|Karen Ackerman, CERP
Karen Ackerman, CERP, general manager, Special Event Rentals, Calgary, Alberta, Canada, and a member of the American Rental Association (ARA) Event Rental Shared Interest Group (SIG), tracks every aspect of the operation, including subrentals.
“We track all our subrentals and requests for items we don’t currently own. At our store, our sales team members take all requests for items we don’t have to management before saying no or considering it a missed rental. We do this because using a missed rental report that is generated every six months or annually isn’t helpful for responding to trends or what our customers want now. We have a pretty extensive inventory, so for companies with smaller inventories, it might be difficult to review every request as they come in. With a smaller inventory, it is best to track and review missed rental reports on a weekly to monthly basis,” she says.
Determining whether to purchase an item depends significantly on the return on investment (ROI). “For existing inventory, we often have several years of data we can review to see how many times it has rented over the years and if it is trending up or down year over year. We look at the overall ROI, the purchase price as well as the annual ROI. The overall ROI might be great for a product, but in the last few years maybe its ROI has been declining. So subrenting might be better in a situation where you have a declining annual ROI. Maybe the product isn’t as popular, but we have a one-off request for it,” Ackerman says.
For inventory she has no history on, “we will look at the market rental rate and the cost to purchase. We determine a rental rate for the items based on what the market is willing to pay. Then we divide that into the cost to determine how many rentals it would take to pay for it. For more fragile items — and less popular ones — we would want it to be paid for in one to four rentals, depending on the item. For other items with a longer lifespan in rentals — those items that can hold up more or are higher volume renters — the typical rule of thumb is that it is paid for in eight rentals. If the product cannot meet those rules, then we would look at increasing the rental rate if possible or we will pass on purchasing the product. Before deciding on a new product, we look at the ROI and the numbers, how to store the product, how to transport it, whether it will hold up over time, and how we clean and package it,” Ackerman says.
Other factors include lead time and storage capacity. “Event lead time is crucial for making the decision to purchase versus subrent. If the event is days out, purchasing is often not an option. For new products we’ve never previously rented, the estimated time of arrival is important to know prior to making purchasing decisions. We like to get new products in our inventory and in front of our customers three to six months before our busy summer event and wedding season begins. This is strictly to avoid missing a season. Storage space is also an issue for us. Our building is 32,000 sq. ft., and we go right to our 28-ft. ceiling with storage. We also have trailers that we use for additional storage and our tenting is run out of a yard that is off-site. Space is an issue, so we are constantly evaluating what doesn’t rent to sell it off,” she says.
The pandemic, first with all the closures and then with varying restrictions, added stress to the equation.
“We were seeing the effects of everything last minute with restrictions changing,” Ackerman says. “The restrictions would loosen up quickly where one day a person was allowed to have 50 more people at their event. Of course, they wanted those extra people. Their orders increased, sometimes within a few days. Most of our clients were more open to taking whatever they could get. If what they wanted wasn’t available and we could offer something comparable, they would take it.”
Now, with the current supply chain issues, Ackerman is keeping in contact with her suppliers so she knows if prices have increased and whether her supplier is struggling with long lead times on popular products she might need more of. “You might not think it is an issue and then you call a supplier and prices have gone up 20 percent and their lead time is six months. Then you are back to the drawing board looking for a new supplier, looking at your costs, etc. Keeping in contact with them is key as well,” she says.
Jason Campisi, general manager, South Jersey Party Rentals, Pennsauken, N.J., also is diligent about tracking subrentals, missed rentals and all the other pertinent data points for making an informed decision.
There are two ways he makes acquisitions. “The first way is capital expenditures — those are larger inventory based on our clientele or a new product line we want to launch. Those are done with a different time frame for return on investment. We set our budgets for capital expenditures and base it on five-year equipment leases. We take that longer period of time to pay back from the net profit generated by the new equipment,” Campisi says.
“We also set aside cash that we expect we will spend for the year on our ‘Oh my gosh, I need to have it.’ We set a budget every year for how much we will spend in cash. During our sales meeting — myself, our sales manager and director of operations — we look at where we can subrent or purchase. Once that money runs out, that is it. We look at how much we put in the kitty, which comes from profit. What we purchase varies from year to year — what is the product, is the product unique to us that we probably will acquire it or is it a commodity in our market? I tend to suggest subrenting commodity items as a strategy because I would rather have that budgetary allowance for an item that is unique to us and harder to subrent, such as a special chafer or china pattern that we carry. We know during the course of the year we have booked out several events and must acquire it to fill the orders. If it is a cash purchase, I like to pay it off in a year’s time. That way it is not an item that is draining us,” he says.
Campisi has programmed his inventory set to sizes “so we know based on our client mix that we want to maintain 3,000 of this glass, for example. The system says maintain 3,000. If we get below 2,750, we want to get back to 3,000. Those decisions are done after a lot of research. So, in the heat of the season, we know where we want and need to be on those product lines, particularly those that break. Sometimes it is as simple as ‘This is one of our best clients, just go buy it.’ All those things come into play,” he says.
Like Ackerman, lead time and storage space are additional critical factors. Another is if it will be an item that will make the operation stand out in the market. For Campisi, “everybody has to find their rhyme or reason for their market. That is why it is critical to pay strict attention on a system that works for you, knowing that any money you spend on gear is coming from your profit. The math doesn’t lie. It is like buying stocks and mutual bonds — each product line is a little different in your strategy. A company needs to have a portfolio, just like you have in stocks, of your safe purchases, your more speculative purchases and the ‘got to have it’ purchases,” he says.
The pandemic has made Campisi “a little more gun-shy,” he says. “Once you got knocked down that hard, you want to be prepared for another hit. I believe we were in a good position when it hit because every year has to pay for itself. We don’t borrow for the winter to pay it back the rest of the year. We save from our profits during the year to have cash for any shortfalls the following winter,” he says.
Campisi says, “everyone’s mix is different. The bottom line is still the bottom line.”