South African subscription-based retailer believes access is the new ownership

Mishaan Ratan, co-founder of Rentoza

Rentoza is a South African online retailer of electronics, appliances, baby goods and fitness equipment with a twist. It doesn’t outright sell these products. Instead, it gives customers access to the items on a subscription basis, similar to services like Netflix and Spotify. Customers can use the products for as little as one month and return it at any time they please.

Some customers shop through Rentoza to have access to products without having to pay the full price, while others only need to use an item for a short time. Another reason customers purchase from Rentoza is to stay up-to-date with the latest technology. For example, parents who want to keep their children entertained during school holidays can subscribe to a gaming console and return it once the school term starts again. Tech enthusiasts can subscribe to the latest iPhone model for a year and upgrade to the newest one when it becomes available. Additionally, those with babies can access a variety of parenting equipment, such as car seats and strollers, and return them once their child has outgrown them.

Mishaan Ratan, the company’s co-founder and chief marketing officer, states that mobile phones, fridges and microwaves are among the most popular products on the platform.

Rentoza buys the products directly from their manufacturers and maintains ownership of the items throughout the subscription period.

When a customer cancels their subscription or it expires, Rentoza takes back the product, repairs it if necessary, and provides it to the next customer. This business model allows the company to extract a significant amount of value from each item over an extended period of time.

Ratan observes that the iPhone 6, released in 2014, had been its best-selling model until recently. Apple is viewed as an aspirational product among many South Africans. However, due to their limited income, many are content to choose less expensive, older iPhones instead of the newest models.

Rentoza employs a verification process to confirm a customer’s identity before extending a subscription, which involves various methods such as facial recognition technology. Additionally, it analyses the customer’s spending habits by scanning bank statements to assess their ability and willingness to make monthly payments. This includes identifying patterns such as excessive gambling. Ratan considers this verification process to be the company’s “secret sauce”. In the event that a customer fails to pay, Rentoza can remotely lock the product. Thanks to this system, Rentoza successfully collects 97% of its monthly subscriptions. It is typically able to retrieve the product from half of those who fail to pay.

Starting out

Rentoza was founded in 2018 by childhood friends Ratan, Chris Govender, Avinesh Reddy and Aviraag Ramdhani, all with diverse professional backgrounds. The idea for the business originated from the founders’ personal frustration with carrying around baby gear while visiting family across the country. They believed it should be possible to just rent the goods at the destination.

Initially, the company was an online rental marketplace for third-party businesses to lease their stock to customers for a few days. The business saw some modest traction with this model, recording about R5,000 ($276 at the current exchange rate) in monthly revenues. But due to struggles dealing with third-party suppliers and customers’ desire to have access to goods for a longer period of time, the founders pivoted to a rent-to-own concept, resulting in revenue increasing to approximately R12,000 ($662) per month. However, they soon realised that this model put them in direct competition with other credit retailers in South Africa. After operating the rent-to-own model for nine months, the founders decided to re-evaluate the entire business.

Towards the end of 2019, they scrapped everything and switched to subscription-based model, which allows customers to avoid the burden of owning a product permanently. They were partly inspired by the growing popularity of subscription-based music and streaming platforms in the country.

Covid boom

In March 2020, Rentoza rolled out its new subscription model just as the Covid-19 pandemic hit South Africa. With the announcement of lockdown, people scrambled for work-from-home essentials like laptops and home appliances, causing a surge in demand. “It was absolute pandemonium,” Ratan says. Rentoza’s flexible subscription model proved to be a hit as people, unsure of how long the lockdown would last, turned to the service. This resulted in a surge in demand, propelling the business from generating R12,000 a month to R80,000 within a short time.

The business was initially run by just the four founders, who juggled their regular jobs with Rentoza. “I would do my day job, come home, eat, spend time with my family, and sit from like nine o’clock until maybe four in morning, working with the other founder to really finesse the model,” Ratan explains.

However, with the Covid-related surge in demand, the company had to quickly hire new employees. The founders did job interviews on Saturday mornings and asked successful candidates if they could start on the Monday. The company operated from 30m2 office in Sandton, cramming people into makeshift desks and relying on coffee to power through.

Currently, the company generates over R4 million ($221,000) in monthly recurring revenue and has more than 80 employees. Ratan and Govender have quit their day jobs and are now working on Rentoza full-time.

Financing headaches

Ratan says financing has been one of the company’s biggest challenges.

It is a capital-intensive business as the company must purchase all products upfront before earning any revenue from them. To start the venture, the co-founders bootstrapped it with their personal funds and contributions from friends and family. Commercial banks were initially reluctant to lend to the company, and as a result, they had to turn to various small business lending institutions, often at interest rates as high as 30%.

Late last year Rentoza received a R20 million ($1.1 million) investment from Khulisani Ventures, the venture capital arm of South Africa’s Mineworkers Investment Company. On the back of this investment, Rentoza has been able to secure debt financing from a large South African investment bank, which has allowed it to clear its short term loan book.

Leveraging off-the-shelf technologies

Although Rentoza has a software development team, its platform was mostly built using existing technologies, which has allowed it to quickly scale its business. Instead of building all technical components from scratch, the company has integrated off-the-shelf solutions such as GetID for customer verification, Stitch for risk evaluation, and Paradox for document upload and validation. The website itself is built on the Shopify platform. Ratan says the company did however had to develop its own subscription management platform as there wasn’t an existing solution that met its needs.

Testing physical retail

Rentoza recently opened a pop-up store at the Mall of Africa in Johannesburg. By establishing a physical presence, Rentoza seeks to attract new customers, foster trust and provide a tangible experience with the brand. South Africa’s total shopping mall space is among the largest in the world. E-commerce is estimated to account for a mere 5% of total retail sales.

According to Ratan, Rentoza is closely monitoring the performance of the pop-up store and will make a decision after six months of trading on whether to pursue a brick-and-mortar model or discontinue it.

Rentoza co-founder Mishaan Ratan’s contact information

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