Rental industry revenue is projected to grow from $36 billion in 2014 to $50 billion in 2017, making it more important than ever for rental companies to utilize current statistics and industry projections to prepare for the future.
At the 2014 American Rental Association Rental Show, Billy Beane, of the Oakland Athletics and subject of the movie ‘Moneyball’, was the keynote speaker. In his presentation he drew a lot of comparisons between the rental industry and running a successful baseball club. The most important aspect of his message was the importance of relying on numbers and statistics rather than gut feelings when making critical decisions.
The Oakland A’s currently have one of the lowest budgets in the league for player salaries and yet still manage to finish with more wins than their payroll would suggest. Beane said they had no choice but to be creative in how they made decisions because “if we ran our business the same way our competitors did, we’d finish exactly where our numbers said we would”. The team’s salary costs are 70 percent less than high budget teams such as the NY Yankees and they have still managed to be profitable every year for the past 17 years, even during slower seasons, and deliver successful teams.
The secret to their success is making decisions based on data to find undervalued assets and identifying overvalued assets to eliminate. Beane said his own career as a player was a classic example of an overvalued asset, “I was judged based on the visual: I looked like a baseball player so everyone thought I would be one.” In reality, his stats reflected a much poorer player than he was valued at.
What does this mean for rental companies?
As rental organizations prepare for higher customer demand, it is imperative that they analyze where their industry is headed and what equipment will be most in demand. They must identify overvalued assets and consider what items they can stock that are undervalued, but that will be profitable long-term.
An example of this is how rental companies are preparing to service a recovering housing market and increased construction projects in the US. Rental companies in the construction rental industry are currently evaluating their fleet and preparing for increased demand, which has resulted in a trend of aggressive re-fleeting in the US over the last couple of years. According to reports the majority of these new purchases were aerial platforms. This trend continued this year at the 2014 ARA Rental Show, where companies like Vermeer, IHI, and Skyjack doubled their expected sales at the show.
Industry analysts reported that most rental companies purchased earthmoving equipment in 2012 to diversify their fleet. From 2011 to 2012, fleet spending levels were up 10 to 14 percent for equipment such as rubber tracked loaders, skid steer loaders, compact excavators, and small wheel loaders. In addition to these numbers, the rough terrain forklift market including telescopic book forklift increased by approximately 49 percent. In the US in 2012, fifty-two percent of all new equipment was sold to rental companies as part of this re-fleeting process.
It’s easy to talk about having great information to make these critical decisions, but how can rental companies access industry metrics and other rental industry statistics?
One resource for rental companies to stay informed of ongoing issues affecting the rental industry is to become a member of the American Rental Association. In addition to representing the interests of American rental organizations, they also have very strong Canadian and international divisions. The ARA offers their members forecasting data, insurance and risk management resources, marketing help, and networking opportunities in addition to more services. Paul Phelon, current president of the ARA, said at the ARA Rental Show that he benefited greatly in his own rental business from the rental penetration index and encouraged members to “let ARA be your strategic partner” to help use these tools to increase their business. Attending the annual ARA Rental Show is also a great time to connect with industry experts and vendors showcasing new equipment and solutions for rental organizations.
Other available resources include online organizations dedicated to reporting industry trends and revenue projections for the rental industry.
- Rental Pulse (affiliated with the ARA) for the construction, tools and homeowner, and party rental industries.
- For Construction Pros for the construction rental industry.
- Rental Equipment Register for construction and tool rentals
- Canadian Rental Service for construction, tools, and party rental operators in Canada. To make it even easier to stay informed, sign up for a free subscription to their magazine.
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By Malcolm Roach of Open Door Rental Software, Dynamics NAV for Equipment Rental