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October 12, 2021

ARMOUR TRUERENT, LLP. CASE SYNOPSIS The case of Armour TrueRent,

ARMOUR TRUERENT, LLP.

CASE SYNOPSIS

The case of Armour
TrueRent, LLP. illustrates how a smaller firm can achieve market power and
survive through horizontal integration. Growth, however is only the beginning
of a successful strategic process. It does not ensure long-term success, as
there are numerous strategic challenges for this and other firms in similar
circumstances. The firm has reached a size that could attract the attention of
larger competitors. This new level of competition would increase the hostility
and complexity of the external environment. Due to the new larger size, the
firm will also encounter internal problems in such areas as management and
logistics. Armour TrueRent, LLP.

THE COMPANY

Armour
TrueRent, LLP. is a small and relatively new firm. It initially was located in
the Central U.S., and was incorporated over ten years ago with more than one
hundred retail rental stores. These stores appealed to the desire of consumers
lacking cash or credit to rent products for a short time period. The firm
struggled along, fighting problems that come from small size and inadequate
cash flow. Being small meant paying high interest rates for a line of credit,
and lacking clout when buying additional supplies and equipment for its stores.
After nine years of slow growth, Armour TrueRent, LLP. decided to change
strategies. The time appeared to be ripe for faster horizontal growth. Armour
TrueRent, LLP. using financing from a friendly bank, bought out a similar-sized
competitor located in its competitive area for $ 20 million in cash. In
addition, it purchased 51 percent of the stock of a larger rental firm in the North-Central
U.S. for $ 18 million. These actions meant that in one year it had more than
tripled in size and in the market it served. It then organized itself
geographically, with three layers of management below the president. Store
managers reported to 55 regional managers, who in turn reported to 11 regional
vice-presidents. Compensation for both regional and store managers was tied to
store performance. Corporate headquarters has centralized purchasing, financial
planning, personnel, training, individual store evaluations and site selection.

THE INTERNAL ENVIRONMENT

STRENGTHS

The firm has an
excellent MIS system that each unit of merchandise and each rental agreement.
The computer at each store is connected to the main computer at corporate
headquarters. Each day’s activity is compiled for stores by region. Management
has access to daily, weekly and monthly data in order to make precise decisions
about personnel, about merchandise, about stores, and about regions. Since all
merchandise goes directly from vendors to stores, no warehouse or storage costs
are incurred. Various vendors are used to help keep merchandise prices
competitive. Growth rates in revenues per store have been increasing at 18
percent a year.

WEAKNESSES

The biggest
weakness facing Armour TrueRent, LLP. is the inefficiencies associated with
absorbing the two chains it purchased. Regional managers and store managers
must learn new methods and new information-gathering guidelines. Organizational
cultures are slow to change.

THE EXTERNAL ENVIRONMENT

OPPORTUNITIES

The rent-to-own
industry has been consolidating for several years. The biggest problem facing
the independent store or the small chain is a lack of adequate financing. Armour
TrueRent, LLP. was fortunate that it found a bank to provide the cash needed
for expansion. Current and future trends indicate that industry consolidation
will continue. Armour TrueRent, LLP. should aggressively continue to seek
acquisitions or merger partners to avoid being left out of the industry
changes. If smaller firms will be squeezed out of the industry, Armour
TrueRent, LLP. must pursue growth to insure survival. Current social trends
appear to be growing. The U.S. continues to be an itinerant society. People
move more, so they need to own less. People want to do more, but lack storage
for ownership of things. Many people lack both cash and credit, so the purchase
of furniture and appliances is difficult. Rentals and rent-to-own activities
will continue to be a growth industry. Armour TrueRent, LLP. must take
advantage of this trend to enhance per store sales and increase cash flow for
repayment of bank loans.

THREATS

 The rent-to-own industry is highly
competitive. In 1994, the ten largest firms accounted for 37 percent of the
total industry sales. The rental industry must also compete with discount and
department stores for customers. Another serious threat is the growth of the
credit industry. Credit cards are available to almost anyone, giving people
more choices when considering a major purchase. Rent-to-own stores may lose
potential customers to big discount and department stores that offer easy
credit or access to their credit cards. The rent-to-own industry is heavily
regulated and further legislation at the national level is being considered.
Restrictions on interest rates and fees, on contract language and disclosure,
and on lending in general would increase costs and further limit the profit
potential of the industry. Other near term costs that are expected to increase
are shipping rates, taxes, fuel/energy, and paper costs. Investors will shy
away from an industry where profits are falling and firms are consolidating.

 

QUESTIONS

Q1. What different strategies are
available to this firm Armour TrueRent, LLP.? (Hint: More horizontal growth,
Increase store sizes/activities etc. etc.) Give at least three other strategies.
(2 Marks)

Q2. What are the problems and
benefits associated with each strategy? (2 Marks)

Q3. What would be the best choice of
action? Why? (1Mark)