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Arcorp, Inc. Furnishing a New Lease on the Future

June 1, 1996
Related Topics: Behavioral Training, Human Resources Management Systems (HRMS/HRIS), Featured Article
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Picture turning at the only flashing light in Gettysburg, Ohio. Cross a short bridge. Turn right. Wind down a country road past the cemetery and the shaded tree banks. And suddenly, behold to your left a tan, multilevel building in the middle of a corn or wheat field—depending on the season.

Two years ago, Ann K. Pehle couldn't visualize herself working in such a simple environment. But being an open-minded adventurer, the Chicago native wanted to re-enter the corporate world after working several years as an HR consultant. She applied and was hired in February 1994 for the position of human resources director for Arcorp Inc.—the parent company for 53 Shastar Rent-To-Own stores and several other retail/manufacturing enterprises headquartered in Gettysburg.

Prior to Pehle's arrival, Arcorp Inc. didn't have an HR department. Like any skilled artist facing an empty canvas, Pehle took a deep breath. Then she utilized the tempered tools of her profession to create the company's HR division as a prized work of art. Within two years, she has helped articulate Shastar's mission and value statements; hire three HR staffers; install the company's first HRMS system; and institutionalize Shastar's recruitment and training functions for the growing company that earned $25 million in 1995.

Over the years, the rent-to-own industry that initially attracted blue-collar families increasingly has included a growing market of 3.4 million Americans from all walks of life: working people, soldiers, newly married couples—those who for various reasons prefer flexible, short-term rental plans with no full-payment obligations. What that means for Shastar is being able to effectively recruit and train its managers and sales staff to build intimate, long-term customer relations with its week-to-week clientele.

Not an easy task. Particularly for a 14-year-old growing enterprise in a $3.8 billion-a-year industry, somewhat tarnished in the past by the media. Adversaries, for example, say rent-to-own, which dates back to the 1960s, more aptly describes a marketing concept that preys on low-income individuals who don't have the fast cash or credit approval to purchase high-ticket items, such as household electronics, home appliances and furniture. However, state and federal governments have passed laws to control merchants from using retail installment contracts to fleece low-income consumers.

And, according to the Austin, Texas-based Association for Progressive Rental Organizations (APRO), its 415 members (including Arcorp Inc.) represent 4,000 stores nationwide and adhere to a strict code of business ethics. Today, 43 state legislatures now protect consumers who deal with rent-to-own businesses by distinguishing the industry's transactions clearly as leases, not credit sales.

"We don't go out and hogtie our customers," says Bill Keese, executive director of APRO. "They come to our stores and we require all of our members to provide complete consumer disclosure." Customers make only a single rental payment up front, with no obligation to pay more. Unlike credit sales, if there's no debt, there can't be any interest, he explains. In addition, APRO says its higher sales prices cover free delivery, repair and replacement costs—services that retailers don't provide without a fee. At Shastar, employees are expected to serve their customers with such services over an extended period of time.

Good business practices begin with the right values.
It was against this backdrop that Robert J. Shiffler founded Arcorp's first Shastar Rent-To-Own store in Piqua, Ohio, in February 1982. Without sounding pompous, employees like to compare the company's growth to the 14th to 17th century Renaissance movement in Europe—a time of vigorous intellectual and artistic activity. Applying his business acumen, Shiffler not only continued to open a host of other Shastar Rent-To-Own stores, but also invested in other businesses: CMH Enterprises; d/b/a Brooks Hallmark, which operates retail stores selling greeting cards; Placs Plus, which manufactures wood components for trophies and plaques; and Creative Cabinets Systems Inc. The artistic part of the analogy is Shiffler's collection of contemporary art—one of the largest, private collections in the Midwest. One contemporary piece, "Untitled" by Dike Blair, adorns a section of Shastar's lobby at the Gettysburg headquarters. The mixed-media painting features a landscape with three cue balls floating above. Shiffler says it's one of the earlier pieces he purchased years ago. He likes it because the New York artist uses watercolors, felt and whimsical symbols that "make it work as a unit."

Because life so often imitates art, Shiffler knew a growing company such as his couldn't continue to attract loyal patrons without the human artistry of a talented HR director. As the company expanded, Shiffler wanted to maintain effective communication with the 376 employees. "My direct connection with people was reducing all the time. As I was becoming more distanced, I wasn't replacing the void," he says. Enter Pehle, who provides HR leadership for Arcorp/Shastar and support to the other businesses in the form of projects, not just day-to-day operations.

Pehle remembers one of her earliest conversations with Shiffler. He spoke of his modest and humble beginnings as a young parent—a time when he wished he could have easily purchased a washer and dryer for his wife. He never forgot how they had struggled to set up their home. Years later, as a businessman, he drew from that experience to make household merchandise more accessible to lower-income families. Even today, he quotes "Teaching Your Children Values" by Linda and Richard Eyre. Its concepts, he says, are applicable to Shastar: "A true and universally acceptable value is one that produces behavior [providing rent-to-own customer service] that's beneficial both to the practitioner and to those on whom it is practiced." Values, he adds, are principles that either accomplish well-being or prevent harm or both. Shastar's Code of Conduct stresses: honesty, self-reliance, dependability, respect, kindness and loyalty. Its mission statement also illustrates Shiffler's view toward clients: "To Make Every Customer Our Customer for Life."

Shastar's typical customer is a dual-income couple with a household income of no more than $30,000. "It used to be that the local appliance dealer had a rent-to-own component, and it was the only dealer in town. That's not the case today." Now, with increasing competition—including superstores—and the higher mobility of young couples, Shastar has to distinguish itself by its customer service.

Shiffler, therefore, has defined Shastar's short-term direction: Growth in the next three years won't be measured by geographical expansion, but by skills development of its managers and sales staff to attract and coach customer-focused employees to encourage long-term interest in Shastar's rent-to-own merchandise. But without installing a human resources information system, HR couldn't even begin realizing its plans for the future.

Shastar customizes its HR information system.
Pehle says she doesn't believe HR is simply policies and procedures. In fact, she tries to do as little as possible in terms of policing functions. So the first task she undertook after taking the job was to establish an HR information system to maintain better personnel records. To help in the process, she hired Cathy Dill as HR administrator to oversee insurance claims, recruitment ads, workers' compensation claims and EEO reports. Pehle laughs when she tells the story about meeting with a compensations consultant to discuss the company's 401(k) plan. The first meeting didn't go very far: "We didn't even have our employees' birthdays captured anywhere," she says, let alone investment information. "We needed an [HRMS] system just as a foundation."

Fortunately, as part of an executive team at Chicago-based Pakula & Co., Pehle had previously set up another HR department, using Spectrum 2000 (from SPECTRUM Human Resource Systems Corporation) for its HRMS system. Through research, she evaluated several systems and finally decided upon HRVantage, also produced by the same company. A big requirement was that the application run under Microsoft™ Windows™. The HR department had already standardized with Microsoft Office™ applications, such as Microsoft Word, Excel and Access. Naturally, HR wanted a system that would interact with those applications.

Another criterion was that the system be easy to customize; has a logical design that follows standard HR workflow processes in an automated sequence. For example, you wouldn't want to link various screens together that don't have much of a common correlation—increasing the chances that an unfamiliar user could get lost within the product.

Because Arcorp offers a great deal of employee-training programs and encourages it employees to participate in various company committees, the HRMS system had to be able to track employee involvement in both areas.

"We didn't even have our employees' birthdays captured anywhere."
— Ann K. Pehle,
director of human resources, Arcorp Inc./Shastar Rent-To-Own

The system already has changed the way work is conducted. For example, Shastar has two service award banquets each year to recognize outstanding employee service. Employees receive awards based on their level of service, and are recognized for their contributions at designated company banquets. Before Arcorp had an automated system, many employees who had demonstrated a high level of service were overlooked for these awards. Deserving employees were either lost in the paper shuffle or their achievements were simply forgotten.

Pehle also enjoys the flexibility with which the HR department now can provide informative reports to management. In one instance, the company was setting salary wages for a certain position. Shiffler came to Pehle and requested a report of all employees in that position who had earned seven dollars per hour. Before implementing an HRMS system, he never would have thought to ask for such information because it would have been impossible to get. Now, such inquiries generate reports in less than five minutes.

The hardest part of the entire process, she says, was determining what information to track, because the company was starting from square one. But by talking to benefits consultants, for example, Pehle was able to identify which information was necessary for a particular function. So after she installed the software disks, she and her staff created a data-gathering form that matched the screens in the newly purchased program. Since automation, Arcorp's HR has gained more control and flexibility in its operations and functions. "I knew my HR needs would change over time. I strongly recommend a program with a relational database because of the query and report-writing functions." With an HR information system in place, Pehle's next big challenge was to tackle recruitment.

Successful recruitment depends on all employees, not just HR.
Compared to its competitors, Shastar, with its 53 stores, is large by industry standards. Smaller rent-to-own companies range from one to 10-store operations; medium size rent-to-owns comprise 10 to 50 operations. Anything above that is considered large, according to APRO's Keese. There are approximately 7,500 rent-to-own stores nationwide, with an average of five to seven employees per store. Although most stores are located along an inverted "T" (on a U.S. map), the largest numbers are concentrated in Texas—where the industry originated.

About 55% of rent-to-own customers rent on a week-to-week basis, he says. And only 25% end up exercising ownership. The majority rent merchandise for a period of three to four months at a time. What makes the industry more competitive than retail is that customers have the right to return products at any time without penalty. And they consider that option more appealing than accumulating a long-term debt (even though the total cost of acquiring a rent-to-own product often exceeds average retail prices by 300%). Today's rent-to-own customers essentially are those short on cash, but big on household dreams. Attracting and keeping such customers, therefore, depends on another kind of art: the art of selecting a competent sales and delivery staff.

In September 1994, Pehle hired Susan Dickey as HR manager to handle recruitment, employee relations and compensation benefits for Shastar. As the company began to change its policies and procedures to face the competition, it was inevitable that HR would re-evaluate its recruiting techniques. Shastar wouldn't be able to hire the best employees unless managers were trained to reinforce the company's values; learn how to select and interview applicants; and coach the sales associates to be more customer-focused.

Before, Shastar managers would simply hang a sign in the store window or run an ad in the local newspaper. With HR in place, they now can depend on Dickey to place better ads in the newspapers and try a variety of other recruiting techniques. In April, Shastar launched its first big recruitment drive to hire employees more selectively. "Recruiting has become an ongoing process," says Dickey. The more everyone participates, the stronger a momentum is created companywide. "We're not just looking for people when we need someone. And it's not just the manager's responsibility to attract people. Everyone has to become part of the recruiting efforts." When Shastar employees mingle in the community or patronize other local businesses, they're encouraged to scout potential employees.

HR provided each employee with a card describing Shastar's opportunities and left a place for the employee to sign his or her name. If the employee encountered a friendly, customer-focused individual, he or she was encouraged to hand that prospect a card. As an incentive, employees were given a gift certificate to McDonald's if the prospect turned in the card. If the applicant was hired, the employee was given a gift certificate to Wal-Mart Stores Inc.

Did it work? Yes and no. Yes, some applicants for sales associates and drivers came through referrals. But not to the degree Dickey had hoped. "Part of [the recruitment drive] was more of an educational process for us," she says. "I don't feel our employees realized how much they really can make a difference." Before the drive began, HR placed a poster in the back of each store with rules and guidelines about the drive. In retrospect, it wasn't enough. Since the drive, HR has attempted to make employees more aware of Shastar's beneficial employment opportunities and it may publish a pamphlet with more enticing information about the company so employees can circulate it in the future.

Managers, in the mean time, have been trained to make better hiring decisions. Through selection tools, such as honesty and integrity surveys, and credit and criminal background checks, managers are becoming better equipped to recognize a prospect who will fit Shastar's culture and customer-focus orientation.

Shastar ensures the training for managers during the company's quarterly meetings. One of the agenda items is recruitment, says Dickey, who conducts the training. At the meetings, managers, she explains, are taught to ask more open-ended questions. During one interviewing workshop, HR discovered managers were more likely to ask closed-ended questions, such as "What was your last job?" "Do you like to sell?" "What hours are you available to work?" Instead, managers should ask questions that elicit more information about how the person thinks.

Managers also are learning that one of the important employee qualifications is to be able to work in a team. Although each store only has five to seven employees, Shastar customers are likely to interact with all of them in the course of their rental history: the sales associate, a floor manager, delivery driver or an assistant/ repairman. Each store manager, therefore, must foster better communication between all employees and each customer. "It might mean being more organized in the store," says Dickey. For example, those closing one shift can keep a notebook so the subsequent shift can pick up where the other left off. Or managers can convene weekly meetings and talk about any issues, problems or customers who need specific attention or service. If a customer can't make a payment on a recliner because his or her son needs an operation, managers need to help sales associates know how to work with the customer and ensure the next payment—without having to take away the merchandise. That skill requires its Customer-Focused Selling curriculum, developed by Golden, Colorado-based International Learning Systems Inc. and customized for Shastar by Ted Branson, HR training manager.

Interactive training ensures results.
Before Branson was hired at Shastar, employees received very little training. Most times, it was organized as a singular event. A speaker would talk about total quality. Employees would learn how to improve their selling techniques by watching a video. Or managers would circulate a memo with tips on how to improve customer service. But after Pehle set up the HR department, Shiffler believed the company wouldn't be able to grow unless it galloped ahead of the competition. "The only way to do that was through training," says Branson, who's responsible for developing training curriculum for both managers and employees.

One of the first things Branson did was to divide the stores into training groups. Training groups are comprised of two resource groups (5 to 6 stores each)—so designated because these stores support each other through phone calls and by sharing sales associates when necessary. Once the employees were placed into training groups, Pehle and Branson hit the road—spending four weeks in each training region.

More than 200 employees—including managers—already have been trained in Shastar's Customer-Focused Selling curriculum. "It's a basic sales program that helps build trust with the customer," says Branson. He explains the five basic elements of the curriculum, referred to as BEAMS™: Building trust; Exchanging information; Agreeing on needs; Making recommendations; and Supporting the commitment.

During the first week, Pehle runs the two-day training for managers—who also train later with their sales associates. Branson leads the two-day training for employees on the following three weeks—training approximately 10 at a time on three consecutive Tuesdays and Wednesdays. Although the training is essentially the same for both managers and employees, the latter are more open with their feelings, says Branson. "Managers are used to traveling and mixing with people. So they won't always admit when they're uncomfortable."

Nevertheless, learning the principles of BEAMS requires everyone's active participation. In fact, Pehle and Branson minimize the lectures—making them no longer than 15 minutes at a time. "If it's longer, we're talking too much. We believe adults learn by doing," says Branson. "[BEAMS] is very, very interactive."

"Although each store only has five to seven employees, Shastar customers are likely to interact with all of them."

For example, a group of 10 to 12 will be divided into two simulated rent-to-own stores. Two individuals will then role play as customers. Branson will provide them with detailed instructions on how to respond to the role-playing sales associates. If Branson is illustrating building trust, he'll instruct the sales associate to walk toward the customer, played by the employee. Through the training, the participants should learn how to give good eye contact to the customer; speak in a nice tone of voice; give a firm handshake; and even pass friendly comments to the customer's children. Trainees also learn to distinguish trust-building behaviors from trust-blocking behaviors, such as being judgmental, controlling, superior, manipulative, indifferent or convinced.

After the trust-building techniques, Pehle and Branson move toward the second element: exchanging information. Shastar employees spend much of the first day learning how to ask broad questions that will elicit longer explanations and more information. Here's a few: "Tell me the features you're interested in for that television"; "Describe a living room suite you've seen somewhere and really like"; or "Tell me what's important to you."

By the end of the first day, the employees begin to appreciate the value of the skills they've learned, says Branson. Moreover, their stress level has been reduced. Although most sales associates aren't shy about meeting the public, role playing in front of their peers is a different situation altogether. But Branson addresses their jitters early on. "I encourage them to take risks and tell them this is a safe environment. And I'm particularly sensitive to those who are literally shaking," he says. One woman, he recalls, complained of an upset stomach. By the time she had role played as a customer, she was so proud of overcoming her stagefright, she felt she'd be further empowered in her job. "Something happens to [the employees] during these two days. There's a lot of self-discovery." By the end of the two-day training, the employees have walked through each element of BEAMS and are asked to evaluate the sessions and share any "ahas"—discoveries or new ideas they feel they've learned. Pehle and Branson also have the trainees complete an anonymous course evaluation in which they rate the usefulness of the material. "After training four regions, the comments are consistently high," says Branson.

In addition to the Customer-Focused Selling training, managers also are required to improve their coaching skills. The idea behind Shastar's coaching program is that once managers practice the skills of BEAMS, the next step is to help others learn the same techniques. A Shastar coach:

  • Creates an environment of continuous learning. Team members know that the only way to get better on purpose is to practice, practice, practice.
  • Knows that in an environment of continuous learning, team members will make mistakes and that's OK.
  • Knows that coaches make mistakes when practicing new skills, and that it's OK.
  • Shares information, knowledge and skills with every team member.
  • Recognizes that each member has strengths and areas for learning. Knows how to bring out the strengths in each team member and assists in the learning of new skills.
  • Observes the behavior of team members and offers positive and constructive feedback.

Clearly, Shastar's HR has laid the foundation for the company's growth into the next century. Having set up an HRMS system, having established better recruitment selection techniques and having institutionalized employee training, the company is positioned to take Shiffler's next step into the future. Because future success also depends on creating a more intimate sales environment, Shastar's founder has created a vision of what it should look like. It's called Concept 2000.

Concept 2000 paves the way.
Picture yourself surrounded by rooms of different styles, unique from the designs to the accessories, and yet it all fits together. A warm touch of a hand and a friendly hello, then an invitation to a cup of coffee during your stay. This is how Shastar's Super Store is described in the company's newsletter, Star Gaze. The idea, it explains, began in 1994 when Shiffler stated that companies should always be looking five or 10 years into the future. Shiffler believed Shastar needed to present itself differently than the other rent-to-own companies. "It should have a feel of the turn of the century," he has been quoted as saying. By creating the first Super Store in Piqua, Ohio, Shastar hopes to renovate and innovate its newer operations and image. "It's not really a [traditional] super store, but a way of re-energizing our presentation in retail, a way to provide amenities for our customers," says Shiffler.

Years ago, it would have been impossible to expand in such a creative way. Now with Shastar's HR department firmly established by Pehle and her staff, you might say it's timely for a showroom renaissance. Whoever said rent-to-own stores couldn't be as pretty as a picture?

Personnel Journal, June 1996, Vol. 75, No. 6, pp. 110-118.

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