DIY movement gives rental a lift
When Ken Hughes, VP communications for the American Rental Association (ARA), returned from the Rental Show in Atlanta in March he had three impressions: While the marketplace is largely depressed, innovation among rental equipment manufacturers remains strong; construction equipment rentals have been soft, but certain pockets of the country remain relatively healthy; and the party and event segment in general is holding up well.
“Revenues are down overall, but it’s largely a geographical issue,” Hughes said. “You don’t want to look for growth in Michigan, but if you go to certain areas like Texas, people will look at you and say, ‘What recession?’”
The rental business largely mirrors what’s happening in home construction, so it’s not surprising that the industry peaked in 2007 at $43 billion and has been trending downward since (2008 revenues totaled $35.3 billion). A recent ARA survey found that 75% of about 600 member respondents reported a decline in rental revenue in 2009 compared with 2008—with 20.5% saying the drop is 30% or more.
“As you can imagine, construction is really suffering, and that’s almost 70% of the market. We have taken a significant hit in the last 12 months,” said Michelle Finnegan, who manages the rental program for True Value. “The majority of the business runs with housing starts. We’re waiting for the recovery.”
ARA statistics show that the rental market’s biggest segment—construction and industrial equipment ($24.5 billion)—was down 3.0% last year, while general tool ($8.4 billion) took a bigger hit with a 3.8% drop. However, party and event, while a small segment of the industry ($2.4 billion), showed 5.3% growth.
To survive in these tough times, many rental operations have cut back on their purchases (79%, according to the ARA survey) in favor of fixing and maintaining existing equipment. According to Marty Silverman, VP marketing for General Pipe Cleaners, some rental outlets used to replace their rental equipment after a certain number of uses or every two years—whichever came first—but that is no longer the case.
“The replacement part segment of the business is up, and stores are looking for ways to increase the longevity of products through proper maintenance,” he said. “For example, the cable on a snake is made of steel, so if you don’t oil it, it’s going to rust. It’s a matter of properly maintaining units.”
Chris Herbert, marketing manager for Seymour Manufacturing—maker of lawn and garden and contractor hand tools—said what while overall equipment sales are down for his company, demand for replacement handles has seen a notable uptick. Seymour makes a variety of handles, including wood and fiberglass models.
Diteq’s diverse offering includes drilling equipment, saws, concrete machines and tile-cutting tools, as well as the accessories that go with these products. Bob Coats, VP sales and marketing, agrees that his customers are holding off on big purchases in favor of maintaining the equipment they have, leading to a jump in sales of replacement blades and core bits, as well as concrete solvents and liquid and foam cleaning materials. “In another year or two, they’re going to need all new equipment, so it’s a matter of holding on until that time,” he said.
Despite depressed sales, most rental manufacturers continue to invest in research and development to keep themselves in a good position to capitalize once the market does bounce back. Tim Phelps, product manager for Barreto Manufacturing, said his company’s new pedestrian-sized track trencher, which gets more traction and allows contractors to work through the wet season, had a successful launch this year.
“You have to keep moving forward with product. Especially now, if we had the same old same old, it would be tough,” he said.
Growth of the DIY market
Rental equipment geared toward smaller jobs has fared better in the difficult economy, as many homeowners are tackling jobs themselves instead of hiring a professional. Hughes said the DIY segment of the market has grown dramatically in the last five years, thanks largely to television programming on HGTV, PBS and other stations that show consumers how to take on projects.
“They’ve given people the idea that yes, I can do that, and rental is a part of that,” he said. “Why buy a dethatcher for the backyard if you’re only going to use it once a year—or even once every five years?”
This trend has provided a boost for the hardware co-ops, which have a built-in strength in the repair and fix-it market. John Karl, rental manager for Ace Hardware said the “weekend warrior” mindset of customers presents opportunities for member-dealers.
According to Karl, the most successful part of Ace’s rental business right now is basic items such as pressure washers, sewer snakes, carpet extractors and appliance dollies—“anything low maintenance that you can rent year-round.” Karl said. For example, Diteq reports increased use of tile cutters, as a DIY project like laying tile is considered “doable” by many consumers.
True Value has 600 stores with Just Ask Rental departments, as well as 400 stand-alone Grand Rental Station and Taylor Rental units. Finnegan said that “recessionary times are driving more end users to DIY rather than DIFM” and that many True Value customers are doing concrete work and other light construction as well as landscaping projects. This includes yard care, which has boosted rentals of such products as aerators, lawn combers, hedge trimmers and tree stump grinders.
Finnegan points to the growth of staycations and the fact that a lot of people are entertaining at home again instead of paying to use reception halls. Between 50 and 100 Just Ask Rental departments have added party and event in the last few years, providing items like tents, tables and chairs and sound systems and offering assembly and takedown services as well. “It’s a business people are turning to during recessionary times,” Finnegan said. “We’ve seen double-digit increases up to last year. That’s where the growth is.”
Hughes gives an example of a rental store in Punta Gorda, Fla., where the breakdown of the rental department used to be 60% construction equipment/40% party and event. This year, the ratio has been completely reversed. “We’re seeing more and more rental centers invest in this segment,” he said.
RENTAL MADE EASYEarlier this month, Ace Hardware launched a “Top 10” rental program designed to encourage co-op members that haven’t entered this area to try it at a relatively low risk.
The new Ace program involves a basic assortment of rental items aimed at the repair and fix-it market, including pressure washers, sewer snakes, appliance dollies and lawn and garden-related items. The planogram includes 8 ft. of shelving for these relatively small and popular DIY-oriented rental units.
“It’s a great idea to get rental in the store with all the other departments,” said Ace rental manager John Karl. “The hardware store business is a repair and fix-it business, and if you have rental, you can provide the customer with what he needs to complete a project.”
The trend at Ace has been to pare down the rental program, which until a year-and-a-half ago involved paying a sign-up fee and an annual membership fee that entitled the store to training and marketing materials, and the help of the field staff. Now, it’s all “a la carte”—with members being allowed to carry a limited rental offering and pay only for the services they want. The Top 10 program will also be part of Ace’s new store model going forward.
“There were a lot of Ace dealers who didn’t want to get into it full-blown but just wanted to dabble in it,” Karl said. “And this is good for new Ace retailers who might not want to make such a big investment.”
Another bright note for the rental market: While many contractors used to stick to jobs within a 100-mile radius of home, lack of work is forcing them to extend that to 200 miles or more. And with inflated transportation prices, these contractors often decide to rent equipment rather than lug their own. Home Depot spokesman Steve Holmes said his company—which has about 1,200 stores with rental departments—is in a perfect position to capitalize on this trend.
“With the pro desk, a lot of contractors have an account with us that goes with them from store to store,” he said. “They know what we have to offer, know how the system works. That’s a story that plays well for us with the pro business.”
Some industry watchers are predicting the first recovery for the rental business to come in 2011, while the ARA said the market may not bounce back until 2012. Most agree that the challenge is to keep stores in business until that time, when there will be a pent-up demand for new equipment.
“Even when the market starts to show signs of coming back, people might still be unsure and be apt to rent instead of buy,” Hughes said. “Rather than spend $100,000 for a machine, they might choose to rent it for hundreds of dollars a week until they really see things turning around.”
Hughes said the ARA is also encouraged by the fact that a good percentage of the floor for the 2010 Rental Show (to be held in Orlando in February) is already sold out. “It shows there’s a lot of respect for the rental industry, and that’s a good sign long term,” he said.