Buy, Don’t Rent

Today in Tedium: Spend the weekend buying junk in honor of Black Friday and Cyber Monday? Lucky you. Whether your addiction of choice was Michaels, Macy’s, or Massdrop, hopefully you found just the right kind of crap. Of course, one of the key ways to sell crap is to draw people in with a TV, a laptop, or something else that’s shiny with a screen. But what if you’re trying to simply make ends need and you need a TV set or furniture? One popular model for getting such equipment is through a rent-to-own service. But those kinds of firms—including the best-known, Rent-a-Center—carry a long shadow. But it wasn’t always that way. Today’s Tedium highlights the ups-and-downs of renting to own. Where we’re going, we don’t need credit. — Ernie @ Tedium

Today’s GIF comes from a 1989 Rent-a-Center commercial.

A decommissioned Radio Rentals location. (Hazel Nicholson/Flickr)

Rent-to-Own before Rent-a-Center: How British people got TVs and radios

For a lot of Americans, we think about appliance rentals in terms of (specifically) the chain Rent-a-Center, a company that has gained a reputation of offering appliances and furniture to people at a weekly or monthly cost—but one that, if you break it down, is an asking price well above its market rate.

But the key word here is “Americans.” See, this model didn’t actually start in the U.S. Its roots are actually in the United Kingdom, particularly around the 1930s.

The first firm of its kind, called Radio Rentals, came to life in 1930, the work of Percy Perring-Toms, a Brighton, England-based radio dealer who saw that it might be appealing to consumers to rent radio sets rather than purchasing them outright. The company grew quickly—by 1936, the firm had gone public and had tens of thousands of customers.

One secret to its success was a vertical business model—not only did Radio Rentals rent out the radios, but during World War II it eventually owned one of the country’s main radio manufacturers. But beyond that, it also benefited from the high cost of radio ownership at the time. Buying a radio was expensive; renting a radio, while still expensive, was much more manageable. And in an era before credit cards had taken over, it was an attractive model for a wide audience of people.

But it was another invention still making its way out into the world that would make this model truly reach its full potential. On January 26, 1926, John Logie Baird successfully demonstrated his version of the television set, a medium that would come to dominate 20th century culture in a way perhaps only comparable to the car.

Lots of people would eventually want one, and after World War II ended and television broadcasts went back on the air in the UK, Radio Rentals became a popular way to get one. The brand name for many of the TVs they eventually sold? Baird.

Radio Rentals became a big hit TV renter, despite its name. (The UK, of course, has a long tradition of successful companies with outdated names.)

(Bradford Timeline/Flickr)

The model was hugely successful in the country, as it was believed to be more efficient to rent a television that could eventually break down or run into problems than to buy it outright. A 1962 Time Magazine article marveled at the concept, which was nothing like the way that televisions were sold in the U.S. at the time:

The British believe that rented television has notable advantages, even for those who could well afford to buy. Rental companies carry a wide variety of sets (one firm offers a choice of 32 new models at rentals ranging from $4.20 to $8.40 a month and 17 used models at even lower rates) The monthly rent that a “subscriber” pays is reduced every six months for the first few years that he continues to keep a set, and discounts are given for advance payment. Best of all, subscribers have no difficulty getting faulty sets repaired or replaced at no charge. The larger rental companies maintain mobile repair vans with parts, test benches and generators; one firm handles 30,000 service calls a week.

How popular was TV rental in the UK at the time? Per the Time article, 80 percent of British television sets were rented at the time, compared to less than 1 percent of American sets. And those U.S. sets were mostly rented by hotels.

Eventually, the company (which merged with the consumer electronics giant Thorn Electrical Industries in 1968) expanded its reach beyond even televisions, to all kinds of consumer electronics. CD players? Camcorders? They had it at this High Street chain.

To give you an idea of how mainstream the company was at one time: As Max Headroom was trying to sell the public on New Coke in the U.S. in the late 1980s, he was trying to sell the British public on Radio Rentals.

The company eventually faded from view at the turn of the 21st century, just as computers, the internet and flat-screen televisions were threatening to change its business model for good.

The company still lives on in Australia and New Zealand, but it’s arguable that its torch is truly carried on by U.S. companies that put their own twist on the rental concept. Like Rent-a-Center.

(Mike Mozart/Flickr)

The dark side of rent-to-own: Why the model became problematic in the U.S. market

Hearing the horror stories about Rent-a-Center—and there will be more in this text, unfortunately—you wonder if something got lost in translation between the British market and the American one.

Why did a model like Radio Rentals become so widely accepted by such a large swath of its country’s population, while Rent-a-Center carries such a stigma nowadays?

I think, if I had to nail it down to one thing, the factor that changed the dynamic of the rental model was credit. There wasn’t much of it in 1930s Great Britain, and it took a while for credit to become a serious consumer force—which it did well after the start of the television era.

Credit cards, of course, took a long time to reach their mainstream potential, and perhaps didn’t do so until the 1980s. And those who received credit had more buying power and could purchase something like a dining room set or a TV without having the cash on hand.

The 1980s, of course, were when rent-to-own places were starting to blossom. So how did they handle this dichotomy? Simple—these companies started to focus on those without credit, or those with bad credit. They need dining room sets, too.

And because Rent-a-Center or one of its competitors is taking all the risk, that means they can set the price wherever they want.

The model, of course, is very similar to the payday loan model, but it also involves a television set, or maybe a laptop, rather than literal cash.

Some context regarding what that means: Here’s a TV at Aaron’s, one of Rent-a-Center’s biggest competitors. It’s on sale for $82.99 per month, plus tax. It’s yours in 24 months, at a total cost of ownership of $1,991.76. Here’s the same TV, with the same SKU number, at Best Buy. It’s also on sale, for $799, down from its normal price of $1,099.99. Even taking the sale price out of it, as a consumer, you’re paying Aaron’s more than $800 extra for the right to let you pay in 24 months.

It should be noted that Aaron’s has a better reputation with the Better Business Bureau than Rent-a-Center does—though even Aaron’s has seen some controversy around its business practices. But this is an easy model to punch down with, and a lot of consumers struggle under its weight.

A 2008 New York Times article by Jim Dwyer puts the point in stark terms, noting that a deal such as that for the TV above “is much like a subprime mortgage for pull-out sofas and television sets.”

And it gets worse.