Know At Lease A Lot About Lease-to-Own

Sears Holdings Corp is rolling out a lease-to-own program to all Sears stores, available on items which cost at least $280. Customers don’t need to pass a credit check, but must be at least 18 years old and earn at least $12,000 a year.
     Lease-to-own (LTO) might be a way you can increase sales to shoppers who can’t afford to purchase large items outright, but can’t wait to pay off the item on layaway. A refrigerator, for instance. Like Sears, you’d almost surely want to contract with an experienced company to handle the mechanics of the leasing; compliance with the array of laws and regulations governing LTO transactions; the collection of payments from the customer; and, if necessary, repossession. Sears is using WhyNotLeaseIt, based in Manchester, New Hampshire.
     For you to profit best from a lease-to-own program, you’ll also want to know the psychology of the LTO consumer. A study at Columbia University provides guidance, although the data were limited to 5,226 LTO agreements across five product categories (appliances, computers, electronics, furniture, and TVs) from fifteen stores near Columbus, Ohio.

• Lessees are much more likely to exercise an early purchase option than to lease to term. Rates for early purchase averaged 30%, and for rent-to-term, 11%. 
• The consumer can return the item and stop payments before the lease period ends. Each month, about 5% of items out on LTO will be returned. Understandably, then, LTO items are generally leased out more than once. Your shoppers must be willing to accept used merchandise, and you must develop your skills in retailing used items. Two of the most powerful determinants of the profitability of an LTO operation are the number of times the item is leased and the percentage of time it’s out on lease. 
• Theft is a downside. About 20% of TVs obtained with a LTO end up being stolen. The rates are not much lower for computers and electronics. The lowest rate in the Columbia study, at 6%, was for appliances. There is not a greater likelihood of theft earlier in the contract than later. Therefore, it doesn’t seem that consumers are choosing LTO with the intent of stealing the item. It’s more likely they steal because they’ve run out of money, but consider the item essential. Another implication of all this is that you’ll have collected at least some money due you before the item fades from view. 

Click below for more: 
Think Through Layaway Implications 
Lend a Friendly Ear to Loan Debtors 
Run a Store, Not a Public Library 
Resell Consumers on Buying Used Items