Rent-A-Center Earnings: Higher Income Consumers Now Rent to Own

(MoneyWatch)  Rent-A-Center (RCII), a chain mostly known for renting appliances and furniture to low-income consumers, often at very high interest rates, sees an uptick in the average income of its customer. And though fourth-quarter revenue dipped, the retailer recorded a 22 percent profit increase and upped its guidance for 2010, showing that its model can more than weather the recession.
With a jobless rate that doesn't look like it will turn around any time soon and less Americans able to pay off their credit-card bills, it's not surprising that consumers are turning to an outfit like Rent-A-Center. When someone needs a new couch, they need a new couch, and if credit cards aren't an option and cash is tight, the rent-to-own prospect is a hard-to-resist option, even in the face of reportedly high interest rates and other fees.

"We continue to see a higher income consumer relative to average income levels a few years ago, most likely driven by the credit tightening in traditional retail," said Rent-A-Center President and COO Mitch Fadel, speaking during the company's fourth-quarter conference call. This might also indirectly help the fact that average weekly delinquencies on payments at the retailer are the lowest in six years, as Fadel cited.

Management also said indirectly that further consumer strife could create more demand for Rent-A-Center. Said Chairman and CEO Mark Speese: "As consumers find themselves with fewer options and are faced with the uncertainty of the future, believe more and more come to appreciate the flexibility and convenience of our program."

Rent-A-Center does not only provide customers with furniture, appliances and electronics. The company also has a financial-services arm that offers short-term loans, debit cards and other products. Management must see a demand for that aspect of the business because it plans to add the services to 50 stores this year, up from the 353 units in which they are currently offered. It is also adding 25 to 30 new stores to its portfolio of just over 3,000 locations in North America.

Rent-A-Center is obviously gearing up for a successful year in which the company, already the leader in its sector of retail, will gain new customers, grow its services and reap profits. Unfortunately, if its projections are correct, the consumer is in for another rough one.

Store image by Flickr user benchalida's photostream.