Not only do electronics become obsolete quickly, but they also depreciate faster than, say, furniture. With users having no incentive to maintain them well, the maintenance costs for companies stack up. Customer returns of faulty products only add to the chaos, throwing costs out of whack. “In two instances, the fridge we got didn’t work and we had to return it. Finally, what we got had dents, but at least it works fine,” said Satyajeet.
Some, like RentoMojo, even allow users to eventually buy the rented items to recover costs sooner, even at the risk of undermining the rental concept altogether.
The puzzle that management strives to solve
Redeployment is a part of the larger inventory management puzzle these companies have to solve. At any time, said the RentoMojo executive, it needs to have inventory worth 3-4 months in order to make deliveries in 3-4 days. “So capex (capital expenditure) gets locked in for demand that comes four months later,” said the employee quoted above.
RentoMojo earned Rs 35.5 crore ($5.1 million) for the financial year ended March 2018, a 162% growth over the previous year. Furlenco’s revenue for the same year was at Rs 38 crore ($5.5 million), growing 82%. Karimpana said, this year it will hit the Rs 100 crore ($14.5 million) revenue mark.
As with any credit cycle that takes 4-5 years to know if the loans you gave were returned, these companies are in that make-or-break stage now. “It takes time for assets to be created and deployed, so now you will see the tipping point,” says Karimpana. Both RentoMojo and Furlenco are in the middle of raising funds. But while funding can help tip the scales, the real difference is when the money meets the mindset.
The rental carrot for customers
In India, ownership has been associated with pride. Used goods, on the other hand, come with a tinge of discomfort. One of the millennials we spoke to for the story didn’t want to be quoted because he was “embarrassed” by the number of things he rented.
Rental companies are counting on sheer convenience overcoming these notions. And the spending power of the new workforce is what is driving these companies to pursue this hard-to-crack business. “Millennials today earn well and would rather spend on experiences instead of locking all their capital in assets which eventually will not appreciate in value,” said Karimpana.
This behavior shift is likely to be driven through new-age products. Ather’s electric two-wheeler, for example, costs Rs 1,22,000 ($1,777). In February, it offered a leasing option to make it more accessible to millennials enamored by its eco-friendliness but wary of its price tag.
Already, salespeople at the Ather Experience Centre in Bengaluru say that about 10-13% of customers opt to lease the bikes instead. Ather has partnered with a leasing startup called Autovert for this. Autovert pays the entire on-road price of the scooter to Ather, takes ownership of it and all the responsibilities that come along with this. It handles the insurance cost, processing fee, and service cost. All for a monthly fixed rental amount from the user, including a refundable deposit.
Impact of the Electric Vehicles
Uday Disley, Autovert’s founder, believes electric vehicles (EVs) are particularly suited to a leasing model. “The battery deteriorates faster than the vehicle, and it makes for 30% of the vehicle cost. So how can financing address that anxiety?” he asks.
But different categories behave differently while renting.
For instance, when a consumer buys a scooter on loan, she spends more than double the money she would have if she rented it. However, the expense of ownership shrinks to a little less than a third of the cost of renting if she sells it after the first year. In this case, rental platforms and leasers are counting on the disorganized resale market playing to their advantage.
A water purifier, on the other hand, which costs around Rs 15,000 ($218.5), shows a different result. Even if the owner ends up selling the purifier at the end of one year, she will end up spending way more than a consumer who leased one as the service and maintenance costs associated with it are high.