The "bigger is better" philosophy of business management has been the driving force behind the rental industry's recent consolidation, but officials at fast-growing NationsRent have created their own version of the old maxim.
To paraphrase: Bigger may be better, but branded is best.
With that in mind, the company has devoted its resources to developing a brand identity that contractors can readily recognize and rely upon when they call on any of its 125-plus locations nationwide. While a good portion of the NationsRent strategy is predicated on taking advantage of economies its size allows, it is the bold branding strategy that differentiates NationsRent from others in the rental industry's consolidation fraternity.
The most obvious yet most important part of the Fort Lauderdale, Fla.-based company's strategy is the name. Without a brand name, there is no brand.
While many consolidators prefer newly acquired companies to keep their original name to preserve the goodwill that comes with it, NationsRent converts acquired businesses to its own name as soon as it can.
Company officials believe consolidators that acquire two or three rental centers in an area and allow them to operate under different names with different management aren't fully taking advantage of the economies of scale their size allows.
Not to mention the confusion such a scenario can create for customers and employees. What does a contractor who calls ABC Rentals for a piece of equipment think when it shows up with an XYZ Rentals logo on it and, two weeks later, a bill comes from a third company the contractor has never heard of?
Similarly, if two rental companies with the same parent do business in the same region under separate names and management, one can only imagine the potential for discontent among the sales staff regarding commission structures, territory assignments and rental rates.
A common name and a single philosophy are the solutions, according to NationsRent, which acquired more than 25 companies in 1998, giving it an annual revenue run rate of about $440 million entering this year.
"You have to integrate these companies in order to get the leverage and the savings that we are looking for," says chairman and CEO Jim Kirk, whose business experience includes founding the environmental construction company OHM, which rented about $35 million of equipment a year from rental centers. "Unlike the garbage business, where you can buy a company and leave it be, you must integrate in this business."
While the name is of paramount importance in establishing a brand, there is much more to the NationsRent strategy than ordering new stationery and putting up new signage.
"The last 10 percent of branding is putting up the new signs," says Kirk. "We have to be sure we're ready to provide what the brand stands for before we can put the name up. The easiest part is putting that sign up."
The other 90 percent involves training employees, procuring equipment and establishing systems that provide service consistent enough to keep customers coming back to the yellow-and-black diamond of NationsRent.
The company has even taken the unusual step of replacing manufacturers' labels on its equipment - from the smallest paint sprayer to the largest excavator - with its own logo.
"What we are trying to do is separate the customer from the equipment brand," says Phil Petrocelli, executive vice president and a former OHM executive. "We want to get to the point where a customer doesn't care whether he is renting a Caterpillar, Deere or Case machine. We want the customer to rent a NationsRent machine."
According to research conducted by NationsRent, customers care more about renting late-model, well-maintained equipment than about which manufacturer's name happens to be on the piece of iron they are sitting on. (See story, page 164.)
"A lot of customers don't care who made the machine for the simple fact that, if it breaks down, he's not calling the manufacturer. He's calling us," Petrocelli says. "When people think of construction equipment, we want them to think of NationsRent."
The re-branded equipment serves as a sort of mobile billboard intended to draw customers into branches, where a clean showroom well-stocked with consumable items awaits. NationsRent has researched virtually every detail of its store design. For example, it is using more expensive wrought-iron fence around properties' perimeters instead of chain link. The iron gives an impression of a strong company that's in business for the long haul, image-conscious company officials say.
As of last month, the company had 22 branches fully branded, with 70 more expected to be wearing the brand by March.
This attempt to become to equipment rental what Kleenex is to facial tissue does not come without a price.
Some skeptics wonder if such extensive capital expenditures will provide adequate return on investment. Contractors are legendary for thinking with their wallets, cynics says, not the subconscious. It probably wouldn't bother contractors to rent from a rental center that has chain-link fence, rather than wrought iron, around its facility - provided the skid-steer loader costs $50 less a week. And while NationsRent's upscale showrooms certainly provide a pleasant atmosphere, the core business revolves around renting construction equipment, not selling Mercedes.
But company officials say the rental business has changed and matured in recent years, and that rental firms - especially the big consolidators - have to make themselves stand out to customers.
"You have to do some things to differentiate yourself from the competition, and we think of the branding as a smart investment in doing that," says industry veteran Don O'Neal, who became company president in September after merging his 13-location A-1 Rental with NationsRent. "There are some costs involved with it, but if you look at it as an investment, the cost gets spread over a matter of time."
A clustered approach Once an identity is established, the company attempts to leverage the brand name by clustering branches in a region. In Columbus, Ohio, for example, the company has five branches and claims to have cornered 45 percent of the contractor equipment rental market.
The cluster approach is derivative of the familiar hub-and-spoke strategy used by other large rental companies, but with a twist. For the most part, NationsRent has entered only markets where it believes it can build a solid cluster.
"When you look at the companies we tend to acquire, we're not shotgunning," Kirk says. "Historically, the companies we are looking at are not for sale. They don't have to sell because they are already very successful."
Since its formation in September 1997 with the purchase of Columbus hub Sam's Equipment Rental, the company has grown almost exclusively by acquisition. (See chart, page 165.) By the start of the fourth quarter of 1998, NationsRent claimed to have achieved what it calls "cluster dominance" in Cleveland and Columbus, Ohio, in Houston, Indianapolis, Dallas and in the Florida Panhandle.
Despite such a steep growth curve, the company insists it is not preoccupied with size. It contends that its buying power is not substantially different from other consolidators, including United Rentals, despite the fact that United is more than three times bigger than NationsRent on an annualized run rate revenue basis.
"The winner in this industry will not necessarily be the company with the most locations," says Kirk. "It will be the one that can provide the best service along with the best bottom line."
By establishing the brand and with its growth-by-cluster approach to acquisitions, NationsRent believes it is poised to take advantage of the coming rental boom. The company estimates that rentals currently fill about 20 percent of contractors' equipment needs. It believes that number will double in the next six years, regardless of swings in the economy.
"Over the last four years in Japan, which includes that country's worst recession in 50 years, rental continued to gain market share," executive vice president Petrocelli says. "It has grown 30 percent right through the recession in Japan."
"While we are cautious, we are optimistic that the rental industry will continue to grow through a recession," Kirk says. "In 1990-91, when there was a downturn in U.S. construction spending of 12 percent, the rental industry continued to grow at double-digit rates. That's a good indicator."
Living up to the brand With operations throughout the country - the company recently bought New England's Logan Equipment and is expected to move into California in the near future - NationsRent makes full use of its ability to move equipment between regions. While shifting pieces of a universal fleet to match spikes and lapses in demand is not unique among consolidators, what the company is trying to do with its computer system is.
The same people who built the Blockbuster video rental chain's system are finishing up a proprietary software package for NationsRent. The hope is to develop a system that not only monitors the real-time utilization of equipment at each of its branches, but analyzes trends and recognizes customers' advance needs.
"We want to be able to predict utilization of equipment so we can guarantee availability to the contractor," says Petrocelli. "Most computer systems tell you what equipment is available for rent today; our vision is to have a system that predicts what will be available in the future."
On the operations side, area managers retain the authority to determine rental rates, which is important considering that two-thirds of NationsRent's annual revenue comes from the highly competitive contractor equipment segment.
The company centralizes purchases of large equipment. Most deliveries to customers are handled by each region's hub, using in-house trucks and drivers. While mechanics handle some light repair work at the spokes, most major repairs and service calls are handled by the hubs.
"The same basic principles apply whether you are running a 30-location or a one-location rental company," says company president O'Neal. "Those basic principles apply here; there are just more places to apply them to."
Every two months, a managers' meeting is held and operations issues are discussed in detail, allowing the input of key managers on company policies and practices.
"You don't build a good company overnight," says O'Neal. "It is a constant process. You have to be better today than you were yesterday and better tomorrow than you were today. We're putting in place a lot of processes, but we're going back and continually improving them.
"As the expression says, it is a journey not a destination."
$8 a share While O'Neal and company are asking for time to build, those on Wall Street - which is well-known for its impetuous, fickle nature - aren't as patient.
NationsRent went public during a period of heightened market uncertainty, selling off 30 percent of the company in August. While the $104 million it grossed was the third-largest initial public offering in the entire third quarter of 1998, the company sold the shares at the bottom of its anticipated $8 to $10 per share range. The stock has languished ever since, closing December 15 at $6.63 per share.
"Everyone would like a higher stock price because it makes things so much easier," says Petrocelli. "But the rental stocks took a big hit in mid-1998, as did most consolidators in capital-intensive businesses. Everyone was in the same boat."
One investment bank has a 12-month price target of $9 per share; another checks in with a 12-month price of $12.50 per share.
"We started off in a hole and have to dig out of it," says O'Neal. "But we can't pay too much attention to it because what makes any investment work is its quality and whether it is performing. We are performing. The fundamentals are right."
According to the company, same-store rental revenue grew 24 percent in the first nine months of 1998. For outlets owned for all of 1998, nine-month rental revenue increased 45 percent over the same period in 1997.
Despite that promising growth, NationsRent is not immune from speculation - fueled by the capital shortage that dominated the public markets in the second half of 1998 - regarding which of the consolidators will themselves be gobbled up. Kirk insists his company will be among those doing the buying, not the selling.
"Will a consolidation occur among the publicly held companies? It will probably make sense at some point," says Kirk. "We've invested a lot of money in research to better understand the industry as well as what we are investing in the branding, in new equipment and in personnel training. You invest in these things if you are in for the long term. It's not good, efficient use of money if we are going to be here for only a few years."
Even with the challenges of establishing a nationwide brand, driving up its stock price and continuing to consolidate during these tight times for capital, no one in Fort Lauderdale appears to be lacking confidence. "I truly think that this will be one of the great companies in America, not just this industry," a corporate spokesman told RER.
The industry rumor mill rarely runs as fast as it did in August 1997. That's when the story that Wayne Huizenga was starting a rental company got loose.
Industry veterans could only wonder what the equipment rental industry might look like after the man who had amassed a personal fortune of $1.8 billion rolling up the trash-hauling and video rental industries was through with it.
As is the case with most rumors, it wasn't entirely accurate - Huizenga wasn't founding the company, but throwing in seed money to help longtime friend Jim Kirk start NationsRent.
"We've been good friends for more than 20 years," says Kirk. "We know each other on a personal and a business basis. I have invested in some of his companies and he has invested in what I have been doing."
A NationsRent board member, Huizenga has little to do with day-to-day operations. His investment company controlled 3.9 percent of the company's stock at the time of its initial public offering last August, while his son's company, H. Family Investments, owns more than a quarter of the equipment rental firm.
Huizenga's association with the company has provided NationsRent with several advantages not available to the typical rental center start-up. For instance, Kirk says NationsRent was better off than some competitors when the capital markets tightened in 1998.
"We have some very strong partners in the business," Kirk says. "That is one of the valuable things about teaming up with the Huizenga organization. Even in tough times, we can access capital."
NationsRent's corporate headquarters are in Huizenga's Fort Lauderdale, Fla., high-rise office complex, which allows executives to get input on issues such as marketing, MIS and public relations from those who work for Huizenga's stable of companies, including Republic Industries.
"On the purchasing side, the senior VP of purchasing at Republic gave our purchasing manager insights on how to do things," says executive vice president Phil Petrocelli. "While we negotiate our own deals, there are certain companies we both do business with. As a result, we can buy 10W-30 oil for $2.25 a gallon."
In addition to the competitive advantages the alliance with Huizenga brings, it also puts NationsRent in a unique position: It is the only equipment rental company with a minority owner who makes regular appearances on the Forbes list of America's richest people.
The Blockbuster video chain recently began guaranteeing that certain new-release movies will be in stock or the customer gets a free rental. NationsRent is hopeful it can soon make a similar promise to its contractor customers regarding equipment.
It won't be easy - keeping a generator available for rent is a lot different from ensuring a copy of Good Will Hunting is always on hand - yet officials at NationsRent say their computer system will help them do exactly that. Still under development, the proprietary software is being designed to track customer purchasing patterns and demographics so that a branch manager knows not only how many aerial lifts are ready for rental today, but how many will be available three months down the line.
The company is also testing a system that allows customers to reserve and order equipment and access their account information via its Internet site on the World Wide Web.
"The first person I hired was a chief information officer," says executive vice president Phil Petrocelli, "because we look at systems as a long-term competitive weapon."
Those who are skeptical about what the computer revolution means for equipment rental centers haven't visited the NationsRent dispatch room at its Columbus, Ohio, hub. Responsible for deliveries throughout the Columbus area, the hub averages 52 deliveries a day.
It can get up-to-the-second status reports on each delivery using a global positioning system originally developed by Qualcomm for the trucking industry. Those working the dispatch room can use the satellite system to track the whereabouts of any of the company's delivery vehicles, which are equipped with positioning sensors. The trucks have computer terminals in the cabs that allow for e-mail-like communication with the dispatch room.
"This allows us to give our drivers instructions for their next move via computer instead of radio," says regional manager Tom Richardson. "We have captured a lot of business by being the first one on the job, and this dispatch system is a big reason we are able to do that."
The computer system eliminates the need for radio contact, which, with nearly 20 trucks, can become a frantic mess. The GPS system allows drivers to send a computer message that lets dispatch know the machine has been successfully delivered. When a driver needs directions, he doesn't have to pull over to the side of the road to write them down; the instructions appear on a monitor in the truck cab.
As a backup, the trucks carry cellular phones and radios, in case the power goes out or the system goes down.
"Recently, they had to turn the power off for four hours during some remodeling," says dispatcher Steve Bapst, "and we had to go back to the old-fashioned way. That's when we realized how much this system has spoiled us."
One advantage every small rental center has over the national players is its closeness to the customer. In many cases, a strong bond develops between customers and rental center owners and managers from years of doing business together, eating in the same restaurants and attending the same churches.
A company the size of NationsRent could never pretend to replicate such relationships, so what it does instead is study its customers - right down to the beer they drink and the cigarettes they smoke.
"We have studied our customers demographically as well as 'psychographically,'" says executive vice president Phil Petrocelli. "We try to get a real understanding of how they work and what they think."
In order to climb inside the head of the typical contractor, the company conducted blind customer-focus groups, where a representative sample of potential customers was surveyed without knowing NationsRent was doing the polling.
What they found is of interest to all companies in the equipment rental industry. "Price is important, but it comes in third or fourth with residential contractors who typically have short-term rental needs," Petrocelli says. "Price typically came in behind availability, quality of equipment and service."
Studies also found that the typical contractor is male, 25 to 54 years old, and makes between $50,000 and $75,000 per year. "They are from the work-hard, play-hard school," says Petrocelli. "When they do play, much of it is associated with sports. They watch football first, NASCAR second, followed by golf and pro basketball. And they are very patriotic."
Which may explain their choice in beer and cigarettes. "Budweiser and Marlboros," Petrocelli says.