Progressive Rentals October-November 2007

What I Wish I Knew Then by Geoff Williams
Rent-to-own and Behavioral Economics by Ed Winn III
Central Intelligence: An APROfile of Joe Recla by Kristen Card

What I Wish I Knew Then
by Geoff Williams

Young, hopeful and naïve, but hoping for some trade secrets? Old and wise, but want to reminisce? Either way, you may enjoy reading about some brave souls in the rent-to-own industry who agreed to share their stories about their beginnings in this industry so that others can learn from them. As Mark Twain reportedly said in the 1800s, “When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished by how much he’d learned in seven years.”

Little has changed not quite two centuries later. In other words, we all get smarter as we age. Or, at least, it’s supposed to work that way, which is why we caught up with a handful of industry veterans and asked: What do they wish they had known when they first got into the rent-to-own industry? It was 1974 when Les Pearsey and his brother Barry opened their first rent-to-own store. President Nixon was in the White House and The Towering Inferno was burning up the big screen. In Los Angeles, these two young brothers made the decision to convert their father’s television service business into a TV rent-to-own store.

Les recalls that as a 19-year-old, he and his 26-year-old brother were borrowing money from his bank at 19 percent interest—a lousy deal for an entrepreneur now and not exactly the best deal he could have been getting back then. “We didn’t care. We were just glad to be getting the money. The hard part was getting it,” Les says. But, he also freely admits, “I wasn’t that sharp at understanding finances when I was 19.” Barry, even being older and wiser, apparently didn’t have an acute financial background either, which is understandable. For Les, now 51, he wishes that he “had known how to communicate with my lending institutions. I would have been a lot better off.” For starters, Pearsey had a problem getting proper financing because the rent-to-own industry was still a very new, largely unproven and misunderstood market.

The largest rent-to-own operators, like Rent-A-Center and ColorTyme, didn’t yet exist and so even if Les and Barry had had more gravitas when sitting down with bank officials, they probably wouldn’t have gotten very far. As it was, they not only didn’t know how to negotiate an interest rate, they also didn’t really understand cash flow or that maybe all of their money shouldn’t go into inventory. “Back then, we were lent $10,000. With that money, we bought 33 television sets,” recalls Les, “and within five days, the TVs were gone.” Their banker wouldn’t lend them any more money and so the two were stuck for a time, just waiting around to collect payments. Once they were able to sock a little more income away, they bought more televisions, not considering at first that they might want to put some money away to pay rent or utilities. Still, it all eventually worked out.

After years of buying and selling stores, Les and Barry now own Pearsey Enterprises Inc., which has four stores in central California, and both co-owners can be as involved—or uninvolved—in the business as they want. When asked where Barry might be, Les says good-naturedly of his older brother, “He’s probably sailing a boat around the world right now.” John Darden, 53, also has his share of regrets, despite having eked out a successful spot for himself in the rent-to-own industry. Darden has owned numerous RTO stores, although now he’s scaled back to one Premier Rental-Purchase in Charlottesville, Virginia. He doesn’t mince words: “From a personal standpoint, I wish I had had a relationship with the Lord like I have today. It would have given me a different perspective than I had in those days.

And it might have helped me make better decisions and recognized that I don’t have all the answers." What type of different decisions might Darden have made? “I wish I had been more open-minded; I wish I had listened to my employees more,” says Darden, an audible sigh in his voice as he recalls how he managed a Remco from 1976 until 1980, when he opened his own rent-to-own store. “In those days, I felt like I had all the answers. I was the rental guy, you know. I was going to teach you. I wasn’t going to let you teach me. Well, I had the knowledge of the rental business, more than most people, but I didn’t have business knowledge.” There are other regrets. Darden says that he didn’t have a good understanding of how different his roles would be going from manager to owner. “When you’re a manager, you don’t have total responsibility of the company, like paying taxes— it’s a different world.

It also helps to understand that companies like Rent-a-Center and Aaron’s are successful because either they know what they’re doing from a business standpoint or they’ve already made mistakes. When you first become a new owner, it’s easy to say, ‘I’m not going to charge processing fees or I’m not going to have weekly payments,’ but you’ve got to stop and recognize that there are financial reasons for what goes on in a successful company or there should be reasons. And so you can’t think you can come out of the box and do something different than a proven formula." And it isn’t that Darden wants to kill anyone’s innovative spirit. He just means that, “There’s a reason for how they do it the way they do it. I would look at why companies are doing what they’re doing and realize that a lot of thought goes into these decisions.” Kevin Quinn, who owns KLQ Enterprises in Tacoma, Washington, admits that he learned that lesson years ago—and the hard way.

Of course, the rent-to-own industry was younger in the 1980s when he was starting out, but he says, “I wish I had known to stay with the basics of the business: furniture, appliances, and electronics. I wish I had stayed away from the newer small products that don’t really make up much of your revenue, such as Nintendo games and pagers and movies.” Movies? Wow, they were ahead of the curve. But when Quinn got into the rent-to-own industry in 1982, when President Reagan awed Washington and Michael Jackson was considered, well, cool, there is something else that he wishes he had known: that what would irk him back then would still be grating on his nerves a quarter of a century later. “Everyone in the industry knows I feel this way, but I wish our industry would quit making some of the same mistakes as it did in the 1980s.

There are a lot of dealers out there who take it personally when payments aren’t made and take legal action and sue people for not making their payments. It’s the Achilles’ heel of our industry; I wish I had realized that it’s not going away. Maybe I would have thicker skin about it or maybe I would have defended the industry even more years ago. But I don’t see it ever going away. We’re going to continue to be lumped in with other occupations that have a questionable reputation, such as attorneys and car salesmen.” But Quinn isn’t feeling dismal about things. “A lot of people seem to like us; I just mean that we’ll never be anywhere near 100 percent,” he says, adding with a chuckle, perhaps because he’s not really joking: “But on the bright side, in today’s world, I think it’s fair to say that we have a better approval rating than Congress.”

In fact, it could be argued that having regrets helps make entrepreneurs in the rent-to-own industry more optimistic, because people with some experience behind them know that they aren’t likely to repeat the same mistakes twice. “I wish I had known to join a buying group like TRIB Group (The Rental Industry Buying Group),” says Les Pearsey. “I should have joined years and years ago. I was buying on my own, thinking I had local distributors who were doing me good, staying with them because they were nice guys. But the minute I joined TRIB, I was saving $50 to $75 per washer. That put more money in our pockets than I ever could. But, of course, it costs money to join a buying group, so at the beginning, I saw it as a hindrance.”

Pearsey has another regret. “I wish I had known earlier to give some of my top key performers some ownership in the business in order to keep them, rather than see them start out on their own,” he says. “I still have great people, but I wish I had done that 25 or 30 years ago. Maybe some of my top performers would still be working with me, instead of competing against me.” Pearsey admits that when you’re in your 20s and you’ve thrown a lot of time and money into your business, you simply don’t want to give any ownership away. It’s understandable, but what he now realizes, “If they’re really good people, I want them on my side. And the ownership of the company is an investment for me and them. If they’re working and doing a great job, I should do what I can to keep them.” But maybe Bud Holladay says it best.

One of the founders of AP RO and engaged in the rent-to-own industry since the tumultuous year of 1968, when race riots, assassinations and political discourse ruled the day, Holladay has been immersed in the rent-to-own industry ever since. His wife, Cathy, in fact, opened the first RTO store in Moscow. He is arguably as successful as anyone out there. Rent-to-own veteran Richard Bartel in Vancouver, Washington, calls Holladay “an icon.” And, of course, Holladay has plenty of things that he wishes he had known when he got started, things “that I only think I know now,” he says. Holladay lists his top five regrets that all new and novice rent-to-own entrepreneurs would do well to heed:

• I wish I’d known that you can make a lot of money in small markets.
• I wish I’d known how to treat my friends and colleagues better, especially some who are not around today.
• I wish I’d known that I didn’t know everything—or even much of it, for that matter.
• I wish I’d known the positive impact that large developed companies like Rent-A-Center or Aaron’s would have on small companies in forcing them to change and be better.
• I wish I’d known that someone would be asking questions like these 30 years later.

There you go. You’ve been warned. If you’re new to the rent-to-own game, see you in 2037 when we come around asking you what you wish you had known way back in 2007. Hopefully, you’ll have more than a few regrets to share. Ironically, if you don’t, you’re probably doing something wrong.

Geoff Williams is a freelance writer based in Ohio. His e-mail address is gwilliams1@cinci.rr.com.

Rent-to-own and Behavioral Economics
by Ed Winn III

There is a new movement in microeconomic theory that challenges the assumptions underlying neoclassical economic thought. If this new movement continues to gain adherents as it has been doing of late and finally becomes the preferred, accepted theory for modeling economic behavior, there could be profound repercussions for rent-to-own as well as any number of other industries in America. The most complete analysis of behavioral economic theory as it applies to RTO to date can be found in a recently published article by Jim Hawkins, “Renting the Good Life” (www.utexas.edu/law/academics/ centers/clbe/papers.html). While Hawkins does, indeed, conclude that some paternalistic intervention vis-à-vis RTO would improve the marketplace, he argues for a milder form of paternalism than hard-core consumer advocate critics demand.

He eschews APR disclosures for the industry, for example, for many of the same reasons that the Federal Trade Commission found the disclosure to be largely irrelevant and possibly even misleading for the transaction in its 2000 study of rent-to-own. Hawkins would allow price controls as long as they are set high enough not to drive RTO dealers out of the market. He notes that the four states that have price controls on both cash prices and total RTO prices seem to have competitive rent-to- own markets. He favors government-mandated lifetime reinstatement rights as a feasible provision in all RTO agreements, since many companies offer such rights voluntarily already, and it would be a definite boon to consumers who suffer procrastination and other biases that keep them from taking full advantage of the ownership provisions of the transaction.

He recommends caps on all “other charges,” ideally at the level of the cost to the company for the service provided. (This is already the law in Illinois, New York, Texas and California.) He favors a three-day cool-off period on all RTO transactions to prevent stores from taking advantage of the close personal relationship that often develops between customers and store personnel and loading up customers with too much merchandise. He favors requiring rent-to-own dealers to offer monthly transactions first to customers as opposed to weekly agreements, and would like to see monthly RTO transactions as the default and predominant transactions in the industry. Finally, again like the FTC, he recommends government regulation to require price tags on all merchandise in the stores disclosing the rental rate, the length of the agreement and the total rent-to-own price. Many of Hawkins’ recommendations can be traced to the application of this new school of behavioral economic thought.

A lesson in traditional microeconomic thought For more than 100 years, neoclassical microeconomic theory has maintained that rational self-interest does and should dominate the marketplace. The premise is that both buyers and sellers apply reason in order to achieve their own maximum personal satisfaction from the marketplace. The theory goes on to postulate that this rational self-interest not only benefits the party who is looking out for himself, but the public interest as well by facilitating the most efficient allocation of scarce re-sources possible. This is Adam Smith’s “invisible hand” at work: “He [the actor in the marketplace, either buyer or seller] generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” (A. Smith, The Wealth of Nations) In its purest form, this is classical free-market economics, the foundation of our capitalist economy.

Proponents have always known that individuals are not, in fact, always perfectly rational actors in the marketplace, but the working hypothesis of rational self-interest has allowed for remarkably accurate predictions and explanations of human economic behavior. Milton Friedman, one of the chief economists promoting this classical view, acknowledged that perfect rationality was an unrealistic assumption and descriptively inaccurate, but endorsed it anyway as a useful tool for economic analysis, because the predictions derived from the theory are more accurate than predictions from other theories. (M. Friedman, Essays in Positive Economics, 1953) This economic view has prevailed in America and has been responsible for the country’s phenomenal growth. It favors leaving market decisions to the individuals involved and rejects the view that any kind of collectivist policies would produce superior results.

The other end of the economic theory spectrum maintains that the best way to allocate finite resources is for a central authority to take control and ownership of all resources—“from each according to his abilities”—and to parcel them out—“to each according to his needs”—i.e., communism. This classical view of microeconomics has been taken to task in recent years, due in part to advances in psychology and the study of human behavior. The new school of thought is generally known as behavioral law and economics and rejects the classical view and particularly the rational behavior assumption upon which the classical view is founded. The behavioral movement maintains that all individuals, in fact, act irrationally in the marketplace and elsewhere, but that they do so consistently, systematically, predictably, pervasively and uniformly to such an extent that the irrationality can be put into behavioral models and used for economic predictions and policies that are more accurate than those derived from the classical view with its false assumptions concerning how humans behave.

Heuristics: The decision-making process This new view was identified in the 1950s, began to take root in academic circles in the early 1980s and has gained ground ever since. The movement seeks to apply psychological insights to economics. The theory rests on cognitive experiments, field data, computer simulations and, lately, even brain scans that demonstrate that an individual’s decisions are not made unemotionally and rationally, but rather are made by using mental shortcuts or rules of thumb—heuristics in the literature—that can lead to faulty conclusions. Heuristics are both good and bad. A good heuristic offers fast, reasonably accurate answers to situations. But a heuristic also violates logical principles and can lead to serious judgment errors. For example, you might think that Dell makes the best computers or that the cheapest gas is at the Texaco down the street.

You persist with these opinions even though further analysis and research might prove you wrong. If you were entirely rational about where to buy gas, you would study the issue, find the cheapest gas stations, compute whether the distance to such stations would, in fact, save you money and, if so, how much and then go get gas. So, your trip down the street to the Texaco is an example of a heuristic at work and possibly a cognitive error that decreases the efficiency of the marketplace. Behavioral economics maintains that all individuals are subject to “bounded rationality.” For example, consumers typically spend only a limited amount of time and effort to educate themselves about a future purchase. The theory suggests that they accumulate a “satisfactory” amount of information about their choices and then make a decision. This is a time-saving strategy adopted to avoid sensory overload and to simplify complex decision-making. How many cars did you research before you bought your last one? Some looked at a few; some looked at many.

None looked at all of the choices because the result would have resulted in information overload. The phenomenon of cognitive heuristics can lead to biases, errors and illusions, i.e., deviations from the normative conclusion that would be reached through pure reason. They are different from motivational biases, which individuals use intentionally to protect self-image, standing, existing beliefs or goals. According to this theory, individuals make economic decisions based on these cognitive biases without necessarily being aware of them. Individuals are aware of motivational biases.

New economic theories and how they apply to rent-to-own The conclusion of behavioral economists is that because the irrationality of everyone is predictable, clever sellers and marketers can and do take advantage of buyers’ cognitive errors and biases, thus rendering the marketplace inefficient and unfair. The only solution is for the government to step in to keep the playing field level. While a few behavioral economists favor an aggressive form of intervention, most argue for weak, minimalist intervention. The government must step in, so the argument goes, to help individuals make better decisions and come closer to behaving in their own best interests because such conduct is good for the individuals and for everyone else. These cognitive biases or errors in reasoning have been labeled and characterized by behavioral economic theorists. Several are pertinent to decision-making in the RTO context, which are discussed below. While the labels may be useful, it should be noted that the various types discrete separate behaviors.

They overlap and several may apply to any one economic decision. They represent attempts by economists to apply principles from psychological experiments to explain and predict human economic behavior. This branch of economics is fairly new and is still in its developmental stages. However, in the world of economics, long known as the dismal science, it is new and exciting, and it is challenging assumptions that have been the bedrock of economic theory for decades. Rental dealers will want at least passing familiarity with the concepts of behavioral economics because some of the theories may be used against the industry by critics and legislators and because some of the insights concerning individuals’ economic behaviors may influence how dealers position and run their businesses.

Framing and the endowment effect. Individuals can have different responses to the same choices depending upon how the choices are presented. In a well-known experiment involving a coffee mug, the subjects were divided into two groups. One group was given a mug and asked how much they would charge to give it up. The other group was shown the same mug and asked how much they would pay for it. The first group consistently priced the mug higher—over two times higher in repeated experiments—than the second due to how the issue was framed and also to an “endowment effect.”

The value of a good seems to change when it becomes part of one’s possessions or endowment. Psychology shows that people react to losses more strongly than gains and so advertising meat as being 80 percent lean is more powerful and preferred over advertising that it is 20 percent fat. “Everyday low pricing” is not perceived by consumers to be as valuable as sales events, because “everyday low pricing” presents price as expenditure, while a sales event frames the transaction as saving the consumer money. The endowment effect in behavioral science means that an individual values goods that he owns more than the goods of others. This is so because people feel the pain of loss more acutely than the joy of gain. The endowment effect is a reaction to loss aversion and regret avoidance.

Anchoring This is the tendency of individuals to focus on an obvious, convenient number or event. It is why retail prices are set at $3.99, $44.99 or $999.99. The mind anchors on $3, when in fact the price is really $4. Researchers assert that branding makes use of this phenomenon. When branding succeeds, consumers anchor their attention on the brand without further inquiry. In the rent-to-own context, rental dealers have long maintained that customers are most interested in the rental rate per week or per month—the convenient number—and base their decision to rent or not on that number, without becoming overly concerned with the other financial aspects of the transaction.

The optimism bias When polled, 82 percent of college students asserted that they were above average. This bias means that people are overly and unrealistically overconfident about their own economic futures. They overestimate how much they will earn in the future and they underestimate the likelihood of bad things happening to them—job loss, extended illness, divorce, etc. Health club members overestimate their future use of the facility by more than 100 percent. The recent debacle in the sub-prime housing market is proof of the existence of this bias as work. Consumers purchased homes far more expensive than they could have afforded with traditional financing and in accordance with traditional underwriting guidelines.

They paid little or nothing down and got interest-only loans with payback amounts scheduled to rise in the future. Consumers overestimated their future incomes and underestimated the risk of rising interest rates. Purely rational consumers would not have bought those houses. In the RTO context, customers may take on more products over time than they can realistically afford to rent. This can result in breakdowns far more serious than merely picking up merchandise and losing a customer. The facts in recent New Jersey litigation showed the optimism bias at work and resulted in that state’s Supreme Court ruling that rent-to-own transactions, however formulated, are credit sales for all purposes and subject to the criminal usury statute’s interest rate cap of 30 percent. Over a period of 14 months, the plaintiff in the case, a part-time cook, entered into five separate RTO agreements calling for total payments of $172 per week and a total RTO price of more than $18,000. The results of this customer’s optimism bias were ruinous for the entire industry in the state.

The bias against delayed gratification A perfectly rational consumer would carefully balance present consumption against future well-being when making current purchase decisions. The difference in value between getting it now and waiting for it until later is the consumer’s discount rate. Classical economic theory assumes a constant discount rate for decision- making. In fact, most consumers do not make such a rigorous analysis and are far more likely to seek immediate gratification by any means available and often at almost any cost. Rather than behaving rationally, individuals are impatient and myopic in the marketplace. Consumers demonstrate several biases in order to achieve immediate gratification, including hyperbolic discounting. No one can calculate present values in his head with much accuracy and an individual’s instinctive calculation of the discount rate varies with time and with the size of the amount in question. The shorter the time, the higher the discount rate and the higher the reward, the lower the rate. When individuals were asked what the equivalent value of $15 would be for them at different intervals in the future—in one month, in one year and in 10 years, the responses were $20, $50 and $100, yielding discount rates of 345 percent, 120 percent and 9 percent. (R. Thaler, “Some Empirical Evidence on Dynamic Inconsistency”, Economics Letters, Volume 8, Issue 3, 1981). This phenomenon may be why consumers are willing to take out payday loans with APRs of 400 percent—because the loan amounts are relatively small and the loan period short, usually two weeks.

Sunk-costs bias Individuals have been shown to be slow to walk away from sunk costs in a possession, even when the rational economic response would dictate that they do so. This bias manifests itself in the car business. Consumers who are far into a car deal tend to hang onto the car when, rationally, the consumer should default on the contract and let the car go. Large numbers of consumers have been shown to hang onto their homes right into bankruptcy when the rational economic decision would be to sell the house, pay off the debts and acquire a smaller house and avoid bankruptcy altogether. In the rent-to-own context, industry critics argue that the sunk cost bias keeps people in their rental agreements far longer than the other variables in their economic situations would dictate.

Other biases These are by no means the only cognitive errors and biases that behavioral researchers have identified. There is also the procrastination bias. Individuals with money in the bank will often delay paying bills until late charges accrue, when the rational bill payer would pay the bills on time and avoid the extra expense. There is the bias of “miswanting,” which is the irrational desire to obtain goods that will not, in fact, add to the individual’s quality of life, but rather is merely the object of an obsession, fetish, desire for status, etc. There is the biased assimilation of new evidence or the status quo bias.

People prefer “dancing with who brung ’em.” They resist accepting new information that would cause them to change their minds even when doing so would improve their circumstances and the cost of change is minimal. There is also the explanation bias, the self-serving bias, hindsight bias and the cumulative-cost-neglect bias that have all been identified in psychological experiments with test subjects. There are new biases and cognitive errors being identified and written about all the time that parse the economic decision-making process into smaller and smaller increments. The stated goal of all of this psychological experimentation is to yield more accurate behavioral models that describe and predict human actions in the marketplace. The implications for the RTO industry are significant. If individuals act irrationally when spending their money, then the decisions they are making may not be yielding the greatest benefit either for themselves or for others.

Finite resources, if they are being allocated irrationally, are not being allocated in the most efficient manner possible and, if that is the case, then the government may have an interest in helping people avoid their own inconsistencies and even in forcing them to make better decisions, not just for themselves, but for the society as a whole. Taken to its extreme, some critics have argued that RTO is never a good idea for consumers and the transaction should simply be banned. This is not far from the approach Senator Charles Schumer of New York has taken with his bill that is currently pending in Congress. The Hawkins’ recommendations attempt to strike some middle regulatory ground for rent to own. However, rental dealers may argue against some of these proposals because they find them cumbersome or impractical for their businesses. A more complete understanding of behavioral economics—why people do what they do in the marketplace—may help dealers frame these arguments. It may also give them insights into consumer behavior and help them rent more TVs.

Ed Winn III is APRO’s general counsel. His e-mail address is edwinn@mwlmlaw.com.

Central Intelligence: An APROfile of Joe Recla
by Kristen Card

“I did about 20 years in retail; I’d much rather be in rent-to-own,” says Joe Recla, president of Central Rent to Own (www.crto. net). “It’s much more relationship-oriented. Retail is a onetime interaction; rent-to-own is getting to know the customer over time. And it can be hard to make a retail customer really happy. I find the people we deal with in rent-to-own, if you take care of them, give them the respect everyone would like to have, then they’re very appreciative. They come back.” And come back they do, to the seven stores owned by Recla and his now-semi-retired partner, Curtis Knight, in the Northwest’s Treasure Valley. Launched 21 years ago, Central Rent to Own today remains the only independent rent-to-own chain in the 50-mile run between Boise, Idaho, and Ontario, Oregon—an independence Recla believes helps keep customers coming back to his stores rather than “The Big Guys.”

People don’t rent from Central Rent to Own or Rent-A-Center or Aaron’s,” says Recla. “They rent from Bob or Dave the salesperson; they rent from individuals. We work really hard at building relationships with our customers over time. I’ve got people here in Ontario who have been renting from us for almost 20 years and now we rent to their kids. So, yeah, I guess it’s working pretty well.” Of course, it probably doesn’t hurt to have been born and raised in the estimated 11,200-person town where you now base your headquarters. Recla, 57, is a native of Ontario, Oregon, and has lived there his entire life, save for a brief stint in Salt Lake City. Ontario lies about halfway between Salt Lake City and Portland, sidled up against the Snake River, right at the Idaho border, and springs from rural roots—as does Recla. “I grew up on a farm,” says Recla, his unassuming voice trailing off toward sentence end. “We grew mint, raised dairy cows, that sort of thing.

We were a family of seven kids: four brothers and two sisters; I was fifth. My first year of school, I went to Valley View Elementary, which was, at the time, a rural two-room schoolhouse, just like you imagine a country schoolhouse to be. My second year, they built a regular school.” He sounds a little disappointed. Still, satisfied enough in the town “Where Oregon Begins,” Recla graduated from Ontario High School, attended Treasure Valley Community College for two years, then ventured off—but not too far off—to Boise State University to be a member of the school’s first graduating class following Boise State’s classification as a university. Having earned his political science degree along with a teaching certificate and having wed his first girlfriend, Juli (who had secured a teaching job of her own), Recla pursued a position teaching high school history, government and sociology. He thought he had found the right fit, but was informed that the school offering the job also required him to coach, which he had no interest in doing.

So, freshly graduated and just a few years into a marriage, Recla found himself searching for work. He meandered into a local music store, a familiar spot. Recla had been playing bass guitar with rock ’n’ roll bands for several years—first in high school with the Charlie Brown All-Stars, then in college with a group calling themselves Tulgey Wood (a reference from Lewis Carroll’s nonsensical poem “Jabberwocky”)—and he and his bandmates had often bought instruments and other musical accoutrements from the store. The store’s owner hired Recla and the retail portion of Recla’s career was somewhat accidentally launched. “I got into the retail business and liked it,” says Recla. “About six months into it, the store was bought by Alta Distributing; their stores were called Eli’s. I worked for them for about 10 years—first, running a music store, then acting as district manager over four states, which is about 10 stores. I began to burn out, so I moved to Salt Lake City to run the company’s warehouse.

The company got bought by Hastings and I stayed with them only a little while before coming home to Ontario.” Unsure about his next career move, Recla happened to meet a man searching for a partner for his television repair business, which he was looking to expand and transition into an electronics service company. Curtis Knight and Recla hit it off and a partnership was born. It was January 1986. “Curtis had gone to a seminar about a year before and someone had made a presentation about rent-to-own,” remembers Recla. “Curtis had a four-page pamphlet about it. I read through it and said, ‘Hey, I think we could do this.’ And that’s essentially how Central Rent to Own came to be.” Initially, Recla and Knight simply added rental-purchase to their retail operations. But eventually, it became clear that rent-to-own was so much more profitable than retail, it just made sense to evolve into a complete RTO company—a move that increased the business by about 30 percent.

Still, Recla says financing was a significant struggle for the first few years. “You’ve got to understand going into this business that it’s going to take more money than you think,” says Recla. “It just takes a lot of money to get a rent-to-own store going. It’s tough. We were lucky—we had a friend of my father-in-law who was well-to-do, whom I’d borrowed money from and successfully repaid it. Around 1989, I went to him to see whether I might borrow about $70,000. I told him I could pay off all of our high-interest loans, make a monthly payment to him and we’d have enough cash flow to begin buying our own stuff. We talked and I showed him the numbers and, finally, he said, ‘Well, that sounds like a good idea’ and just wrote me a personal check and I handed him an IOU. We paid off our debts and repaid him ahead of schedule. But it was one of those milestone events that happen in your professional life that help get you to the next level. Rent-to-own has been extremely good to me and my partner; we would never have been able to do this well in retail. But it takes time to build a store. You’ve got to be patient, and diligent with the details.”

Today, attention to detail seems to be paying off for Recla, as Central Rent To Own has seven stores—in Ontario and in the Idaho towns of Caldwell, Nampa and Twin Falls, as well as a regular store, a corporate rental store and a Rent-n- Roll Custom Wheels and Tires franchise, all in Boise. Recla laughs about Central’s current fleet of stores, “We’d be twice as big if we hadn’t closed as many stores.” He refers to the company’s growth pattern, which really hasn’t had much of a pattern to it; it’s basically been a somewhat unsystematic series of openings, closings, buying, moving and refinancing. The latest addition is the Twin Falls store, which happened when ColorTyme sold to Rent-A-Center. “A group of ColorTyme employees actually came and talked with us about opening up a Twin Falls store,” says Recla. “We were instantly interested; good locations are hard to come across, but good people are harder to find.” And according to Recla, good people are the cornerstone of Central Rent to Own’s success. “What we offer that’s different from the big chains is a highly trained sales staff,” he says. “The long-term relationship is what builds business. The whole rental process is to establish relationships. I go to the same coffee shop every day here in town because everybody knows my name.

I can put my coffees on an account and make a monthly payment. I know the people who go there and the people who work there and they know me. That’s what we’re trying to do at our stores.” Additionally, Recla says Central’s stores tend to be a little larger than his competitors’. Also, Central Rent to Own is more sensitive to matching each store’s inventory to the taste tendencies of its community. Boise customers, for example, have more metropolitan tastes, while Ontario customers tend toward more rural fare. Another distinction Central claims is the uncommonly calm overall working environment Recla and Knight have tried to nurture for their customers, their employees and themselves. “We try to provide a family atmosphere, with family friendly hours,” asserts Recla, a father of three and grandfather to three more. “Working retail is all 60- to 80-hour weeks and every day you absolutely must make the sale. Rent-to-own has that to a degree, but it is generally much more steady and evenly paced than retail. If you have a bad month, then it’s not going to kill you, so it has a different intensity. We have expectations, but not the intensity of a lot of other places. And that attitude and feeling are reflected in how we deal with customers. It’s a more relaxed place to be and people like that.” It’s this more relaxed environment within his workplace that has allowed Joe Recla to do what he considers some of his most important work—beyond his store’s double doors. “Owning Central has given me some great opportunities to be involved in our community,” says Recla. “I’ve been the chairman of the school board. My wife and I are extremely active at our church. Recently, we’ve been involved in helping a medical clinic previously run by a private charity make the transition to a free public clinic.

I sit on the board and we’re working to gather support and contributions from the community. Our company has donated money. I personally have given money and volunteer my time, sometimes during workdays. My professional position has provided me with that chance to give back to my hometown. I’m really grateful.” Recla also spends a good amount of time and energy serving the rent-to-own industry through his leadership with state associations and his participation with the Association of Progressive Rental Organizations. A longtime leader at the regional level, Recla played a key role this past June in the creation of the new Northwest Rental Dealers Association, a merging of the Oregon, Washington and Idaho state organizations. “I’ve served as president of both the Oregon and Idaho associations,” he says. “Many people have stores in multiple states and it’s been difficult to get things going with a single state, so we decided to launch a Northwest association.

I’ll be serving as a board member; we’re currently developing new bylaws for the membership to approve and will elect officers. We’re also looking for lobbyists for each state to cover the capitals and coordinate their efforts for mutual protection.” At the national level, Central Rent to Own is a 15-year member of APRO, a group Recla says is valuable because of the community it creates within the RTO industry. “Curtis and I have consistently supported APRO because, for the small amount of money we put into it, it’s a really good return on our investment,” says Recla. “Membership is sort of like the United Nations—we’re all competing against each other, but APRO gives us the venue to all get together and establish relationships and work through issues that are all our issues. Through APRO, we focus on the things common to all of us, set aside the stuff we differ on and work toward a common good.” In his rare spare time, Joe Recla is all about reading, riding and riffing—pastimes he frequently employs to strengthen his family relationships.

This would-be high-school history teacher remains an avid reader, but of exclusively historical or political tomes (“If I’m not reading history, then I’m wasting my time,” Recla chuckles). He earnestly enjoys motorcycles—BMWs, to be exact—and owns three of the bikes so that family members can join him out on the open road. Recla’s wife of 36 years, Juli, prefers a sidecar ride, but sons Matt (a writer and teacher working toward his Ph.D. in history) and Ben (who works with his dad at Central Rent to Own) both like cruising around town family-style. And though long, long ago, he exchanged his regional gigs for the security of a day job, Recla has never lost touch with his rock ’n’ roll roots.

For the past 20 years, he’s played bass with the band at his Christian Life Fellowship Church; and since Matt plays guitar and Recla’s middle child and only daughter, Kylie (a photographer), sings, music has also evolved into a family bonding experience. Yes, Recla has deftly orchestrated a life with strong relationships as its foundation; the relationships he shares with his family, his community, his industry, his customers and his business partner are all lasting, all solid, all working beautifully. “The important part of rent-to-own and being in business is having good relationships and fostering a sense of community,” says Recla. “Like Curtis and I, we’ve been partners for more than 20 years. Partnerships are like marriages: most don’t last. We’ve definitely had our issues and disagreements, we see things quite differently sometimes, but that’s the value of the partnership. Whenever a partner or organization you’re involved with doesn’t do what you want, I think our first reaction is to split. But I think the best thing to do is to look for the value of the relationship and try to get through it together. Just don’t give up, because good relationships are well worth the work.”

Kristen Card is an independent business writer based in Austin, Texas.