Aaron's Leases, You Should Buy

Atlanta, Georgia based Aaron's (NYSE:AAN) is in the business of selling and leasing furniture, electronics and appliances. With more than 2,000 Company-operated and franchised stores in 48 states and Canada, Aaron's has been a strong growth story since being founded as a single operation in 1955. The company operates a little over 60% of the stores, while franchisees are responsible for the remaining 700 or so under the Aaron's, HomeSmart and RIMCO names. Over 1.5 million people shopped at Aaron's last year and new CEO Ronald Allen expects this number to climb in the upcoming year.

While everyone might not be drawn to the rent-to-own business - obviously it's certainly cheaper to outright buy an item - Aaron's does provide an intermediate service for the cash-strapped consumer. Aaron's claims to be "better than lay-away" and "easier and more flexible than a credit card." Whether or not these things are true is up to the consumer, but it is apparent that the business model is capable of generating solid returns. In an informal survey, we found that an average shopper might pay about one and a half times the listed price of an item over a 24-month period.

Interestingly, about 46% of the company's agreements go to ownership - indicating that roughly half of Aaron's customers utilize the higher aggregate payments to eventually own the goods they take home. Aaron's largest competitor - Rent-A-Center (RCII) - has more store locations, but the stock generally commands a lower valuation multiple and thus trails in market capitalization. Together, the two operators control roughly 63% of the rent-to-own market's approximately 8,600 locations. This effectively makes them a duopoly-like pair of this market, much like Coca-Cola (KO) and PepsiCo (PEP) in the beverage world.

Due to this clout, Aaron's has been able to consistently reward shareholders

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