Star Rentals president Bob Kendall doesn’t expect a big turnaround in 2010, but feels Star, No. 36 on the RER 100, will become a healthier and more focused company despite the challenges confronting the Pacific Northwest. Kendall spoke with RER’s Michael Roth.
RER: Was 2009 the most difficult year you can remember in the rental business?
Kendall: Although 2009 presented some interesting challenges, when the opportunity presents itself farther down the road to look in the rearview mirror I am certain 2009 will look good compared to 2010.
What are your expectations for 2010? Do you have any confidence business conditions will be better in 2010?
2010 will most likely be defined as the most difficult economic period in the Pacific Northwest in almost three decades. Our customer base for the most part has remained intact but their volume of work has been significantly impacted. The combination of excess capacity in the office, retail, and warehouse building sectors has created an oversupply imbalance that must be corrected before non-residential construction will move forward. There certainly is some construction in institutional markets (hospitals, universities, schools, etc.) and industrial but the total volume of work is still off anywhere from 40 to 60 percent versus 2008.
If not in 2010, when do you expect to see improvement?
We are anticipating that measurable market improvement is most likely still 18 months away or somewhere around Q4 2011.
Are there any sectors you expect to see good things from in 2010, such as industrial, corporate, non-residential, residential, small tradesmen, or homeowner?
Star Rentals launched a new business initiative in September 2008, which has been getting some traction in both industrial and governmental business sectors.
Is your business healthier than before because of cost-cutting measures or other types of re-structuring actions taken in the past year?
I would argue that our business is measurably healthier than before the recession. The combination of a modest reduction in the number of employees (primarily through attrition), maintaining an average fleet age of less than three years, and significantly reducing any debt obligations has us well poised for the eventual economic recovery. When the marketplace returns to a proper rental rate structure the efficiencies garnered through this lean period will most assuredly be reflected in strong margin growth.
What kinds of changes did you make to your business in 2009, i.e., new markets, new lines of equipment or new sales approaches?
Like most equipment rental companies, we became enamored with the AWP business over the past 15 years. To that end, with the commercial building industry being challenged for the next three to five years we are taking a hard look at our marketing mix. We are working on diversifying our marketing mix each and every day, which is leading us back to some familiar faces and surroundings!
Do you plan any changes in 2010?
Again, we are very focused on expanding our presence with governmental agencies and industrial business. To that end, we expect our marketing mix to evolve to meet the needs of specific customers and that could encompass anything from specialized air movers, to mini-cranes, and other unique products. We have absolutely ratcheted up our branding and marketing efforts to the highest level in our history.
Any sign of improvement or recovery on rates?
It is our interpretation that rental rates are stabilizing albeit at extreme lows. There will most definitely be an emphasis to get rates up because candidly the rate structure today is not sustainable. Responsible equipment rental companies reduce capex in recessionary times and significantly reduce debt obligations to improve their balance sheets in an effort to prepare for future capital investment. I would argue that the majority of our competitors have virtually suspended capex for the past 18 months and have not significantly reduced their debt obligations much more than 8 to 10 percent. We believe that there will be a new discipline to improve rates going forward.
What will be the key to improved business?
Resolving over capacity and a still-frozen credit market are the keys to improved business conditions. The excess capacity must be absorbed and a more reasonable lending environment must return to the marketplace. Every major market has some distance to go before those elements will be resolved. We all can explore and penetrate new markets to help generate new revenue streams but at the end of the day our core business is renting equipment to contractors.
Any significant company news?
Star Rentals is celebrating a 50-year anniversary in 2010 and will be holding open houses at various times throughout the year. Additionally, our parent company is celebrating 110 years of providing equipment and machinery to customers in the Pacific Northwest!
Do you have any thoughts to add?
Adversity always creates opportunities. Yes, these are most challenging times but they provide everyone a chance to refocus their energies. All indications would support a weak and drawn-out economic recovery but I suspect in the long run it will create a more balanced and rational marketplace.