Aaron Rents, Inc.

Aaron Rents, Inc.

Suite 1100
309 E. Paces Ferry Road, N.E.
Atlanta, Georgia 30305-2377
U.S.A.
(404) 231-0011
Fax: (404) 240-6584

Public Company
Incorporated: 1962
Employees: 2,200
Sales: $229 million
Stock Exchanges: NASDAQ
SICs: 2511 Wood Household Furniture Except Upholstered;
2514 Metal Household Furniture; 2521 Wood Office
Furniture; 2522 Office Furniture, Except Wood; 5712
Furniture Stores; 5722 Household Appliance Stores; 5731
Radio, Television, and Consumer Electronics Stores; 7359
Equipment Rental and Leasing, Not Elsewhere Classified

Aaron Rents, Inc., rents residential and office furniture and accessories, household appliances, consumer electronics, and business equipment. Besides being one of the largest companies in its industry, Aaron is distinguished as the only rental company that manufactures and reconditions its own furniture. The company was operating about 230 showroom stores in 21 states going into 1995 and was enjoying healthy growth.

Aaron Rents is the creation of entrepreneur R. Charles Loudermilk. Loudermilk was born in Atlanta, Georgia, in 1927— “On the wrong side of the tracks,” by his own admission. He attended Georgia Tech, had a tour in the Navy, and earned his business degree from the University of North Carolina, before accepting a job with Pet Milk Company and later the pharmaceutical and chemical giant Pfizer. While working for Pfizer during the early 1950s, Loudermilk came across a small North Carolina store that rented furniture and other merchandise. Eager to strike out on his own, Loudermilk drew on the concept and started a rental business in 1955, borrowing $500 from Trust Company Bank, while a partner invested another $500.

Loudermilk’s first order was for 300 chairs. He and his partner rushed to an army surplus store and purchased 500 chairs. They delivered 300 of them to an auction in Atlanta and charged ten cents per chair per day. “It was a hot day and the chairs didn’t stack well,” Loudermilk recalled in company annals. “My partner decided he didn’t want to be in the rental business anymore.” After his partner bailed out, Loudermilk stuck with his idea and continued to buy and rent furniture. Because he had little money to invest in the business, he worked at his mother’s restaurant and poured virtually every nickel back into his rental venture for seven straight years. Later, Loudermilk was able to rent a small storefront and hire a woman to answer the telephones; he named the company Aaron Rents to ensure top billing in the Yellow Pages.

Loudermilk gave his receptionist a catalog from a California company and told her to buy rental equipment from it. When a customer called or came in to rent some item she would simply let them select pieces from the catalog. If an order came in for a table or bed, for example, Loudermilk would drive down to Sears, buy a piece similar to the one in the catalog, and deliver it himself. Thus, Loudermilk got into renting party equipment and sickroom gear, later moving into office and residential furniture. “People said it was a gamble,” Loudermilk recalled in the November 21, 1983. Forbes. “It really wasn’t. We never bought the second item until the first one was rented.”

Loudermilk spent the late 1950s nurturing the business at his original Buckhead area store before branching out in the 1960s with a second shop. A third store was opened in 1964 and rented only furniture. By that time his inventory had grown to include large outdoor tents. Interestingly, Loudermilk rented four tents to civil rights marchers when they made their famous trek from Selma to Montgomery, Alabama, in 1965. Two years later the company opened an outlet in Baltimore, its first outside of Atlanta. By 1969 Aaron Rents was generating a healthy $2 million annually from an inventory of about $3 million.

Besides furniture and party-related supplies, Aaron Rents outlets were eventually renting everything from corkscrews and pillowcases to sofas and executive desks. The business was relatively simple and straight forward. Loudermilk would purchase goods, rent them out, and depreciate them down to a value of zero. Tax laws during the early 1970s allowed him to depreciate the entire value of the item over a period of three years; the depreciated value was written off against income to reduce taxes. Everything that he could get from the equipment in rent or by selling the item after that was pure gravy.

Aaron Rents prospered during the 1960s and 1970s. By the mid-1970s, in fact, the operation had expanded to include nearly 20 showrooms that were generating annual sales of about $10 million. That sales figure made Aaron the largest private company operating in the burgeoning U.S. furniture rental business. Although Aaron’s steady growth prior to the 1980s was admirable, it was meager in comparison to the rampant expansion the company would achieve in the following 15 years. Several factors contributed to that expansion. Importantly, in the late 1970s Loudermilk decided to focus his efforts on the residential and office markets, rather than his traditional party and sickroom segment. That decision resulted in a rapid climb in sales. Thus, in 1982 Loudermilk sold off his party and sickroom equipment operations and dumped the proceeds into his residential and business division.

In addition to shifting the company’s focus, Loudermilk achieved growth during the late 1970s and early 1980s through new financing strategies. Rather than waiting until his goods had depreciated to reap his profits, he began taking less depreciation during the rental period and then barely breaking even on the resale of the furniture. A $200 desk, for instance, would be depreciated down to $100 and then marked up to $130 for resale. Simply put, he found a way to take his profits earlier. When the furniture was no longer rentable, Loudermilk would sell it alongside value-oriented new furniture in warehousestyle stores—they were called Aaron Sells Furniture—next to his rental shops. That way, he was able to attract customers that didn’t want to rent but didn’t have cash for expensive new furniture.

The overall strategy helped to boost the company’s net income to a record $4.7 million in 1983 from sales of $55.4 million. By the end of that year Aaron Rents was operating a total of 92 stores in 14 mostly southern states. It was servicing 50,000 rental contracts worth an average of $48 monthly, giving Aaron roughly 15 percent of the $350 million furniture rental market. Loudermilk had become a multimillionaire. He spent his weekends on his 3,700-acre south Georgia plantation, where he tended his herd of purebred limousin cattle and perused his corn and soybean fields. When not at the plantation, he might be found hunting geese in Alaska or Scotland. Otherwise, Loudermilk worked to enlarge his rental empire.

Another important factor in Aaron Rents’ tremendous expansion during the early 1980s was Loudermilk’s strategy to add to the company’s growth through acquisition. Loudermilk took Aaron Rents public in 1982 to raise expansion capital— although he had retained 42 percent of the company’s stock as of 1983, which was valued at about $38 million. He used part of the money from the public offering to buy a few of his biggest private competitors. Most notable were the acquisitions of leading private rental companies Metrolease (Metropolitan Furniture Leasing), of North Carolina, and the Houston-based Modern Furniture Rental. Loudermilk bought Modern Furniture in July of 1983 for $6.5 million in cash before plunking down $4.5 million for Metrolease the following summer. Meanwhile, the rental industry in general was expanding, adding fuel to Aaron Rents’ growth. Aaron Rents’ annual revenues surged to a whopping $84 million in 1984, making it the largest rental company in the nation. Indeed, Aaron Rents surpassed the venerable industry leader GranTree, which had doubled its revenues from $41 million in 1977 to $82 million in 1984.

At the same time, Aaron Rents’ bottom line was benefiting from in-house manufacturing operations. The company had started producing its furniture out of necessity in 1971 when Lockheed Corp. brought employees to Atlanta from all over the world to build a new plane. Manufacturers simply could not meet Aaron’s demand for furniture to rent to the influx of workers, so Loudermilk decided to begin building the furniture himself. He purchased a local manufacturer called MacTavish Furniture Industries and was instantly in the furniture-making business. The decision to manufacture proved fruitful, and Aaron became the only company in the rental industry to exclusively build its furniture. The benefits were multifold. Not only did Aaron benefit from a dependable, low-cost furniture source, but it also saved money and time related to the repair and reconditioning of its old furniture. In addition, Aaron was able to control both styling and price to suit the specific needs of its targeted customers.

Aaron continued to pursue acquisitions and to expand its furniture making operations during 1984 and 1985. By early 1986 the chain had ballooned to 154 stores in 20 states and annual revenues were topping a fat $100 million. Despite sales gains, however, earnings growth had stalled. The problem was primarily the result of the fast store expansion. New stores typically took 12 to 18 months to achieve profitability, so many of Aaron’s outlets were still dragging down the bottom line. Loudermilk decided to slow the company’s expansion and to focus on consolidating and streamlining existing operations. During 1986 and 1987 the company closed some Aaron Sells outlets, beefed up its management team, and launched a drive to cut costs and improve profit margins. Loudermilk took a break from day-to-day management of the company during those years, devoting much of his time to his duties as chairman of the Metro Atlanta Rapid Transit Authority and to his political interests.

The effects of management efforts at Aaron seemed apparent by 1988. Sales rose to $119 million and $132 million in 1987 and 1988, respectively, while net earnings climbed to $4.79 million and $5.54 million. However, the sales gains were partially the result of Loudermilk’s October 1987 purchase of Ball Stalker Inc., an Atlanta-based manufacturer and distributor of upscale office furniture. Similarly, the profit increase was generated primarily by a cut in Aaron’s effective corporate tax rate from 46 percent to 34 percent; the tax cut was ushered in with the renowned Tax Reform Act of 1986 (TRA). However, the TRA eliminated many of the depreciation benefits that Aaron had previously enjoyed. So, although earnings rose between 1987 and 1988, they were still low compared to previous projections, and the TRA promised to hurt future profits as well. Evidencing investor discontent with the situation, Aaron’s stock price skidded from a high of $25.75 in 1984 to just $12 before the 1987 stock market crash, after which it plummeted to a low $6.50.

Realizing that his company was struggling, Loudermilk returned to day-to-day control of the company in 1987. He renewed the company’s efforts to overhaul operations, cut costs, and boost margins. At the same time, Loudermilk continued to expand the Aaron network of stores. Early in 1988, in fact, he purchased furniture rental operations in Florida from Furniture Enterprises and Powell Furniture Rental, as well as a Jackson, Mississippi, store from competitor Cort Furniture Rental Corp. By late 1988 the company was operating 183 stores in 31 states. Before the end of the year, however, that number would be reduced as a result of the consolidation of several Aaron Sells outlets with adjacent Aaron Rents stores.

Importantly, Aaron followed in the footsteps of its chief competitors, GranTree and the highly successful Rent-A-Center, in 1987 when it entered the rent-to-own business. Under that program, customers were allowed to make regular payments over a pre-determined period—usually 18 or 24 months—to use furniture, appliances, electronics, and other goods. These payments differed from usual rent payments by being applied to the purchase price, and the consumer could own the item at the end of the rental period. By late 1988 Aaron was offering rent-to-own at 18 of its store locations, introducing a 12-month ownership plan—which caught on with customers—and Loudermilk was planning to expand the successful program throughout his network. The rent-to-own initiative was part of Louder-milk’s push to focus on renting rather than selling furniture.

Facing flat market growth in the furniture rental industry, Loudermilk stepped up reorganization efforts in 1989 by eliminating distinctions between the rental, sales, and combination-store divisions. He replaced them with six geographical regions, each with a vice-president responsible for 10 to 20 outlets; previously, a single manager had been placed in charge of about 60 stores. Similarly, the office-furniture rental division, which comprised about 47 stores going into 1990, was reorganized into six geographical regions, each of which was headed by a vice-president. Finally, Loudermilk initiated a franchising campaign designed to increase Aaron’s regional coverage with minimal capital cost to the company.

The reorganization was slow to take hold. In fact, Aaron suffered three consecutive years of declining sales and earnings beginning in 1989. Eventually, though, the company’s financial performance recovered. Among Loudermilk’s successful moves during the early 1990s was renting office equipment, not just office furniture. He had hesitated to rent equipment for several years because he felt that Aaron lacked the management expertise to handle that market segment. However, that move contributed to Aaron’s turnaround, which began in 1992. Indeed, although Aaron’s sales for 1992 (fiscal year ended March 31, 1992) grew tepidly to about $145 million, the company posted a profit of about $3.1 million—Aaron’s first profit gain since 1988.

Encouraged by success with the Aaron Rental Purchase stores, which made up Aaron’s rent-to-own business, Loudermilk began expanding the chain through both franchises and company-owned stores. As a result, revenues sailed to $158 million in 1993 before rocketing to about $186 million in 1994 (year ended March 21, 1994). Throughout the fiscal 1994 year Aaron added rental-purchase stores to its chain at a rate of one per week. The growth continued during 1995. By September 1995, in fact, Aaron was operating a total of 206 company-owned outlets and 33 franchised stores. Sales were booming. Revenues swelled 24 percent in fiscal 1995 to nearly $230 million as net income vaulted to a record $11.33 million. Aaron continued to benefit from its five furniture manufacturing plants in Georgia and Florida. Loudermilk, still in charge in mid-1995, expected to expand Aaron’s production and showroom operations through the 1990s.

Principal Subsidiaries

Aaron Investment Company.

Further Reading

Bork, Robert H., “Money in the Mattress,” Forbes, November 21, 1983, p. 108.

Danielson, Gilbert L., “Aaron Rents, Inc., Names Ken Butler and Brian Stahl Division Presidents,” PR Newswire, February 2, 1995.

Gilligan, Gregory J., “Rent-to-Own Delivers to Aaron a New Direction, Higher Sales,” Richmond Times-Dispatch, July 31, 1993, Section BUS.

Hallem, Jeanie Franco, “‘Cooling It’ Is New Motto for Aaron Rents,” Atlanta Business Chronicle, February 24, 1986, p. 2B.

Robertshaw, Nicky, “Aaron Rents Expanding with Six-Eight Stores,” Memphis Business Journal, November 21, 1994, p. 3.

Schonbak, Judith, “Aaron Rents Bounces Back,” Business Atlanta, September 1988, p. 32.

——, “Aaron Rents Launches New Venture,” Business Atlanta, July 1992, p. 8.

Weiner, Daniel P., “Aaron Rents Inc.,” Fortune, November 25, 1985, p. 40.

Welch, Mary, “‘Radical’ Shift for Aaron Rents,” Atlanta Business Chronicle, December 19, 1988, p. 6.

—Dave Mote