Managing Loss in the Rent-to-Own Industry

EDITOR’S NOTE: Bobby Templet (pronounced tom-play) is vice president of loss prevention for Rent-A-Center. He has thirty-plus years of loss prevention experience with Footstar, Blockbuster Video, and Kmart.

EDITOR: Tell us how it happened that you became the head of loss prevention at Rent-A-Center.

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TEMPLET: When the previous company I worked for sold off their retail divisions as part of their bankruptcy proceedings, the entire LP department was eliminated. As I began looking for my next opportunity, one of my vendors told me that he knew that Rent-A-Center had just lost their head of LP. The job wasn’t posted anywhere, so I did my research, found out that the hiring manager was the VP of HR, and got my information in front of her.

I didn’t hear anything back immediately, which didn’t surprise me, but out of the blue, received a phone call from someone I had previously worked with who was now with Rent-A-Center. That person told me, “The vice president of HR here asked if I knew you. I told her you had done great work with our previous company, and we should really talk to him.” That was fortunate for me and goes to your networking and the relationships you’ve built during your career.

I was asked to come in for an interview with the HR executive on a Friday, which I did, but unfortunately something came up, so I was asked to come back on Monday. After a two-hour interview, she asked me to come back on Wednesday to meet with the president of the company. She called me Thursday and offered me the job, which at the time was senior director of loss prevention. So, in less than a week, I went from looking to landing a new position.

EDITOR: You mentioned something very important, which is the relationships we develop within the industry. Not just with other LP practitioners, but relationships with vendors and other retail operators are also very important.

TEMPLET: That’s absolutely correct. In my case, it was a combination of a vendor who gave me the lead and a woman I interacted with in the benefits department of my previous company. In both cases apparently I created enough of a positive impression that one was willing to pass information along to me and the other would vouch for my work.

EDITOR: When you started with Rent-A-Center, did you inherit a large organization with programs and strategies already in place?

TEMPLET: The answer to that is an emphatic “No.” When I got here in September of 2005, we had roughly 2,700 locations located in all fifty states, Puerto Rico, and a few stores in Canada. The entire department was comprised of three LP managers and two administrative people who all worked out of our field support center in Plano, Texas.

EDITOR: And what is it today, some six years later?

TEMPLET: Rent-A-Center by its nature has grown through acquisitions. We since have acquired the third largest rent-to-own company at that time, which brought our total count to about 3,400 locations. After combining overlapping stores, we are now at about 3,000 traditional store locations, with some additional expansion into Canada.

EDITOR: Do you have any other international locations?

TEMPLET: We opened five stores in Mexico in the fourth quarter of last year, and we’re on target to open about 40 more stores this year. We should have approximately 100 stores open by the end of 2012 and believe Mexico could be a 1,000-store opportunity for us. We looked at several other countries at the same time, but felt that Mexico gave us our best opportunity because of the name recognition we had due to the proximity to our stores along the border. That got us started, but now we’re moving much further south of the border to Monterey, San Luis Potosi, Tampico, and elsewhere in Mexico.

EDITOR: If you believe what you hear in the media, the challenges you have in Mexico must be significant, or at least different than what you have in the states.

TEMPLET: Everyone in the business world has heard about the different challenges associated with doing business in Mexico. To address those challenges we have had to evaluate every aspect of our business to ensure we meet the needs of our customers. As you might imagine, it has kept us on our toes.

EDITOR: Before coming to Rent-A-Center, you held jobs that took a traditional view of shrinkage and the objectives for loss prevention. My understanding is that loss at Rent-A-Center is a completely different animal.

TEMPLET: You are exactly right. In fact, the term “shrink” is not even in our vocabulary. We look at a series of different items called “rental loss lines” on the P&L. An example of that is a product that has gone through its life cycle and is no longer rentable. If we can no longer rent it to a customer, we may choose to try to cash sell it. But in some cases we still have value associated with that product, and it has to be written off to what we call “junk.”

The biggest category of loss for us is what we call “skip.” That’s where we rent something to a customer who chooses to stop making payments. If we cannot find the customer and exhaust all of our efforts to recover it, we have to write that product off as skip.

Another example of loss is when product is in need of repair. Because we have ownership of it until the rent-to-own period ends, we provide free service on those products. In some instances the cost to repair exceeds the remaining value or revenue potential on a product, so we remove it from inventory in a category called “service estimate refused.”

So, from our perspective, loss prevention is more about how to maximize profit based on controlling these categories by working with our stores to do the things that are in the best interest of the company relative to product life cycle and managing both our on-rent and idle inventory.

EDITOR: Do you have internal investigators who do the skip tracing, or do you use outside services?

TEMPLET: Actually, the stores have the responsibility to manage the accounts associated with that store. From the time they rent a product, they are responsible for collection of weekly or monthly rental payments as well as contacting the customer to recover product if payments aren’t made. The stores will go through a series of activities to try to get that collection or get the product returned. Based on local laws, stores can even initiate criminal or civil actions related to lost product. When they get to a point where they’ve done everything they can at the store, then we write it off of our inventory because we don’t anticipate it being recovered. At that point there is a small group of collection specialists here in our field support center that looks at those accounts to consider additional collection efforts, but the vast majority of effort is done at our store level.

EDITOR: It sounds as if loss prevention is more about managing operational issues that lead to protecting profit and reducing loss more than traditional retail LP strategies.

TEMPLET: That’s pretty accurate because we know that development of the relationship with the customer at the front end is extremely critical and sets up everything that comes downwind. If you think about our business, a customer walks into our store and walks out with a product that may be worth hundreds or even thousands of dollars, on the condition that they give us the first week’s payment, which may be only $29 or $39. We have to have a lot of confidence that we’ll be able to work with this customer to collect those rental payments or get the product back. So from an LP standpoint, we spend a lot of time teaching, training, and working with the stores to ensure that accounts are set up properly.

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