TECHNOLOGY GAPS BETWEEN RETAIL AND RENTAL NARROWING

Technology gap “no longer exists and the products that we carry are essentially on par with those at retail,” UHR Rents Pres. Ernie Lewallen told us in interview at APRO show. Narrowing of differences between distribution channels also is linked to decline in prices. While digital TVs once were outside range of RTO market, falling prices have brought them to within $30-$40 weekly fee typically charged for analog sets. And while PCs also once were expensive item, some dealers have hit $19.99 weekly fee based on 78-week contract for model bundled with Windows 98 operating system.

Leading charge on PC side has been distributor BDI-Laguna, which recently was named exclusive retail distributor of new Compaq-Hewlett Packard (HP) desktop and notebook PCs. Compaq Presario desktop line that BDI is carrying doesn’t approach Intel Pentium 4, 2 GHz and up processors now popular at retail. Instead, it’s confined to Intel Celeron processor operating at 1.3 GHz at entry level ($719 dealer cost) and topping out at model with Advanced Micro Devices Athlon chip with 1.4 GHz ($869 dealer cost). Hard drive capacity is in 40-80 GB range and entry-level piece has 24x CD-RW drive, while high-end has 16x DVD-ROM and CD-RW. BDI rival Alliance Computing Technologies (ACT) is shifting to target build-to-order (BTO) business for RTO under HP or Compaq brands and is offering Compaq desktop with 1.7 GHz Intel processor, 20-40 GB hard drives, 128-256 MB DDR SDRAM and 16x10x40x12 DVD/CD-RW or 40x10x40 CD-RW drives. “We're not saying ‘here are your specs,'” said Michael Bertolani, ACT product and channel development mgr. “We're asking, ‘What do you want?'”

Third competitor, Louisville-based Computer Spectrum Inc. (CSI), emerged at APRO with Premio-brand desktops. Dealer costs range from $599 for 1.2 GHz model, 54x CD-ROM drive, 40 GB hard drive, 128 memory and 15” monitor to $799 for unit with 1.7 GHz, 40 GB drive, 256 MB memory, 16x10x10x12 DVD/CD-RW combo drive and 17” monitor. Premio, which is established brand in educational market, is handling assembly of desktops for CSI on BTO basis, CSI Mgr. Mick Watts said. Premio desktops are largely going out on 12-month contracts carrying $30-$35 weekly fee, about middle of market. At top end, RTO Enterprises has advertised Dell model with 900 MHz Intel processor, 20 GB and 128 MB at $49.99 weekly fee on 104-week contract.

Arrival of 3rd PC supplier for RTO comes as market appears to have reached plateau, said Rent-Way Gen. Counsel Ronald DeMoss, whose chain has exclusive agreement with Gateway and has about 100,000 desktop PCs on rent. Other retailers have tried to mix strategies. Bloomington, Ind.-based Full-O-Pep uses Commspec, company started by former employee, to assemble nonbranded PCs for 28 of its stores, while selling HP through another 12, Pres. David David said: “This has helped us manage the inventories, and Commspec is there in the market to provide the service.” Bertolani said that still waiting for RTO home were notebook PCs, although ACT planned to have HP model in fall with 1.4.-1.5 GHz processor, 20 GB hard drive, CD-RW/DVD drive and 14.1” LCD. Much of notebook action will dictated by drop of retail prices below $1,000, BDI official said. Notebook PCs “are right on the edge right now,” said James Jacobs, pres., C&R Rent- to-Own. “I have a couple of customers out there with them that I've done business with for years and I know them and trust them. It’s best to offer them to people you know, otherwise you could suffer the consequences.”

Another clear example of RTO’s gradual emergence as channel for new technology was Sony agreement with Dallas-based Welton to distribute its products starting with shelf system and home- theater-in-a-box ($850 dealer cost), adding 27” ($500) and 32” ($750) flat-screen direct-view and 50” ($1,800) in fall. Home theater product consists of Sony A/V receiver, 5-CD changer and dual cassette deck paired with Welton’s Techwood Pro Studio speakers that feature dual 15” woofers capable of handling 300 w per channel. Sony has worked perimeters of RTO market in past, selling direct to Rent-a-Center and Aaron Rents and going through distributor O'Rourke Bros. for Rent-Way. It also took own booth space at APRO show several years ago. But deal with Welton will attract another subset of dealers who agree not sell product at retail or on Internet, said sources familiar with agreement.

Stepping up to rival Techwood’s speaker business in RTO is BDI, which has cobbled together home theater system ($699 dealer cost) consisting of Panasonic A/V receiver and DVD player packaged with Jensen branded center channel, bookshelf and floor- standing speakers. Robert Damrow, senior electronics buyer, said latter had dual 12” woofers with 600 w power handling, while 5” 2-way center channel had 125 w Jensen speakers that also could be replaced with Cerwin Vega models with 15” woofers. Kenwood also has signed agreement with Whitaker Partners to package its A/V receivers and DVD and CD changers with floor-standing speakers marketed under Hoss Power brand. Speakers feature 4-way, dual 12” or 15” woofers and 5 1/4” midrange.

Caught in crossfire of technology changes at RTO have been DVD players, which are nearing commodity status in rental channel similar to that achieved at retail. Rainbow Rentals has advertised Zenith DVD player at $7.99 weekly on 78-week contract, while Bestway offers decks at $6 weekly with agreement to rent 32” or larger TV on 91-week pact. “When prices come down that low” at retail, “people can buy it rather than rent it,” said Timothy Shannon, national mgr., Thomson Special Markets. In response to low prices for single-disc DVD players, many dealers are shifting business to changers or progressive scan models in effort to salvage profit, industry officials said. As counterpoint to DVD, JVC showed its D-VHS deck ($1,999) at APRO, but conceded that it was as technology statement rather than as rental product. “I don’t know what kind of business there is for this at rental,” JVC spokesman said. “My thought is to offer it as high-quality video-on-demand.”