References go far at Aaron’s

Your mother really does know best.

If she says you’re a good risk, that’s good enough for Charlie and Robin Loudermilk.

The Loudermilks, a father and son team, run Aaron’s, the Atlanta-based retailer that leases furniture, TVs and refrigerators to many people down on their luck.

There are no credit reports for this lease-to-own business. Just personal references. Five to be exact, namely from parents, friends and family.

“If the [customer’s] references don’t check out, you better watch out. He’ll steal from you,” said Robin Loudermilk, 50. He took over as CEO from his father, Charlie, who founded the company and remains chairman.

The reference system works well for Aaron’s. Its default rate is much lower than for many businesses that rely on credit reports.

The Loudermilks say just over 1 percent of their revenue is lost because customers take off with their merchandise.

“People basically are honest,” Charlie Loudermilk, 81, believes.

Recently, several credit-card companies reported “charge-offs” of about eight times the rate Aaron’s experiences.

Obviously, credit-card firms can’t operate without credit reports. The point is that these guys have been able to construct a profitable and growing business by knowing their customers — even ones who many retailers run away from.

During the height of the recession last year, Aaron’s revenue was up 14 percent to $1.6 billion. Profit from continuing operations was up nearly 17 percent.

Yes, the credit crunch drove some customers into their arms. Monthly leases with no obligation to purchase the product can be liberating, especially if you’re in jeopardy of losing your job.

Still, Aaron’s has an image problem from consumer advocates and others who say it’s ripping off customers who can least afford it. People who have to pay for a TV through a monthly lease would do much better at a discount store.

The Loudermilks acknowledge that. But, they say, their customers may not get approved to buy on credit at a discount store. And many customers go to Aaron’s because they want the flexibility to return the merchandise and walk away if they need to.

How much more does it cost at Aaron’s? That depends, because the Aaron’s customer is not likely to have the up-front cash to pay for the merchandise outright — the cheapest option.

Take a TV that costs retailers $1,000. Robin Loudermilk said a big electronics store might charge $1,500 on a cash basis. A smaller retailer, he said, might charge $1,800 or $1,900, not counting finance charges, which could bring the cost to $2,600 over two years.

That, he said, is about what Aaron’s would charge over two years on its monthly lease.

Before delivering the product, Aaron’s store managers are supposed to have a “closing conversation” to explain the importance of paying for or returning the merchandise. Robin Loudermilk said the store managers can generally relate to the customers.

“They’re working class. We don’t have any Harvard grads running the stores,” he said. Again, the lesson: knowing the customer. (Listening, GM?)

So does the CEO’s mother know if Robin Loudermilk would pass a reference check? I called her to find out.

“I know he would return the merchandise,” said his mother, Mickey Webb. “He’s had to reclaim some furniture himself and that has not been fun.”

2 comments Add your comment

Bunker

June 2nd, 2009
8:10 am

Henry Unger,

I read your blog everyday and I live in PA. Keep up the good work!

Bunker

jgamble

March 15th, 2010
1:50 pm

I have and bought from places like these. Do the 90 days same as cash stupid’s