Tough Times? Rent, Don't Buy, with Erento

Call it an eBay for rentals: Germany's Erento lets you borrow everything from wedding dresses and pets to karaoke machines

Covet a Ferrari? Dream of impressing your date with a flashy Rolex or the latest Balenciaga bag? As the global economy weakens, fewer Europeans can afford to buy such luxury goods. So they are renting them instead.

Short-term rental of all sorts of products (excluding real estate and holiday apartments) already represents an estimated €108 billion ($160 billion) annual market in Europe. And it looks poised to become a lot bigger.

A host of factors, including economic and environmental concerns, fast depreciation of goods, and a more transient workforce, means that consumers are increasingly searching for rentals online. But many suppliers can't afford to build sophisticated e-commerce and online marketing organizations, so prospective clients often struggle to find what they need.

That is where erento comes in. Some 8,000 European rental companies have elected to use erento, which is headquartered in Germany and rapidly expanding across the Continent, as a sales channel. The company's Web site acts as a one-stop shop for leasing everything from wedding dresses and Apple (AAPL) iPhones to karaoke machines and heavy construction equipment. It even offers dogs for rent, a service that's proving popular with men who think walking a canine might help them pick up women, and for working couples who find it difficult to look after a pet full-time.

In all, erento now lists more than one million items across 2,200 product categories and claims up to 50,000 visitors a day. "People are coming to the conclusion that it's more important to rent goods then to own them," says erento's co-founder and chief executive, Chris Möller. "It is a new way of dealing with investments."

"An eBay for Rentals"

The company, privately funded by Möller and co-founder Uwe Kampschule when erento was launched in Germany in 2003, has since raised more than $2 million in venture capital. Investors include Germany's Holzbrinck Ventures, which has taken a 13% stake, and the Samwer Brothers, founders of online auctioneer Alando, which they sold to eBay (EBAY) in 1999 for $54 million.

The three Samwer brothers also were behind Jamba, a mobile content company they sold to VeriSign (VRSN) for $273 million in 2004. In 2006, the Samwers established a European Founders Fund with their own fortunes to support and fund early- and later-stage Internet businesses in Europe and the U.S. "We invested [in erento] because we liked the founder and thought of it as an eBay for rentals," says Marc Samwer. "We like marketplaces; it's what made eBay so successful."

The funding from Holzbrink and the Samwer brothers will help erento expand its existing service in Europe. The U.S., where online rental services are also growing, might be next. The U.S. has had online luxury-car rentals for some time. More recently, companies that rent out designer handbags, such as Bag, Borrow or Steal and From Bags to Riches, have started up in the U.S. A U.S. dog rental company called Flexpetz has been expanding in major U.S. cities and to London.

But no other company has attempted to create an online rental marketplace that draws suppliers from so many areas, says Möller. Marc Samwer of European Founder Fund, which probed the market before investing, agrees that erento's approach is unique. "There is no other company in the U.S. or the [European Union] with a liquid marketplace of this kind," he says.

Here's how it works: Rental suppliers upload their items, including an image, item description, and price for the rental duration. Renters then search and find their desired items according to location and price. The location is a key differentiator because rental items need to be picked up or delivered, as well as returned, but it's often difficult to determine where a rental company or its goods are based.

What Erento Charges

Once prospective renters find what they need, they specify how long they want the item and fill in their contact details. The rental supplier contacts the prospective client directly to close the deal, then confirms the transaction on erento. Erento charges a display fee of 69¢ per item and takes a 4.9% cut of the rental price of any item procured through its site. The company turned a profit from 2004 to 2006, says Möller. Erento, which does not make its revenue public, is now in an expansion period, but expects to be profitable again by 2009, he says.

What's striking, says Möller, is that people have started renting a much wider range of products and services than in the past. While some might wonder what woman would rent out her wedding dress, it makes financial sense to certain people. "A woman might be able to afford to buy a wedding dress that costs €2,000 but rent one worth €10,000," says Möller. Some women also are realizing that renting is a way to maintain a fashionable and expensive wardrobe. That's why erento, which already handles designer handbags, is about to add cocktail dresses and jewelry.

European attitudes about cars also have evolved. Five years ago, somebody who wanted a convertible would buy one. But now more people are concluding that they really need a convertible only when the weather is good and they can drive with the top down, Möller says. Ford (F) Mustang rentals in Europe have tripled in the past year, while convertible rentals are up 120%, Ferrari rentals are up 102%, and motorbike rentals are up 85%, erento says.

While originally intended to bring rental businesses and customers together under one roof, erento now enables anyone to become a rental supplier. One parent recently earned €150 for renting out a high-end baby carriage to a TV production crew for a week. That's a novel way to deal with tough economic times.

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