Radio Rentals must act to stem decline

Losing your marketing director after only nine months is not as rare as it may seem. Even when he leaves midway through an estimated 10.5m advertising pitch – rumoured to have been cut to 6m – it could be explained away.

But the fact that Radio Rentals has now appointed its fourth marketing boss in five years, when its profits are falling and it has had to close 90 stores, has set alarm bells ringing at the Thorn-owned chain.

One source says Nick Cornwell quit as marketing director (MW July 24) because the parent company has not allowed him to do his job. The source claims Cornwell realised that not even good marketing can save Radio Rentals. “[Renting] is a dying idea. How do you revitalise a dying market?”

The man with that job is Radio Rentals’ new managing director David Williams. He is in the process of a root and branch review of the chain’s marketing strategy – the essence of which must be to claw back the dwindling market in which it is frozen. City analysts suggest that it has to be radical if it is to secure the future of the remaining 500 high street stores.

The building society windfalls, estimated to have amounted to 33bn worth of handouts, have been converted into a leap in profits for electrical retailers. But they have had the opposite impact on Radio Rentals, with reports suggesting that contract cancellations have increased by 20 per cent.

Its share price has suffered as a result, sliding 18.5p to 158.5p and wiping more than 80m of the chain’s value. This compares with the demerger price of 408p in August 1996. Thorn’s operating profits fell 11 per cent to 76.2m in the year to the end of March – Radio Rentals took much of the blame. Meanwhile, its sister chain, the much smaller Crazy George’s, is trading “encouragingly” and expanding.

The rise in insurance premium tax from 2.5 per cent to 17.5 per cent in April has forced the chain to raise prices by up to six per cent. Clive Vaughan, retail consultant at Verdict Research, describes the IPT rise as the final nail in the rental market’s coffin.

Analysts are of a similar opinion, although they describe a much broader downward trend in the rental market as the main reason Radio Rentals has been left struggling alongside the likes of Dixons, Currys and Comet.

The first analyst Marketing Week asked to comment on Rental Rentals’ future immediately replied “there is no future for Radio Rentals”. A second suggested that the only way forward for the business is a gradual process of downsizing.

Our first analyst explains that there has been a particularly rapid decline in television and video rental over the past five years, mainly due to the rising popularity of interest-free credit. Radio Rentals responded to this trend three years ago by offering a wider range of stock, including white goods, mobile phones, PCs and furniture. But the store dropped its furniture range because it performed so poorly.

Around the same time that the wider range was introduced, the chain also moved into the “option to own” area, offering customers the opportunity to walk away with their goods at the end of a rental contract.

The idea was, for example, that once a customer had taken their television home, they would then decide that they would like a video to go with it and take out another contract, as is the case with Thorn’s US chain Rent-A-Center. However, according to our analyst, people are not taking out further contracts.

Our second analyst explains that the rental market, which has been steadily declining since the mid-Seventies, is shrinking at a rate of three per cent a year. He believes the way forward for Radio Rentals is to accept the shrinkage in the market and steadily close stores, a process it has already begun.

He adds that this is something Radio Rentals’ main competitor Granada has already accepted. Whereas Radio Rentals closed 90 stores at the beginning of this year, Granada started earlier by closing 100 stores last year.

“Granada has more realistic expectations of the rental market. Its priority is to generate money to pay off the debt left over from [the acquisition of] the Forte hotel chain, whereas Thorn was more interested in demonstrating that it could grow following the demerger,” he adds.

A spokeswoman for Radio Rentals says there are no plans to close any further stores this year.

If there are no plans to downsize, the current marketing review must recognise that radical measures are needed to revitalise a fast diminishing market. Neither Williams nor Cornwell’s replacement Mike Ryan – Radio Rentals’ fourth marketing director in five years – were available for comment.

But they will have their work cut out – not only are electrical goods now cheaper to buy than ever before, but technological advances make them a reliable investment. As Dixons and Comet can testify, these two developments combined mean that the renting sector is rapidly becoming obsolete.