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Rent-to-Own Retail: UK Market Profile and Forecast 2015

  • September 2015
  • -
  • Apex Insight
  • -
  • 36 pages

This report covers the UK rent-to-own retail market, sometimes called rent-to-buy or hire purchase. It quantifies the market size, historical growth rates and levels of industry profitability while reviewing key factors behind these figures.

It also includes an in-depth analysis of the relevant drivers of industry growth – in particular the macroeconomic environment and supplier trends – setting out historical trends and available forecasts – and regulatory framework. The forecast for industry growth is based on this analysis of historical trends and growth drivers.

What are the objectives of this market report?

Rent-to-own is a fast-growing segment of retailing in the UK, expanding to take up some of the increasing degree of slack on the high street and also using the internet as a channel. These retailers are frequently criticised for imposing a combination of credit terms and insurances which leads to items being significantly more expensive than via other channels. However, for many consumers, they increasingly make it possible for them to obtain goods which would not otherwise be accessible. This report aims to explore these views. It also considers the factors which have driven the high rates of growth that the sector has experienced and sets our views on how likely it is to continue in the future.

It is intended for:
– Operators of rent-to-own retail businesses themselves
– Investors in these businesses
– Retail property-owners, developers and landlords
– Market regulators and policymakers
– Banks, analysts, consultants and other parties with interests in the sector

What are the sources and methodology?

This report is based on:
– Interviews with senior-level contacts in the consumer credit industry
– Extensive research into published industry sources
– In-depth analysis of the macroeconomic environment and relevant market drivers
– Financial analysis of the accounts of companies in the industry.

Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.

Market forecasts have been constructed using simple assumptions which are clearly stated. Supporting evidence is provided for our assumptions but readers can easily flex them to model alternative scenarios.

Summary

Market background

The market consists of high-street shops and online retailers selling larger items along with a credit package which, by spreading payments over a year, is designed to make them affordable for lower income buyers. Categories of items commonly sold include computers / technology, audio / visual, furniture and domestic appliances. A rent-to-own agreement is a form of secured loan with the goods generally remaining the property of the seller until the final payment is received and a provision for them to be recovered if payments are missed. Loan periods are generally from 1-3 years with an APR of between 30-70% being typical.

Market growth and drivers

The market has grown rapidly in recent years, having doubled since 2007, driven by store roll-outs. This growth has been driven by a series of trends which have coincided:
– A significant increase in the number of customers in the sub-prime segments as a result of the economic downturn
– Significant reduction in the appetite of the mainstream banks for serving such customers
– A favourable regulatory environment in the UK
– Retreat of many other categories of retailers from the high street which has enabled some attractive locations to be obtained on favourable terms

Competitive landscape

The leading companies in the sector are all private-equity owned:
– Caversham, which operates the BrightHouse chain and is owned by Vision Capital.
– Perfect Home, whose shareholders include Cabot Square Capital as well as a leading US rent-to-buy operator, Aarons, Inc.
– Buy As You View, based in South Wales, which operates an internet based model and is owned by Rutland Capital.

Outlook

The prospects for the market depend to a large extent on the four key drivers outlined above (numbers of target customers, appetite of mainstream lenders to provide alternative forms of credit, regulation and availability of sites). While each of these areas has specific uncertainties and risks which are examined individually and taken into account in our forecast, indications are that most are likely to remain favourable and support further store roll-out. The key area of uncertainty is around regulation where the FCA is currently reviewing the market.

Table Of Contents

Rent-to-Own Retail: UK Market Profile and Forecast 2015
Market overview - 8
- Description
- Market characteristics and trends
- Adjacent markets
- Customer needs
- Borrowing costs
Market size and growth - 14
- Market drivers
- Regulation
- Macroeconomic trends
- Access to banks
Competitive landscape - 24
- Leading companies
- Comparison of performance
- Operator profiles
- BrightHouse
- Perfect Home
- Buy As You View
Forecasts - 31
- Driver forecasts
- Store growth
- Market forecast
- Risks to the forecast
Appendix - 35

List of charts
1. Reasons for taking out agreement
2. Five most common reasons for taking out a loan
3. High cost credit types APR / %
4. Total amounts repaid (including principal) for £100 loan / £
5. Historical UK rent-to-own market size / £m
6. UK real GDP / % annual changes
7. Historical number of unemployed and underemployed / m
8. Number of people in employment / m
9. UK average wages and real household disposable income annual growth rates / % annual change
10. UK student loan total outstanding balance /£bn
11. Historical UK number of bank branches
12. European countries' number of bank branches per million people in 2011
13. European countries' bank branches CAGR (1999-2011) / %
14. Number of adults without a bank account/cannot access credit
15. UK outstanding consumer credit / £m
16. Number of credit cards in issue / m, end of year
17. Leading UK rent-to-own providers market share / £m
18. Historical no. of stores by year
19. Leading UK rent-to-own providers, CAGR 2007-13
20. Latest pre-tax profit margins of leading rent-to-own providers / %
21. Latest revenue per employee for rent-to-own providers / £'000
22. BrightHouse Limited summary financials
23. Buy As You View Limited summary financials
24. Perfect Home Holdings Ltd. summary financials
25. UK real GDP / annual changes
26. Unemployment and underemployment / m
27. Number of people in employment / m
28. UK real household disposable and average income / % annual change
29. Rent-to-own - forecast market size / £m

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