If a U.S. recession was lurking within the next 90-days to 12 months, people probably wouldn’t be leasing out big screen TVs and refrigerators at a nice clip from Best Buy (BBY).
Yep, it’s so far so good for Best Buy’s leasing program it launched in February with rent-to-own giant Aaron’s financing arm Progressive Leasing. Best Buy’s new CEO Corie Barry told analysts on an August 29 earnings call that leasing is already having a “positive” impact on same store sales.
“Throughout the second quarter, we continued to see customers use lease-to-own to acquire products across a wide variety of categories, with the largest being computing. We also continued to see a significant number of customers take advantage of the 90-day purchase option, which consists of an additional payment plus the retail price,” Barry said.
Best Buy tested its lease-to-own option in a few Texas stores for close to two years. It intends to complete a 45 state rollout by the end of the third quarter. An online leasing option isn’t too far behind.
The lease length for products is often capped at 12 months. There is a 90-day payment plan and early buyout option.
Given the program is in its infancy, Best Buy didn’t reveal the precise sales lift in the second quarter. Best Buy’s domestic same-store sales rose 1.9% in the second quarter, which was generally viewed as a disappointment on Wall Street.
But for Best Buy, the early takeaway from lease-to-own is a win win. Not only is the company moving inventory at a quicker pace than otherwise normal, but it’s pushing new customers into stores that have been significantly upgraded with new fitness, smart home and computing sections (among others).
That engagement is likely to get people thinking about what other tech gadget they may need or want.
Engaging new customers
“We definitely are seeing some level of new customer. I mean, between the new customers that we’re seeing and what I call re-engaged or people we haven’t seen very frequently, that’s actually the majority of who we’re seeing use the program. So, we like the fact that it’s engaging for us a very different customer, maybe one that’s been less frequent with us,” explained Barry.
Barry has said in the recent past the delinquency rate is low, too, around 1%. So it doesn’t appear Best Buy is anywhere near headed down the same road as Countrywide — doling out bad loans to drive sales and profits.
Wall Street is on board with Best Buy’s leasing foray as well.
“We're encouraged to hear the initiative is yielding a comp lift and customers are utilizing lease-to-own for a wide variety of categories,” Jefferies retail analyst Jonathan Matuszewski wrote in a note to clients.
Oppenheimer retail analyst Brian Nagel said the lease-to-own market in the U.S. — led mostly by Conn’s and Aaron’s — is worth around $25 billion to $35 billion. Nagel believes lease-to-own could add “modestly” to Best Buy’s same-store sales in coming quarters
That’s provided there is no recession, which judging by the response to leasing electronics at Best Buy, isn’t hiding around the bend right now.