Not too many investors would link growth with such everyday, unglamorous things as equipment leasing, automobile renting, business-credit checking and employment agencies. Yet growth is there, now as well as back in the 1960s when this article was originally created.
As our economy matures and becomes wealthier, the business service industries assume increased importance. A society well supplied with goods and money can afford the conveniences it desires. Furthermore, the growing size, complexity and specialization of business and government favor a host of business services ranging from tax advice to marketing research.
Business services cover only a part of the much broader service industries category, which, in government statistics, includes everything, left after eliminating agriculture, manufacturing, construction and mining.
Despite recurring cyclical swings in U.S. economy, consumer outlays on all kinds of services have exhibited an uninterrupted rise since the end of World War II, according to a study by Steiner, Rouse & Co. which shows that service expenditures have risen about 165 per cent from 1947 to 1960 against 90 and 60 percent for personal expenditures on durable and nondurable goods respectively. Moreover, services are expected to become the fastest-growing major segment of the economy over the next decade, with a projected rise of more than 50 percent, exclusive of inflationary price factors.
Factors favoring growth of service companies are freedom from foreign competition and absence of the excess capacity present in the nation's basic industries. Also, their better profit margins result from their ability to pass on higher costs more easily to customers.
One of the fastest growing services is equipment leasing. From a humble beginning of $10 million a decade ago, it is running well over $400 million a year and should go beyond $1 billion by 1965. There are few industries in the country, which scored a forty fold sales jump in 10 years, with further growth expected at an annual rate of better than 100 percent for the next five years.
"For decades, leased equipment has been available in specialized fields," said E. F. Hutton & Co.. "But, in recent years, the range of products which may be leased has expanded dramatically. Now, all levels of the economy function with a growing amount of leased equipment and almost every comfort and need of life can be catered to, from cradle to wheelchair."
A rental revolution is changing America's way of doing business. Behind this revolution is the businessman's necessity of turning over his capital as fast as he can. You can't make money on no sale or only a few sales. To increase sales, it is necessary to turn over inventory. If capital funds are imbedded in machinery and equipment, they can't be released for, among other things, turning over additional inventory. Renting is an obvious alternative.
The growing popularity of renting or leasing is also attributable to the large increase in corporate debt in the last decade. Between 1950 and 1959 there was a rise of about 150 percent in corporate debt due to the rising capital requirements of a rapidly expanding economy. Leasing obviously represents a solution, at least partially, to the multiplying capital requirements.
Looking for the sizzle? These might not be the industries for you. But if you are looking for a good opportunity for growth, this article shows us that sometimes the ugly duckling is the investment swan.