definition, includes an element of time-based pricing. You have the opportunity to earn more return on your investment from a rental item the longer the item is with a customer. The latest rental management systems permit products to be priced at an initial rental period (e.g., $10/day) and an additional tier for “extra” time (e.g., $10 for the first day, and $6 each additional day). The key to improving rental profitability is generating marginal profit from each transaction.
- CRM and communication suite: Renting products entails a “closed loop” transaction — i.e., 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) alert capabilities result in a better customer experience.
As the renting and subscribing of products becomes increasingly more popular with consumers, retailers can get ahead of the trend and seize the opportunity to differentiate themselves from their competition, while still providing a great, if not better, value to their customers. Picking the right technology to manage the process will ensure a smooth addition of a potentially significant revenue source to retail businesses.
Andrew Chambers is an entrepreneur and the founder of Renterval, a cloud-based inventory management application for traditional rental businesses.
Andrew Chambers is an entrepreneur and the founder of Renterval, a cloud-based inventory management application for traditional rental businesses. His latest venture, Renterval for Retail, uses the rental technology developed from his original application and applies it to retail businesses of all sizes, allowing them to offer an added rental component to their existing operation.