- 7 September 2015
- Consumer Credit
By Frank Proud
Apex insight has just published a new edition of its report: Rent-to-Own Retail Market Profile and Forecasts.
Rent-to-own, or rent-to-buy retail is a fast-growing segment in the UK, expanding to take up some of the increasing degree of slack on the high street. The rent-to-own retail market consists of high-street shops and online retailers selling larger items along with a credit package which, by spreading payments over a year, is designed to make them affordable for lower income buyers. Categories of items commonly sold include computers / technology, audio / visual, furniture and domestic appliances.
A rent-to-own agreement is a form of secured loan with the goods generally remaining the property of the seller until the final payment is received and a provision for them to be recovered if payments are missed.Loan periods are generally from 1-3 years with an APR of between 30-70% being typical.
The rent-to-own retail market has grown quickly in recent years. Market growth has mainly resulted from store roll-outs, driven by a series of trends which have coincided:
– A significant increase in the number of customers in the sub-prime segments as a result of the economic downturn
– Significant reduction in the appetite of the mainstream banks for serving such customers
– A favourable regulatory environment in the UK
– Retreat of many other categories of retailers from the high street which has enabled some attractive locations to be obtained on favourable terms
The leading companies in the sector are all private-equity owned:
– Caversham, which operates the BrightHouse chain and is owned by Vision Capital.
– Perfect Home, whose shareholders include Cabot Square Capital as well as a leading US rent-to-own operator, Aarons, Inc.
– Buy As You View, based in South Wales, which operates an internet based model and is owned by Rutland Capital.
These leading operators have continued to grow both in terms of revenue and store numbers, although at a slower rate than prior to 2014.
The prospects for the rent-to-own retail market depend to a large extent on the four key drivers outlined above (numbers of target customers, appetite of mainstream lenders to provide alternative forms of credit, regulation and availability of sites). While each of these areas has specific uncertainties and risks which are examined individually and taken into account in our forecast, indications are that overall market conditions are likely to remain favourable and support further store roll-out.
The key area of uncertainty is around regulation. These retailers are frequently criticised for imposing a combination of credit terms and insurances which leads to items being significantly more expensive than via other channels. However, rent-to-own retailers argue that, for many consumers, they make it possible for them to obtain goods which would not otherwise be accessible to them. The FCA is currently reviewing the area, following a study carried out by the All Party Parliamentary Group for Debt and Personal Finance which identified aspects of the market as problematic and in need of tighter regulation. It is possible, but not certain, that the FCA could introduce tighter regulation which could have an adverse effect on the rent-to-own retail market.
The report, Rent-to-Own Retail Market Profile and Forecasts has a free-to-view summary, along with a full table of contents.