Wal-Mart Stores Inc. is testing a lease-to-own program on items in its entertainment and electronics department with Progressive Leasing, a division of Aaron's Inc.
About 100 stores in the Dallas metro area are participating in the test, which started in October. No timetable has been set for the test, which was announced by Aaron's, a publicly traded retailer that specializes in lease-to-own furniture, electronics and appliances.
Customers can utilize the lease-to-own program for most products in entertainment as long as their total basket value is over $200, a Wal-Mart spokesman said. A customer could, under the program, lease-to-own a TV, wall mount and DVD player on a trip to the store.
Entertainment and electronics sales have been sluggish for Wal-Mart's U.S. stores and at Sam's Club, the retailer's warehouse store.
Testing lease-to-own is just another way that Wal-Mart, like its retail peers, is experimenting with offering multiple services to customers, according to retail consultant Carol Spieckerman. The program is similar to grocery pickup and delivery options that are being offered alongside traditional in-store shopping trips, said Spieckerman, president of Spieckerman Retail.
"Rather than cutting into Wal-Mart's electronics business, for example, the Aaron's partnership should allow Wal-Mart to capture revenue from customers who otherwise wouldn't be able to afford big-ticket items," Spieckerman said. "The partnership also allows Wal-Mart to reach out to rent-to-own customers leveraging an efficient, existing platform rather than having to administrate layaway programs and other alternatives."
Executives for Wal-Mart U.S. and Sam's Club noted sluggish performance in entertainment during their third-quarter earnings call in November.
Sam's Club reported what it described as midsingle-digit sales declines in its technology, office and entertainment departments during the quarter. Wal-Mart did not break out entertainment specifically, but reported low single-digit declines in general merchandise, which includes entertainment.
"While most of the box continued to grow, we still have considerable headwinds in entertainment," Wal-Mart U.S. CEO Greg Foran said in November. "A slow adoption of new technology in televisions and the shift from post-paid to installment wireless plans contributed to disappointing sales results."
Analysts at Raymond James, according to research notes, see the lease-to-own program as "immaterial" to Wal-Mart's overall earnings. However the investment firm did upgrade Aaron's stock, in part, because of the partnership.
Progressive Leasing, acquired by Aaron's in 2014, figures to see "significant revenue and earnings growth, if and when a wider program is rolled out." Current retail partners with Progressive Leasing include Mattress Firm and Big Lots. Aaron's, founded in 1954 and taken public in 1982, operates 2,100 stores across the country in addition to its Progressive Leasing business. It has 42 stores in Arkansas, according to its website.
"A significant number of Walmart customers are either underbanked or unbanked," according to the Raymond James note, which adds, "Progressive's program -- as now structured -- only works for banked customers since periodic payments are drafted weekly and/or monthly from customers' checking accounts. Progressive leadership suggests that it continues to work on developing an unbanked program; but, to date, that program has not been announced."
Neither Wal-Mart nor Aaron's offered detailed information on the pricing structure. A Wal-Mart spokesman did say that "there are some varying conditions such as early payoff, but our pricing is often half the price of other lease-to-own competitors."
Raymond James estimates that the pricing model for the current test is "2.2 times retail" for sales greater than $500. Sales of between $200 and $500 are priced greater than 2.2 times retail, "a bit higher than the 2.1 times retail that we understood is the norm for Progressive's electronics retailers."
There is no application fee, according to the Raymond James report, but "a transaction fee only pertains to those customers that take advantage of the 90-day payoff option, which is the greater of $50 or 10% of the transaction amount."
"[T]he high price of many items in the department seems likely to have remained outside of the ability to purchase for some Walmart customers that do not have the credit and/or cash to make those purchases. These same customers are likely in the store each week when stocking up on their groceries, but the Electronics and Entertainment department may stay beyond their reach. This customer pool would seem to a prime target for a lease purchase program."
Wal-Mart previously attempted a lease-to-own test in the "not-too-distant past" that "we do not believe was successful," according to the note from Raymond James. That pilot program centered on major appliances and the note added that it could take a number of years for a program to be rolled out across all 3,000-plus supercenters in the U.S.
"We work with suppliers all the time to test new products and services to help understand how we can best serve our customers," Wal-Mart spokesman Molly Blakeman said. "We're constantly testing. We'll look at performance and customer response and make the determination over time."
SundayMonday Business on 01/24/2016