Lease-To-Own Business Fueled By Acima Acquisition; Company Boasts Triple-Digit Growth

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Rent-A-Center, the largest provider of lease-to-own purchase plans in the U.S. said Monday (Dec. 21) that its acquisition of a virtual provider of similar plans will accelerate its omnichannel growth strategy and make its alternative financing method available to more retail partners and more credit-constrained customers.

Look behind the curtain at the announcement, however, and the story goes well beyond the typical acquisition announcement. Rent-A-Center is buying Utah-based Acima, has been the owner of an incredible growth record, even for the payments and credit business. For its part, Acima has been playing — and growing — in the lease to own (LTO) market since 2013. Its revenues are pegged to top $1.25 billion this year, thanks to over 15,000 retail partner locations through its eCommerce platforms. In 2013, the company started with revenues of $97 million.

In August, Acima’s 3-year growth rate of nearly 800 percent landed it on Inc magazine’s list of fastest growing private companies, which highlighted its “point of sale finance option that provides millions of consumers with the option to ‘buy now and pay later’ when buying consumer durables.” In 2019, it placed 64th on Deloitte’s Technology Fast 500, a ranking of the 500 fastest-growing technology, media, telecommunications, life sciences, and energy tech companies in North America. Acima grew 2005 percent from 2018 to 2019.

It was also tabbed by Utah Business magazine as the fastest-growing company in the state. Granted that’s not a tech spot on the order of New York or San Francisco, but nonetheless the growth rate shows a well-run company that has tapped into a hot market, in this case the underbanked consumer.

“The revenue growth is exciting because of what it means for our people and the local economy. We have increased our headcount by over 100 percent each year we have been in business. Our average compensation per employee has more than doubled in the past five years. These things make a difference in people’s lives, and that is the best story behind our growth,” Mike Henderson, Chief People Officer, told the magazine.

Part of the company’s success, with its shares with other players in the installment credit business, comes from its retail base. By equipping retailers to serve underbanked customers or simply customers attracted to the business model, Acima serves both the client and its customers. Many of them are SMBs. For example, the company touts its work with Delaware’s Urban Furniture Outlet, a family-owned SMB company that provides factory-direct furniture prices to consumers in the New Castle and Dover markets. Because shoppers weren’t paying cash for furniture, and didn’t necessarily have the credit to pay via card, the owners were looking for an alternative credit option. Because the Acima solution allows instant approval the chain was able to increase sales and praised the company for being able to get from application to sales contract within 10-15 minutes.

“We’re thrilled to be part of a Rent-A-Center team that’s modernizing LTO to serve the estimated over 60 million unbanked and underbanked consumers in the United States,” said Acima’s Aaron Allred. “We share [Rent-A-Center’s] vision to create the most dynamic LTO omnichannel shopping experience in the industry.”

And announcing its acquisition Rent-A-Center would add immediate revenue to the company, saying the the $1.6 billion stock and cash transaction would immediately add to earnings and also double the scope of its target market.

“In the past, we’ve spoken to an addressable market for virtual lease-to-own in the US of over $25 billion,” said Jason Hogg, Rent-A-Center’s executive vice president for preferred leasing. “We’re updating that to $40 billion to $50 billion today,” he added, noting the increased opportunity that exists in supporting a marketplace for consumer brands at stores as well as online.

LTO Vs. BNPL

Assuming the acquisition is completed as expected by the first half of 2021, the combined companies see “double-digit” earnings gains in their first year together, with the potential for further accretive earnings expansion in year two.

The deal comes at a time when consumers have shown an increasing interest in alternative financing methods, especially installment plans, also known as Buy Now Pay Later (BNPL).

While similar in that both methods provide an easier application process that’s not reliant upon credit scores, the two payment models are also different.

For example, a recent PYMNTS study of Black Friday shoppers showed BNPL was the fastest-growing type of payment, with clothing overwhelmingly cited as the most common item purchased. For its part, Rent-A-Center said its lease-to-own option is mainly used to purchase pricier items such as furniture, appliances, consumer electronics, and computers, and that it focuses on “credit constrained” consumers.

However, with numerous BNPL players like Affirm, Klarna and Afterpay aggressively adding market share and retail partners, it would seem it’s only a matter of time before the LTO and BNPL markets begin to overlap.

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