A few other distinguishing characteristics of an equipment dealer are generally they have factory trained technicians. Equipment dealers are very focused on gross profit margin. They're also very focused on machine population, which drives the parts and service business. That's the most profitable pieces of the business for a dealership is to be able to provide spare parts and do service, maintenance and repair on equipment. So machine population is an indicator of future revenue. Dealers also are very focused on warranty service. This is something that they do on behalf of the manufacturer. It's, again, part of the value added proposition that a dealer can get their issues taken care of. I mean a customer can get their issues taken care of by a dealer, and the factory will pay for it. Generally, a customer is also tied to that servicing dealer. He's within that territory. And so a dealer, more machines in that marketplace generally mean that he's going to get the business directly from that customer. And the business hours, when you've got a protected territory, a dealer can decide whether he wants to be open on Saturday or not. Because if he's got a protected territory, where else is the customer going to get that work done or be able to buy that equipment or buy those parts? If a dealer wants to open at 8 o'clock in the morning, he can do that because it's at the owner's discretion how he wants to run the business. Because he generally has a protected territory, he can feel comfortable in the fact that no one can sell his brand or his product or the parts or do the warranty except they come through him. So up until about the early 1970s, the middle 1970s, distribution continued to work the way as we described before. Then as my family, like many others, started to get in the rental business, all of a sudden these rental stores started to pop up. And how in the world could a rental store add any kind of value to an end user? They didn't have a relationship with the manufacturer. They generally had to work through the local dealer distributor. So as my family was in the rental business, we bought from a local John Deere dealer or maybe the Case dealer. And we bought those products and, if you will, basically repackaged them to be able to deliver to an end user. And what I mean by repackaging is we were very interested in shorter-term commitments from customers. We really didn't want to attract customers that were interested in buying equipment from us. We wanted to rent the equipment to them. So dealer distributors who were continuing to be focused on selling equipment, they liked the idea that they had a local partner to sell the equipment to who would represent their brand and then be in a position to be able to rent that equipment by the month or by the week or by the day, depending on what the customer might want to have happen. So the rental stores across the country started to find a place in the market by not coming out with new equipment but by actually taking existing products that were in the marketplace and wrapping a different level of services around those same products that were more in tune with what the end user really wanted to receive. So over time, as rental companies began to get their legs under them, then they decided they would like to have more direct relationships and be able to buy the equipment at a better price. And so there were some manufacturers that did not have a strong dealer distributor network, and they were excited about being able to sell directly to a rental store because the rental store could immediately put units on the street, which gave them market share. So now we have a different ballgame. We have a different pathway for manufacturers to be able to get to the end user via rental stores. So let's talk about the business model for these rental companies. Just like my family's business, we rented equipment. Over time, we began to sell equipment, and then we also got involved in merchandise and consumables. So we were primarily focused on daily, weekly, monthly rental activity. We sold small light equipment, everything from cutoff saws and generators and pumps, plate tamps, all that type of light equipment. We rented excavators. We rented wheel loaders. We rented access equipment. And, oh, by the way, those same customers, they needed hard hats. They needed abrasive blades. They needed diamond blades. They needed rubber boots. They needed shovels, utility contractors going out to repair water lines. They needed all kinds of things. So rental companies were very flexible in how they decided to serve their customer. In some cases, you found rental stores that almost looked like a hardware store inside. What they were doing was adapting their business to do as much business as they could with these customers. Then over time, we ran into situations where sometimes customers damaged equipment. And so now we have some problems. How do we solve that? So a product called Loss and Damage Waiver was created, probably going back into the 60s, early 70s, and it started to become mainstream probably late 70s, early 80s. And this was a financial product that basically enabled us to charge a few more percent on every rental and, if you will, create a kitty or a pot in which we could repair equipment for those things that generally were not intentionally damaged by a customer, and it was going to cause a real rift between us and our customer because they dented the gas tank, they knocked the mirror off, they bent the steps, a variety of things. And so Loss and Damage Waiver started to become a real revenue stream for rental companies. And in today's market, Loss and Damage Waiver, the percentages are up north of 12%, and in some cases 14% of the total rental charges. So it's a significant revenue stream for rental companies. So if you looked at a traditional dealer business model and the value add that they brought about products, and you looked at a rental company and the value add that they brought about, they were actually very distinct. They were very different. And the fact of the matter is the customer wanted all of those things. If they purchased equipment, they wanted product support, they wanted expertise, and if they were renting equipment, they wanted short-term, they wanted availability, they wanted all the small things that went along with the items that they were renting. So rental companies had a strong value add because they were very much focused on the customer. So now that we've learned a little bit about the business model for a rental store, let's take a look at some of the characteristics. And, again, I hope you're contrasting this with the characteristics that we talked about for an equipment dealer. First and foremost, for a rental store, they have always been focused on customers foremost, not about products. If you'll recall, a dealer distributor signed up for a particular brand, so they had products first and had to go find customers. Rental stores, on the other hand, found customers first and then figured out what the customers really wanted, so there's the focus on services, determined to come up with a solution for that particular customer and go get whatever types of products that made sense to solve the problem. So, for instance, rental stores for years could basically cherry pick. They could buy one brand of dozer because they thought that was the best one. They could buy a different brand of excavators because they thought that had a better value, and so on and so forth. So rental stores were not brand sensitive. They just wanted to solve problems for customers. In the early days, the rental stores were clearly located right near where traditional dealers were located. The property, the real estate was cheap. There was usually available industrial warehousing. A rental store hardly ever bought the property that they started on. They almost always rented it, whereas a dealer would generally invest heavily in buying his real estate, because they needed a lot more real estate than a rental company. The next item is profit focus. So a rental store never had any responsibility to any particular manufacturer to go get a specific market share. That wasn't their focus. People got in the rental business to make money purely focused on profit, and as I said, they didn't tie up their money in real estate or buildings. They invested primarily in their rental fleet. Oftentimes they even leased the vehicles. So they felt like they could make more money renting equipment than their money would yield if they bought the property. And when my family got in the rental business in the 70s, it was always a relatively low barrier to entry. There wasn't any particular threshold of investment. You could start with $1.5 million worth of fleet. You could start with $5 million worth of fleet. It didn't really matter. No one was dictating to you what your initial investment requirement was. So let's continue to look at additional rental store characteristics. Facilities were very low cost as compared to what an equipment dealer might do. The response times for a rental store are critical. They generally recognize that being able to respond to a customer in the field in generally less than an hour of being able to transport the piece of equipment there or get a technician there, and oftentimes dealers could not respond that fast. So there is generally an exceptional level of response time that a rental store has over a traditional dealer. Also, the rental store characteristics, the dealers, in so many words, had a captive audience because if you wanted to buy a particular brand of product, there was a dealer that had a protected territory. You'd have to go into some other county or state to buy that particular brand of product, or you had to go through the dealer. In the rental business, the customers had the freedom to choose whichever provider they wanted. So that put the pressure on rental companies to have to outperform the other rental companies, typically in the way of service. Rental stores, a little unlike dealers who are generally focused on gross profit margin, rental stores were generally focused on cash flow, trying to make sure that the income that they had going on their equipment was greater than the outgo they had on the financing plan, and that focused on fleet utilization. So rental companies have always been focused on trying to keep their equipment busy, and that generates cash and that enables us to pay the bills. Rental stores are also very relational with customers because the customers typically needed rental equipment multiple times during a month and sometimes multiple times within a week. So that enabled the rental stores to have a much closer relationship with their customers than a traditional dealer. A salesman may court a contractor to buy a piece of equipment over a two- to six-month period, and then once he sells the piece of equipment, he may not touch the customer, but maybe once a month, maybe every couple of months. Rental companies stay very close to their customers. Then national rental companies started to show up. I sold my company to United Rentals in the late 90s, and all of a sudden, a mom-and-pop business now had 750-plus locations in the late 90s, and so now all of a sudden they could get the attention from original equipment manufacturers to buy large quantities of products. That was very attractive to manufacturers, and that gave national rental companies real leverage in the way that they bought products. Smaller rental companies, on the other hand, typically still have to buy through their local distributors, especially the major brands. Rental stores did not have to be concerned about territorial constraints. They can encroach on anybody they choose to. So they can go across state lines. They can go across county lines. They can chase the business wherever it is at. And then lastly, business hours. So when my family got involved in rental, there wasn't an equipment dealer in our area that was open before 8 a.m. My family decided to open our business at 7 a.m. So for one hour every day, we had no competitors. Today's market, contractors need to be on the job at daybreak almost, and so rental companies today are rolling trucks at 6 o'clock, 6.30 in the morning. They're making themselves available to contractors to be able to pick up equipment and be on the job because competition is driving everyone for higher utilization, be faster, be quicker. So convenience is the name of the game when delivering rental to contractors.

equipment dealers

rental stores

distinct characteristics

customer service

convenience