February 21, 2009 2:00 am

Hire trade grows as consumers seek out value

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The rental market is growing rapidly amid the downturn, as cash-strapped consumers search out costeffective substitutes for high-street spending.

Radio Rentals and Rumbelows thrived in the previous recession, but suffered in the era of cheap credit. Now, as the government pleads with banks to increase their lending, a new generation of rental companies is seizing the opportunity.

"We are going into this recession with quite a wide choice of value retailers, but when it comes to more expensive products, perhaps we are thinking more about renting," said Maureen Hinton of Verdict Research, a retail consultancy.

"That has a lot to do with cash flow and credit . . . We are all trading down."

Although renting is usually more expensive in the long term, weekly payments are the only option for people who cannot get credit to buy. Taking into account the extra costs associated with ownership of expensive items such as cars, renting can be more economic.

The internet has made it easier to rent everything from televisions and furniture to jewellery, cars and even pets.

Erento, an online renting marketplace for niche lending services, from holiday homes to cameras, began operating in Britain a year ago and has seen growth outstrip its expectations threefold. Traffic leapt 92 per cent in January alone.

"The credit crisis is probably the best thing that ever happened to Erento," said Clinton Patterson, its director of international operations. "But I also believe the biggest growth we are having is a change in behaviour, as people see that it makes sense to rent something rather than buy it."

Erento's revenues - based on commission - across Europe grew 170 per cent last year, with 2,000 more companies joining the site to seek another sales channel or offload unsold stock.

DIY products, such as floor sanders and hand drills, are in high demand as people spend more time on home improvements, but do not want to pay builders to do the work for them.

John Singleton, managing director at Hire Station, which rents tools to businesses and consumers, said: "When times are tougher, clients see cash as their top priority, so they move towards more rentals." That has acted as a bulwark against the slowdown in the construction sector, he said.

Rentals are surging in consumer durables, too. GfK, a market research group, has recorded a leap in the proportion of rented televisions in the total TV market from 2 per cent in 2004-05 to 9 per cent in 2008.

Brighthouse, which offers "rent to own" household goods, saw a double-digit revenue rise last year, with furniture a notable success. But while many of its customers are on benefits, and were struggling for credit before the crunch, the same trend is emerging in higher-end products.

Car clubs, such as Streetcar and Zipcar, are growing.

"In the current climate, people are considering the true cost of car ownership," said Brett Akker, co-founder of Streetcar. "More people are seeing car ownership as a luxury rather than a necessity, which they might have done a year ago." Streetcar has seen membership rise from 22,000 in January 2008 to 52,000 today, and it hopes to expand further this year.

HandbaghireHQ.co.uk, an online handbag rental business, has seen membership rise by a fifth in six months, said James Trafford, a co-founder. Gift certificates bought by men were popular at Christmas, he said. "We wonder if it's guys trying to steer their wives down this direction to curb certain expensive habits."

Cashing in on physical capital

One innovative new model to emerge aims to do for rentals what Ebay did for direct person-to-person selling.

Zilok, a French start-up which began in 2007, is accelerating its international expansion as it sees opportunity in the downturn.It launched a UK site in April. Membership surged in October and November and is now doubling every month.

"We have seen that there was some movement in the site in the UK, which is clearly connected to the [economic] crisis," said Gary Cige, the site's founder. "The crisis is helping [Zilok] because it's one of the only ways to make money with physical capital and not financial capital."

Zilok's highest-earning members in France have made €700 (£622) in five months, he said.

Joining is free and members set their own prices, with Zilok taking commission between 5 and 10 per cent depending on the total amount of the transaction. The site provides a legally binding rental agreement for each transaction, which is printed and signed in person when the goods are handed over.

That personal contact builds trust and enables lenders to check identities or take a deposit, said Mr Cige. While the site has had no significant problems yet, it is adding insurance soon.

With 60,000 members posting 100,000 items to rent across Europe to date, it expects UK membership will top 30,000 by the summer. Nearly 300,000 visitors check its French, UK and Dutch sites each month.

The most popular items searched for on the site are games consoles, party dresses and baby equipment.

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