Rent-A-Center attracts Dunkin’ ‘zee, NJ pair try Lightbridge
Illustration by Jonathan Hankin
Vik Patel, who acquired 38 Rent-A-Centers in Arizona in December, is candid about the negative comparisons of rent-to-own businesses to predatory lending.
“I can understand how people could see it that way,” he confessed in a recent phone interview. “But I looked at it from another angle.” Some of the customers "couldn’t get a TV if it weren’t for rent-to-own places. They can’t go to Best Buy because they have no credit.”
Indeed, a 2014 industry study noted that “RTO is serving as a financing mechanism for those who have few financial alternatives.”
Patel, a multi-unit franchisee who operates 70 Dunkins and nine Popeyes Louisiana Kitchen outlets in Florida and Georgia, got wind of Rent-A-Center’s refranchising program last year from a friend who had become the company’s largest franchisee.
“I’d never heard of Rent-A-Center or been in a store.” His first thought was, Don’t customers “just run away with the stuff?’” Patel recalled. The friend, who also operates restaurants and hotels, shared the financials with him. That convinced Patel to attend a discovery day at company headquarters in Dallas.
“The deeper I began to dig the more I liked what I found,” he explained. “While this isn’t like a restaurant that spits off 15 percent EBITDA or cash flow, there is depreciation of inventory that gets backed in. And I especially liked the fact of just four employees” per store “and that stores close on Sunday.”
So few workers and their relatively long tenure compares favorably to fast-food outlets, he said. Rents, too, are favorable given the shops needn’t occupy Main-and-Main locations. They’re typically inline units in plazas serving blue-collar neighborhoods.
“We were really surprised at how cheap the buildout is and the low rent multiples,” Patel said. Rent-A-Center’s website says it costs from $355,392 to $582,430, including a $35,000 franchise fee, to open a store.
Arizona’s minimum wage—$11 an hour—gave him pause, however. “That was something of sticker shock,” he said. By contrast, minimum wages in Florida and Georgia are $8.46 and $7.25, respectively; though Patel claimed he pays employees more.
Rent-A-Center’s unit volumes depend on the market, and Patel’s new empire stretches from Tucson to Flagstaff. He nonetheless estimated the stores ring up $700,000 and $800,000 annually. The figure is scarcely typical of the million dollar-plus volumes he’s used to. “But the AUVs almost don’t need to be” that high. “With a six-day work week and weekly revenue, it works out,” he maintained.
While Patel declined to disclose the valuation multiple he paid for the stores, he said he financed the transaction with a new lender, InTrust Bank, which has underwriting experience in the rent-to-own space. His restaurant lenders didn’t have it.
To oversee operations, he hired a former Rent-A-Center executive who the franchisor had earlier recommended. Patel, who claimed the executive once tried to buy the territory himself but failed, believes the acquisition will be cash-flow positive by the end of the year. He bases the expectation on a 15 percent increase in revenue. “That’s what my friend did in his stores,” he said.
Just how did the friend accomplish that feat? “Some employees were not ordering the right things. In Arizona, you’re not ordering furniture, for example, that someone in Maine would like. You’re giving employees more freedom to order what local customers like,” Patel noted.
Now entering child care
Like Vik Patel, Vijay Shah and his son, Manan, operate Dunkins (18 in all), in addition to several Shell gas stations and Circle K convenience stores. They also own a one-off adult daycare center. All their businesses are in northern New Jersey.
Last year, the Shahs agreed to develop an early education and childcare franchise called Lightbridge Academy. Headquartered in nearby Woodbridge, New Jersey, the 22-year-old franchisor promotes a holistic learning environment by emphasizing community engagement, franchisee and teacher happiness, and care and education of children ages six weeks to kindergarten, according to its website.
The website also estimates a Lightbridge Academy unit costs from $541,228 to $733,635 in a leased site and from $2,546,228 to $5,020,735 when land is purchased (including a $40,000 franchisee fee). The royalty fee jumps from 4 percent to 7 percent after six months.
The Shahs, who have yet to open their first Lightbridge, are still learning the business, Manan said in a mid-January interview. Though admitting he and his dad “know nothing about childcare,” he said that Lightbridge’s senior-level executives are easy to reach when they have questions. “They are not all about the royalty,” maintained Manan, who said the family-run business will build Lightbridge units from the ground up.
Still, the Shahs have something of a leg up despite being newbies. For the last four years their adult daycare facility, in Little Ferry, has offered them broad insight into a service-oriented operation like childcare. “We are familiar with that kind of business,” noted Manan, adding that while differences exist “it’s still the same gist.”
Although Manan had yet to sign a letter of intent when we spoke, he was searching for sites in affluent (household income $75,000-plus) and densely populated areas, ideally near transportation hubs. “It is about synergies, right?” he explained. “For a drop-off, you want to be near something with breakfast or coffee, or a train station. In the afternoon, you want a grocery store, transportation or a restaurant nearby. Things that cater to a parent—not a child.”
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at firstname.lastname@example.org.