March 1, 2002
Shortly after British rental giant HSS purchased RentX Industries last July, president Lister Fielding and chief executive officer Carlo Cavecchi personally

Shortly after British rental giant HSS purchased RentX Industries last July, president Lister Fielding and chief executive officer Carlo Cavecchi personally toured branches to introduce the company's third ownership change in 25 months. “One manager told us he had heard it all before,” recalls Cavecchi. “I said to him, ‘not from us, you haven't’.”

That statement sums up the assured individuality of a company more focused on doing its best than on besting its rivals. From its first footsteps in Florida six years ago, HSS has resolutely refused to be swayed by anyone's expectations but its own. “We were not willing to expand into America at any price,” says Fielding. “We looked at RentX in the late 1990s but decided that acquisition prices were driven unrealistically high by the heat of consolidation. We decided to wait for a time when the business represented better value before acquiring it.” Getting that timing right “is easily said and harder to do,” Fielding notes. “There has to be a willing seller at a time that coincides with your objectives.”

Those stars aligned in mid-2001 when acquisition activity had noticeably cooled and HSS was satisfied with the performance of its 14-store South Florida test cluster. Balanced against that, says Fielding, “there had to be some expectation of recession, even before September 11.” HSS's parent, Davis Service Group, acquired RentX's 74 outlets from Saint-Gobain of France for about $52 million; roughly half the chain's purchase price two years earlier, and $11 million less than RentX's reported 2000 revenues. It was, in Fielding's words, “a well-considered vote of confidence in the quality of the American rental market.”

Translating culture to scale

By all accounts, HSS has wasted no time in garnering lessons from South Florida and applying them to a broader scale. Cavecchi, CEO of the Florida operation, has now assumed that same position nationally. Fielding, the British-based managing director of HSS's worldwide operations, moved to HSS RentX's Denver headquarters for the first six months post-acquisition, where his presence indicated the depth of the company's commitment to the United States market. It was an immensely reassuring gesture to branches that “had been promised a great deal, but received very little” from prior owners.

By contrast, the effects of HSS ownership have been immediate and pervasive: seven new additions to the corporate management team, the opening of a flagship location in downtown Denver and a near-$20 million investment in new rental fleet to date. The Florida cluster has been fully integrated and two branches have been consolidated with nearby locations, bringing the total network of stores to 86 as of year-end. Where RentX encouraged equipment sales by its branches, HSS RentX has discontinued this practice entirely, preferring instead to concentrate strictly on its core competency of tool and small equipment rental.

That competency is born of 40 plus years' sole focus on the rental business, with a rental pedigree that extends to British market leadership and a total of more than 600 locations in 11 countries. Nevertheless, the HSS name is virtually unknown in America outside of Florida and the company doesn't underestimate the brand-building effort that lies ahead, says Fielding.

“We anticipated that the change of ownership could have an adverse impact on customer perceptions, particularly in those markets where a RentX store was well established. We have retained ‘RentX’ in our logo to maintain name stability and to avoid further customer uncertainty,” he explains. “We also happen to think that it is a very good name.” The company has embarked on an aggressive national public relations program, and is currently in the process of rebranding all stores with HSS RentX signage.

“In the United Kingdom, the strength of our HSS brand helps us in a number of ways: from ease of new product introduction and division launches to the ready adoption by customers of new HSS locations,” Fielding says. “Suppliers also place a high level of trust in HSS and are ready partners to do business. We realize that the lack of U.S. market coverage and our newness in the marketplace mean that all these comfort zones must be worked for and earned over time.”

The most pressing challenges, however, are what Fielding describes as “selling the cultural change, which is considerable, and coping with the speed of change we have set for ourselves.” Within 90 days of buying RentX, HSS had banished the fragmented rental rates held over from individually acquired stores and instituted a standardized rate system that recognizes major market differentials while retaining as much consistency as possible.

“In the past, RentX would acquire a business and change the sign over the door,” notes Fielding, “but very little else would change. The branches were running on information technology that instituted few disciplines in pricing, inventory control and operational policies. We implemented our own Wrench® computer system throughout the network in fourth quarter 2001 to instill the disciplines necessary to a well-run, profitable network of stores. We didn't expect this to be easy, and it wasn't. There is always some measure of pain with change at the beginning but the payoff, when it comes, will be considerable.

“There are a multitude of other changes, of course — some large and some small. Most of these are well-honed operating policies tested in our U.K. operation and designed to run the business in a more cost effective and customer responsive manner. They agglomerate into an enormous cultural difference. It is our job to communicate that culture, make it cohesive, implement the proper IT disciplines, and train the people in our stores to understand how closely the running of a branch ties to the running of our business as a whole. Change is easy when you're the change-maker, and tough when you are being asked to change. We are heartened by the resilience of our staff so far.”

Cultural touchstones like “discipline” and “innovation” repeatedly come up in conversations with HSS RentX management. “We try to measure ourselves against ourselves,” explains Cavecchi. “We are always working to create something completely new and better. The HSS culture is disciplined, but at the same time it's very dynamic. We say: now that we've achieved this, let's immediately start working on that other product or service to further differentiate ourselves to our customers. In the U.K. where HSS is well established as an industry pace-setter, we tend to see spurts of competitive attention directed our way. This is not the same thing as having a philosophy of continuous innovation.”

Educating the market

HSS RentX's rental rates have been reshaped to conform more closely to the U.K. rate structure, which builds a relatively higher rate into the shorter term. “This is the right way to price the tool rental business,” says Cavecchi, who shepherded a similar rate change in Florida. “It's a case of educating customers about the rationale behind the structure. When a piece of equipment is returned from a one-day rental, we clean it, test it and maintain it just as thoroughly as if it had been out for a week or a month. The cost of that is assigned up front, and becomes amortized over a longer term. Most customers can see the benefits in this.

“Every piece of equipment that comes back from a rental is thoroughly checked out by what we call our ‘test-and-run’ process,” explains Cavecchi, who speculates that some other rental companies may perform similar services but “not as rigorously or as consistently as we do. Our test-and-run procedures are individually defined for each product category. They may include manual inspection, electronic diagnostics, parts inspection, simulated operation and any number of other steps. Some rental companies look at the customer as the test-and-run guy. We don't. Nothing leaves our premises unless it has survived test-and-run, no matter how briefly it was used by the customer. There is no discretion allowed.”

When asked whether HSS RentX gives individual branch managers autonomy to override rates Fielding responds, “We don't encourage our employees to undersell the value of our service. And we are not interested in cutting prices to gain volume. We'll leave that to other rental companies with more charitable inclinations. Our objective is to be the market leader in terms of quality and practice, even if we are not in terms of size. As it happens, we have the largest market share in our business in the U.K., but that is a mature market. Share becomes less important when supply exceeds demand, as market leadership may result in lower margins being sought to retain market share. For us it is all about service, and about winning the loyalty of those customers who respond to sincerity of effort.”

HSS RentX offers delivery and damage waiver services, for which it charges. “In the rental business, your product is your service,” says Fielding. “The right product is worth nothing to the customer unless it's in the right place at the right time.” The company is a devout believer in training, both for customers and for employees. “We instituted our employee training regime right from the start in Florida. Our philosophy is to invest in quality people and help them advance to their full potential within the company. We prefer to promote from within whenever possible.

“For customers, our U.K. business provides training both at the counter and in the form of operating and safety guides. We are racing to complete American versions of these guides for all our product lines. We also hope to introduce customer training sessions similar to the programs we run in the U.K.”

Fielding declines to comment on which inventory lines are most profitable for HSS RentX but notes that “we focus on dollar utilization. With a diverse product range, that's what works.” Recent fleet investments include substantial deals with Upright, Kanga, Hilti and EDCO, and the introduction of Boss aluminum towers sourced from the U.K.

HSS RentX management will rely strongly on its IT system to evaluate revenue performance in a consistent way. “We're not going to invest in equipment without a clear understanding of what works and what doesn't,” says Fielding. “Our money will always go where it is likely to earn the best rate of return.”

HSS RentX's equipment locations draw on three main revenue streams: light construction/remodeling, facility management and homeowners. Its competitors primarily fall into the categories of independent rental outlets and big box retailers like Home Depot, both of which carry a more limited rental product range. Fleet diversity, says Fielding, is a unique selling point of HSS RentX. “Within the scope of our business we are determined to stock the widest possible range available. We stay away from earthmovers and the larger categories of equipment. If a customer wants the convenience of one-stop shopping and cannot devote the time to tracking down an item for rent, we are very happy to undertake that on his behalf.”

The acquisition of RentX has given HSS a higher profile with American suppliers interested in exporting product to the U.K., and exponentially increases the company's purchasing power on both sides of the Atlantic. With standardized international pricing in its sights, HSS knows it is now playing with an even stronger hand. “Some of our suppliers are quite small compared to our own operation,” notes Fielding, “We end up giving them help in the form of prepayments, investments into product molds or software, help with parts distribution channels and the like.”

The HSS RentX rental fleet represents a mix of European and U.S. manufacturers honed during the company's test run in Florida. How brand-sensitive is the American customer? “If a customer chooses us for the right reasons — availability, quality and service skills — the ‘brand’ is HSS RentX,” notes Cavecchi. “That being said, we can see the value in stocking American brands that our stores have grown up with and can comfortably identify with. This matters more with the bread-and-butter products than it does with product innovations. For example, in the U.K. we stock a rugged vibrating plate with a folding handle. It fits easily in the trunk of a car and can be lifted out without expending a lot of strength. Should we decide to introduce this product in America, the brand would be overshadowed by the practical advantages of the product itself.”

Seven HSS RentX branches are dedicated to special event and party rental, and these have found an unexpected benefit in HSS's special event experience overseas. Many of the company's most popular product lines are now stocked by HSS RentX Special Event Rental branches, where “customers find the European styling of china, glassware, cutlery and furniture refreshing,” says Cavecchi. He anticipates growing the special event division to 10 locations in the near future.

Contemplating the America pie

Growth, of course, is the question. HSS RentX is now the largest North American chain in its particular rental segment, but at 14 states its presence falls short of true national dominance. “America is a very important market to us insofar as it conforms to our overall growth objectives,” notes Fielding, adding, “We'll expand according to our own strategic pace, where and when it makes the best sense to do so.”

Cavecchi expands on that sentiment, stating that, “this is the year to get our arms fully around the business, continue to identify its strengths, and weave them into the strengths of our U.K. operating policies. The Florida experience has given us a tremendous jump start in that we have already worked through many of the necessary adaptations to our formula.” Nevertheless it would be incorrect to define 2002 strictly as a year of internal focus he says, noting that, “we have specific network growth objectives to reach by 2003, and we are on track with site selection.”

The company declines to share target numbers for its tool rental business, but is likely to build on its presence in established markets, at least initially. This coincides with the British hub-and-spoke model, which drives utilization through inventory sharing and derives cost efficiencies from centralized maintenance and distribution. Colorado currently boasts the largest number of HSS RentX outlets at 18, while Northern California, Southern California, Florida and Michigan have substantial clusters as well. HSS is known in the U.K. as favoring organic or “greenfield” growth over acquisition.

And so the world's largest tool rental chain has now harnessed itself to the world's largest rental market with experienced hands. “We want the U.S. business to be truly national in coverage,” confirms Fielding. “That would make it a much bigger business than our U.K. business. We also recognize that America is the most innovative and dynamic market in the world. From here, we will have lessons to take back home and strengthen our business in Europe.”

Lucy Peterson is president of Balboni Associates, Springfield, Mass., and a frequent contributor to RER. She can be reached at [email protected].

Lister Fielding is president of HSS RentX (USA) and managing director of HSS (U.K.) worldwide operations. Highly experienced in retail prior to joining HSS in 1989, he is credited with building a formidable rental network that now spans eleven countries. “Customers are attracted to a business that gives them a consistently satisfying experience, even if the outlets are hundreds of miles apart,” he says.

RER: What is your personal philosophy in regard to rentals?

Fielding: Apart from the obvious economic benefits of rental, it is also inherently friendly to the environment, as sharing resources means that you need fewer resources to satisfy a given level of demand. In addition, diligent product care and maintenance on the part of the rental company can make rental safer than ownership in many respects. Rental applies the best possible tool to the job, so that you don't have to ‘make do’ with the tools you own. So I am fortunate to be working in an industry that is helping others to achieve success in an efficient, safe, cost effective and environmentally friendly manner.

Have you worked with people who have influenced your business philosophy?

I have a great team of people I work with, and they help shape philosophy day by day. HSS had a branch manager in the U.K. (now retired) named Frank Wilding. One day Frank became concerned that a customer hadn't fully understood the instructions for a floor sander. When he locked up the store that night, he stopped by to see the customer and lend a hand. We can all learn from people like that. That's service from the heart.

Outside the rental business I had the good fortune to work with a man named Selim Zilkha who founded a company called Mothercare in the United Kingdom. He had complete integrity and a passionate belief in information technology.

How aggressively will you be expanding the number of HSS RentX branches?

We are currently looking at potential sites to grow the business organically in the areas served by our major store clusters, and we don't discount the possibility of acquisitions as part of our expansion strategy. The first real task, however, is to get the culture and performance of the business to be consistent, and to instill the disciplines and the commitment to quality that are characteristic of our U.K. operation. On a purely practical level, we could double or triple the size of our existing business and not move out of the states we already operate in.

Has the condition of the U.S. economy been a concern?

The issue of the recession is almost irrelevant to us because we are making so many changes at the moment. We are currently engaged in a program of cultural change that will mean long-term benefits. It is difficult to estimate what our business levels would be right now if there was no recession. This is actually a good time to start a business — if you can build a business in a recession, you can certainly build it in a healthy economy. We are getting all of our ground-breaking done at a very good time.

Carlo Cavecchi has assumed the role of HSS RentX's chief executive officer after holding that position for five years in the company's Florida operation. He started as a driver for HSS 16 years ago, then progressed rapidly through a series of branch manager, area manager and regional director positions in the U.K. “Rental gets in your blood,” says Cavecchi. “I know it's in mine.”

RER: What do you like best about the rental business?

Cavecchi: The rental environment has a spirit about it that is quite exciting. Some of that comes from the fact that you own the whole aspect of the business performance: you must earn the inquiry, convert it to an order and then deliver on the promise of that order to earn future business. There is a lot of personal commitment to be found in any well-run rental business. It can be very demanding, but it's also very satisfying.

How easy or difficult was it to translate the Florida experience nationwide?

A great deal of our learning curve in South Florida applies to HSS RentX, although there are major differences between some of our markets in terms of customer profiles, competitive activity and the overall business climate. And some of our stores are outside metro areas, which differs from Florida. There were a few unhappy surprises when we first operated in America — the enormous difficulty in securing permits compared to the U.K. comes to mind! — but it was invaluable to first experience those things on a smaller scale. We want to grow the business in the right way and, yes, do it as soon as possible, but it must be grown within the context of our company-wide objectives and culture.

Did you have a sense that the RentX organization would be a good philosophical fit before taking the plunge?

We visited almost every branch before finalizing the acquisition and we could sense that this company wanted to be number one, it wanted to be a winner. In many cases the branches had achieved one-by-one leadership within their local markets, but the network lacked an integrated team philosophy. We made this one of our first priorities. Most important, we felt very strongly that these were rental people who cared about the business as much as we did.

You've had nine months to familiarize yourself with your American employees. What are you most proud of?

First, I'm proud that our employees so obviously believe that they are offering a valuable service to their communities. If you believe that you do something valuable for a living, you are going to succeed. And I'm proud that they have been so accepting of change, and so enthusiastic about HSS's involvement, particularly given the history of RentX over the past several years. I think this may be because we are a rental company built by rental people, and are an industry leader. We don't sell wood or windows. Rental isn't a hobby to us — it is our one and only business.