When Home Depot took the plunge into tool and equipment rentals back in the mid-1990s, many rental industry participants scoffed. Some compared it to ill-fated efforts in the past by companies such as U-Haul and Sears. The consensus among the doubters was that it would never be able to provide the level of service required to satisfy the rental customer.
Others disagreed. The track record of the parent company suggested that it had rarely, if ever, failed at any endeavor it put full effort into. If past history indicated that “big-box” rentals were doomed to fail, Home Depot would be the one organization that might figure out a way to do it right.
A decade later, it would probably be safe to say that Home Depot, now with 930 rental locations as of mid-August, and revenues placing it at No. 7 on the RER 100, is here to stay. Other similar programs involving rental departments such as NationsRent's rental departments within Lowe's stores; Do-It-Best hardware stores; Ace Rental Place, located inside Ace hardware stores; and TruServ also have grown significantly and are well-established segments of the rental landscape.
Rental departments have succeeded for a variety of reasons. Clearly, the need is there as the concept of rental takes hold in an ever-growing segment of the populace. Foot traffic is another. As tens of thousands of people shop daily in home-improvement centers and hardware superstores, rental has become a convenience. Since those people are already in a huge store where they can pick up materials and supplies, why not rent a tool or piece of equipment and avoid making an extra trip to a rental center?
In the early years of the Home Depot program, many observers felt the company was, essentially, testing the concept, dabbling in rentals to determine whether or not it wanted to jump in with both feet. It hired Tom McCormick, a rental veteran from Canada's Stephenson's Rent-All, to develop the program. And somewhere along the way, rental sources suggest, Home Depot discovered rental was more profitable than its management even expected. Its commitment increased and its influence within the company grew, along with the presence of executives such as Joe Dixon, vice president of pro business and equipment rental. Dixon brought the program to a higher, more dynamic level and brought in more executives with rental industry history.
Home Depot Rentals and the other programs have exposed many to the experience of rental for the first time. Home Depot's strategic cooperation with its conveniently placed pro desks has not only brought the professional customer to increased rental activity, but the synergy has influenced smaller contractors, many of whom had been content to purchase less expensive and durable consumable tools, to a reliance on more heavy-duty items that would traditionally be found in established rental centers. As these contractors discover it makes more sense to buy or rent longer-lasting more durable tools, they are, therefore, more inclined to rent rather than purchase less expensive items that require more frequent replacement.
While Home Depot has traditionally attracted DIY customers and smaller contractors that large national rental chains such as United Rentals, Rental Service Corp., and Hertz tend not to do much business with, it raises the quality level of its product offering and rents small earthmoving and aerial items, moving Home Depot Rentals into the lower levels of the nationals' customer base. Nations-Rent at Lowe's, with its ability to access NationsRent's fleet, also has the opportunity to chip away at that market segment.
Although the growth of home-improvement rental programs will not replace smaller rental centers that are oriented more toward the homeowner and light contractor segments of the business, they are certainly making an impact. As one manufacturer points out, if a rental center loses, say, $5,000 a month in business to rental departments, many will find ways to replace that income by adding other services or product lines, and some may not even miss it. However, for some rental centers, especially those in smaller communities with relatively fixed customer bases, that $5,000 may be irreplaceable, and for those struggling on the edge, that income could tip the scales making it impossible for them to survive.
Other programs besides Home Depot have been successful as well. Ace, which now has about 460 Ace Rental Place co-op rental departments has been adding about 70 departments a year since its inception in 1994. Do-It-Best last month celebrated the opening of its 500th rental location, and having launched its program around the same time, has been expanding at a similar rate. TruServ, formed by the merging of Servistar and True Value, has had a history of success with the Grand Rental Station and Taylor Rental brands, which have been on the scene for decades.
Retail-center rental is clearly here to stay. Home Depot has 930 locations at press time and will have more than 1,000 by year's end. Industry observers suggest that Home Depot's recent acquisition of White Cap Construction Supply will fuel its rental growth even more. NationsRent is committed to growing its home-improvement rental program and the growth of Ace, Do-It-Best and others is likely to accelerate as business conditions continue to improve. Other home-improvement retail organizations have experimented with rental, both in the United States and internationally. While some are experiencing success and some are not, the likelihood is that we'll hear of others entering the market in the years to come.
RER INTERVIEWS JOE DIXON, HOME DEPOT VICEPRESIDENT, PRO BUSINESS AND EQUIPMENT RENTAL, AND NATIONSRENT CEO JEFFPUTNAM.
INTRODUCING CUSTOMERS TO RENTAL
RER: How rapid is the current growth of Home Depot Rentals?
Dixon: We have more than 930 locations today and are estimating we'll end our year with close to 1,100 tool rental centers in our stores.
Are many Home Depot Rentals customers new to rental and therefore are you expanding the size of the rental market?
I believe we are introducing new customers to rental. We're always doing customer research to evaluate the perception of our services we offer. We emphasize that at Home Depot we have the capability to sell the entire project for the home and tool rental is an important part of that process.
Many of our customers are DIYers who might not have done any project before. Our tool rental centers help enable those projects.
You recently began testing skid-steer loaders and mini-excavators and items of that size in some markets. Will that increase?
Yes in selected markets, and we are continually looking at new ways to expand and diversify our fleet mix.
Your Web site offers the opportunity to special order heavy-duty tools and equipment?
We have the ability to special-order tools that aren't sold in stores, although some items are similar to what we carry in our tool rental centers.
HERE TO STAY
RER: How many NationsRent at Lowe's stores are there?
Putman: We have 99 NationsRent stores located on Lowe's sites. One more will open in 2004. The number of stores has remained constant for about a year, consistent with the completion of the original alliance agreement.
Are these rental departments profitable and are they expanding your customer base?
These locations are generally very successful. We are very pleased with their performance to date. We do think that there is a DIY component to the customer base that would have been more difficult for NationsRent to access effectively through our traditional store model.
What are the largest items available?
We have taken a more customized approach in the past year. The rental fleet is tailored to each specific market as opposed to a standardized inventory for each store. Accordingly, the largest piece at each location varies, but in general we top out with a backhoe or a 25-foot scissorlift.
Do you have delivery capability at Lowe's stores?
There is definitely some level of delivery at each store. It varies with the store fleet mix and the proximity to a “hub” NationsRent that can provide delivery support. But a customer can order anything that NationsRent offers at any location.
What about repairs?
We perform minor repairs on site and major repairs in the larger stores as a general rule. Again, it varies by market and by customer need. We perform repairs at the customer's jobsite when necessary.
How does the arrangement benefit Lowe's?
We believe Lowe's benefits in many ways. Having rentals available onsite makes the shopping experience more seamless. The feedback we receive from customers is very positive. They tend to view it as a one-stop-shop.
How do you see this program developing over the next few years?
We really can't speculate on Lowe's strategy. NationsRent is very enthusiastic about this segment of the market and we are in it to stay. The DIY and light contractor market is very well suited to our capabilities. Our intent is to continue to develop and grow this segment of our business.