A tough economy hits hardest for those with lower incomes and poor to no credit, which is where rent-to-own and lease-to-own can be a lifesaver — and in many ways, they are — even as the biggest players in the space keep a hand on the tiller in terms of delinquencies.
This came up in a conversation with Rent-A-Center (RAC) CFO Fahmi Karam who spoke with PYMNTS about a rebrand into a holding company called Upbound Group that includes the Acima virtual lease-to-own business that RAC acquired in 2020, and the Acceptance Now flexible leasing unit.
It’s an inflection point for brands now under the Upbound umbrella, as Karam said, “Inflation has hit our customers extremely hard. If you think about who our core customers are, it’s people who typically don’t have traditional credit and can’t get traditional loans or credit cards.”
That’s important, as he added, “We know that the current environment affects the less affluent customer a little bit more harshly than your near-prime or prime consumer. We’ve seen it with our delinquencies, we’ve seen it with our loss rates over the last couple of years.”
“We’re going through unprecedented times,” he said. “This cycle, this recession, however you want to characterize it, is different than anything that we’ve ever experienced in the past. Most businesses are built based on history and learning from the past, but we’ve never had this level of stimulus and this level of consumption over the last two years to be able to compare to what we’re going through now,” making it difficult to forecast based on historic repayment trends.
However, Karam said early pandemic-related losses are leveling off, and RAC’s debt portfolio has “normalized since the third quarter of 2021, and even peaked above normal in 2022. So, we’ve adjusted, our consumers adjusted as well, and we’re bringing those losses and those delinquencies back into what we consider more normal levels.”
Widely reported layoffs in technology and finance don’t reflect the RAC customer, who tends to have an annual household income of around $50,000 and often works a service industry job.
Read: Rent-A-Center Sparks Rethink of Rent-to-Own Model
He described Upbound as not just a holding company but also a philosophy of “moving [customers] up the credit chain, if you will, giving them more financing solutions, more alternatives, and giving them a little bit more financial confidence.”
Under the rebrand, Rent-A-Center will continue to be the customer-facing brand, with stores remaining under the Rent-A-Center name and Acima still going to market under that moniker, he said: “We felt what better way to kind of celebrate the longevity of that business than by celebrating it with a new brand at the top of the house with Upbound.”
Saying that the Acima acquisition has almost doubled the size of RAC’s business, the new holding company “gives us the opportunity to clarify who we are, clarify our mission, reaffirm and reconfirm the capabilities of Rent-A-Center, the brand itself, but also acknowledge that we’re a different company than we were just two years ago. Upbound represents the next step in the evolution of our business,” Karam said.
As for the economic outlook, he said, “My sense is it’s going to be a mild recession. Things will get mildly worse from where we are today. As long as inflation doesn’t go back up, and stays at this level or continues to improve, our core customers are going to be OK.”
Among positive signs for the businesses now operating as part of the Upbound group, Karam noted that digital is having a positive impact, largely due to the Acima acquisition.
“Consumers have changed the way they want to shop from a digital standpoint, and Rent-A-Center has continued to evolve with the consumer,” he said.
“Almost a quarter of our business now starts digitally, which is a big transition, and obviously the pandemic, and then a lot of the quarantines over the last couple years have expedited that digital transformation for all consumer companies. Rent-A-Center is no different.”
See also: Rent-A-Center’s Acima Unit Names New Management
While lease-to-own and rent-to-own are under pressure, as is the home goods category overall, Karam pointed out some positive developments impacting RAC over the pandemic period.
Acima introduced the Acima LeasePay card on the Mastercard network in 2021, saying at the time that the virtual card “will unlock a new level of shopping power for cash and credit-constrained customers to lease eligible goods that improve their quality of life,” and adding that “The LeasePay card will eliminate the upfront transaction risk for retailers because Acima will purchase the goods from the retailer directly for lease to the customer.”
That constituted a new way for credit-constrained consumers to access bigger ticket items like furniture and durable goods.
The sector has also benefitted from the meteoric rise of buy now, pay later (BNPL), which is acting as a kind of feeder market for lease-to-own retailers.
“We view the BNPL space as complementary to us,” Karam said. “We don’t necessarily compete with them today. As we expand with Upbound into potentially other financial products, we’ll start seeing a little bit more competitive nature with that industry. As they’ve gained more traction with retailers, and retailers have become more accepting of different types of products, the next natural step is to have lease-to-own.
“I think the BNPL space has opened the door for some of our conversations, to be honest.”
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