I have been thinking a lot lately about consumers and the overall state of consuming. It is no revelation that we are a nation of consumers and that, on the whole, we cannot afford the lifestyle that we have been promised in commercials. We are in massive debt, both as a country and as individuals, and that the most basic needs for many Americans are not being met. If millions of people cannot afford such things as homes, cars, healthcare, etc, it will be interesting to see what services emerge to cater to this trend.
I think we could be entering the new golden age of renting. Renting makes financial sense when the total cost of leasing of a particular good is less than the total cost of owning that good. This is why it made financial sense for so many to own rather than rent their homes- when you factored in the tax incentives and the 20% average annual increase in home prices, people made money. Now that the housing market has cooled and will not likely return to such lofty gains, renting makes more sense for many.
Remember Rent-A-Center? The company, which offers name-brand furniture, electronics, appliances and computers through flexible rental purchase agreements, now does close to $3B in revenue a year. It owns and operates more than 3,000 stores in all 50 states, Washington, D.C., Canada, and Puerto Rico. Even Warren Buffet is a believer in the hard-goods rental market, having shelled out $467MM for furniture rental company, Coit, in 2000.
There are several interesting online renting models that have (or will) become sustainable, profitable companies:
1) GameFly (Games): Console-game renting service for over 7,000 titles and across every platform. It has free shipping and is a perfect solution to the use case around perishable products (there is a shelf-life to new games). Doing close to $100MM annually and just filed for an IPO.
2) Zipcar (Auto): Car share service, Zipcar, was founded in 2o00 and, according to Wikipedia, is now the world’s largest car-sharing service, sharing 6,000 vehicles between 275,000 drivers in 49 U.S. cities, Vancouver, Toronto, and London,- representing almost half of all car-sharers worldwide. It has raised close to $70MM from Benchmark, Greylock, angels and GE.
3) Netflix (Movies): What is most interesting to me is not the old school DVD-by-mail renting service, which has been a terrific business, but the streaming capabilities. As of today, Netflix says more than half its customers are opting to watch movies/TV shows instantly from their computers or on their TV’s. Whether or not Netflix is the winner here, there is no doubt that we are hitting the tipping point of streaming vs. renting movies.
4) Chegg (Textbooks): Chegg, founded just 2 years ago, allows students to rent textbooks rather than being forced to own them. Funded by Mike Maples, this company is going gangbusters and will be one of the most compelling stories of the Golden Age of Renting. I suspect Chegg could be a $100MM a year business by 2011.
5) Rent The Runway (Fashion): This company just launched, but it makes so much sense. RTR provides a service where women can rent the latest fashions for a 10% of the cost of owning. Have a wedding or formal event to attend and want to look like a million bucks but can’t afford it? You can rent a Diane Von Somethingorother for a few hundred bucks and then return it after the party. I have no idea if the company can execute but the concept seems aligned with the way women do this already…they just return it back to the store and pray for no red wine stains.
I will be spending some more thinking time in this arena, so please let me know your favorite rental businesses.