With annual savings of $4.6 million and almost immediate payback from several critical information systems projects, Rent-a-Center Inc. (RAC) leads its industry in employing technology to generate economic advantage.
"We see IT as an investment that performs as an added value to our company," says Tony Fuller, chief technology officer with RAC, which is based in Plano, Texas. "It's seen directly, by maintaining data systems and infrastructure, and indirectly, by supporting other business units to become more productive and efficient."
Dominant in its industry, RAC tops the SearchCIO.com 200 list of consumer discretionary companies that use IT effectively. Based on an information productivity index metric from SearchCIO.com and productivity expert Paul Strassmann, the $2 billion firm gets more economic bang for its IT buck than do competitors like RentWay Inc. and Aaron Rents Inc.
"I would guess not as many people in the rent-to-own business understand how IT can be leveraged to help create a competitive advantage, as Rent-a-Center [did]," says Jeffrey Kaplan, managing director with ThinkStrategies Inc., an IT consulting firm in Wellesley, Mass.
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Rent-to-own firms typically rent big-ticket items, such as furniture, appliances and computers, to people who have the option to buy the merchandise when their rental contracts expire. While critics believe the practice gouges consumers, the seemingly recession-proof industry has grown 6.5% during the last few years, according to RTO Online, a website serving the rental-purchase industry.
RAC dominates what the Association of Progressive Rental Organizations, a trade group representing rent-to-own suppliers, estimates is a $5.98 billion market. The company was recently hammered by Wall Street, after it reported a slim 3.4% same-store growth rate in the fourth quarter and estimated growth of 1% to 3% for 2004. Still, the company owns 31% of its market and is three and a half times larger than its closest competitor, according to RTO Online.
IT plays a strategic role in this growth. Fuller and CIO Roscoe Wasko credit their IT organization's access to the president and chairman as one of the main reasons for the company's growth and success. "We're able to get feedback from the financial and operational sides, and we're integrated with both," Fuller says.
Such access would mean little if RAC's IT group produced minimal economic value. But RAC tracks such benefits carefully. RaciNet, the company's intranet-based communications system, delivers quick and measurable financial results, as well as indirect, long-term strategic advantages.
"They've recognized how to leverage and fine-tune technology to build a more profitable business," Kaplan says. "They are visionary enough to recognize the value of IT and professional enough to use IT to generate economic value."
RaciNet provides stores and field operations with instant, 24/7 access to inventory data and sales reports, and the system has a self-service human resources capability through which employees can access vacation, pay and tax information. RAC also uses RaciNet to collect nightly sales data from its stores.
The system replaced a variety of legacy networks with Internet connections in the firm's retail stores. It lets RAC "add business services that greatly accelerate our ordering, reporting and communication processes, increasing our efficiency and revenue potential," Wasko says.
RaciNet facilitates several advanced business capabilities. Stores can instantly submit orders online instead of having to fax or send them by mail, which entails delays from manual re-entry. Stores can also search store inventory to meet immediate customer demand. For their part, RAC executives can access daily transaction data instantly, which helps them make better purchasing and allocation decisions, in a more timely fashion.
After recovering within a month its $200,000 investment in six human resources and logistics projects, RAC realized even more direct yearly savings. They include $2.1 million by using online account verifications, $1.5 million by eliminating weekly overnight mailings to stores, $600,000 by using electronic inventory transfers, and $250,000 by using electronic purchase orders.
The strategic value of making RAC's electronic purchase order process more efficient far outweighs the reduction in expenses.
"Turnaround time for ordering new merchandise was reduced by as much as a week, which means we need less lead time to procure what the customers want," Fuller says. "We can provide a greater product mix by allotting floor space to other products that normally would have been filled with merchandise to compensate for the longer order time."
Electronic inventory transfers enhance customer satisfaction and inventory control.
"Getting merchandise in the customer's possession when they want it" is vital, Fuller notes. "Allowing the stores to source merchandise from other stores in their geographic areas allows them to better manage their inventory stocking levels, avoiding the cost of restocking in one location while maintaining a potential excess in another."
IT investments are clearly essential to RAC. "Information systems should be tools utilized by the corporation, not a limiting factor," Fuller contends. "The more efficient we can make the information systems, the more time users of the systems have to improve their functional areas."
Kaplan agrees, saying, "Building a bond and goodwill internally and with external organizations gives you the confidence that you can communicate with people you need to work with and rely on the system to support that communication."
RAC executives believe that the company's strategic use of technology plays a crucial role in the firm's dominance. "Companies that use IT strategically from the get-go," Fuller avers, "tend to have a competitive edge over those that look at IT as an expense line."