Much Room for Growth Ahead

Jan. 1, 2005
After a boom year that surpassed expectations in 2004, I sense caution when asking rental people to assess their prospects for 2005. I hear more optimism

After a boom year that surpassed expectations in 2004, I sense caution when asking rental people to assess their prospects for 2005. I hear more optimism than I've heard in a while and sometimes a positive outlook generates its own momentum. There are plenty of causes for concern when looking at the macro-economic picture, not the least of which are fears that the housing “bubble” may burst, that a weak U.S. dollar and unpredictable oil prices can affect the economy negatively, not to mention inflation fears and a spiraling deficit.

But more to the point about rental, it was a fine 2004 and regardless of how the overall economy fares, the trend toward rental and the penetration of rental is still showing that the industry has a long way to go to reach maturity. And the industry continues to show dynamic growth with new blood and fresh ideas coming into the marketplace all the time.

A couple of interesting examples can be found in this issue. Take a look at Industry News, for example. The lead story is Home Depot opening its 1000th rental department. Many industry participants originally saw Home Depot's interest in rental as a sidelight, just another necessary service to be able to provide a one-stop shop, not reflecting a serious commitment to rental as a profit center and as a primary method for contractors to procure equipment. The performance of the in-store rental departments over a decade have made it abundantly clear that Home Depot is a rental force and that rental is an important part of its business model.

I attended the opening of Home Depot's 1,000th rental department in Burlington, N.C., last month and had the opportunity to speak with a wide range of people in various store departments. I was impressed by the commitment towards rental, towards doing a good job in servicing the customer, to creating a positive rental space within the “big box” store environment. After the long rectangular shape of its early tool rental departments, Home Depot rental departments are now being designed in a more practical box shape. The result is a much more compact rental center environment, with equipment neatly displayed. I was also impressed by the quality of manufacturer that the company has chosen to go with in developing its inventory.

I can already hear the voices of some readers who will scoff. Many scoffed when Home Depot began, about a decade ago, and will scoff when it opens its 2000th, whenever that will be.

Another sign of rental industry growth is the continuing development of Volvo Rents, covered in this month's cover story. When Volvo Rents began its rental franchise program about three years ago, its executives predicted a rate of growth similar to what Home Depot is experiencing. Wisely, that has not been the case. The type of investment in a Volvo Rents franchise is such that not just anybody can take it on. A franchisee needs considerable resources to make it work and Volvo Rents management, to its credit, has recognized that not everybody who applies is a perfect fit. Volvo Rents has opted for slow and steady rather than meteoric, building a lasting foundation rather than trying to win a sprint. The franchise concept has its challenges like all businesses, but it's a well-thought-out program with a lot of growth potential.

Is rental penetration growing? All indications are that it is and further evidence is offered by Wacker vice president of sales and product support Dave Christifulli in one of this issue's Outlook interviews. Christifulli says about 50 percent of all light construction equipment sold goes to a rental fleet, and predicts that figure will increase to 60 percent in the not-too-distant future. Christifulli goes on to point out that even with the rise of consolidators, the independent rental dealer continues to bring value to construction rental. And Terex CEO Ron DeFeo, also interviewed in this issue, adds his expectation that outsourcing and rentals are growing trends because those principles are based on making the most profits out of a project. That's what it's all about in construction, which is why the growth of the rental trend is inevitable.

DeFeo adds that trends in manufacturing are, to a large degree, driven by the need for quicker response times. For rental to grow and prosper to its full potential, quicker response times to breakdowns and immediate, urgent response to customer needs must continue to be the cornerstones of rental industry practice. The industry can only get bigger by getting better.