I’m spending the week with friends in Beaver Creek, Colorado. Hertz rented me a brand-new Kia Optima mid-size sedan, which would retail for about $21,000, for $40/day including all of the Denver airport fees.
How much does it cost to rent a set of ski gear? Boots, skis, poles, and a helmet from the resort will cost $85/day. From one of the many independent shops clustered in the nearby towns? Between $40 and $55/day. My friends tell me that the stuff being rented retails for about $1,600 total and that it is typically sold at the end of the season for about $800. If the wholesale price was $1200, this means the actual cost of the gear is recovered after 5-10 days of renting.
How to explain the much higher ratio of rental compared to purchase price in ski gear versus cars? I don’t think that it can be damage to the gear because customers are charged for that separately (and offered a damage waiver at an additional cost to the above prices). Perhaps it is more labor-intensive to rent out ski gear? But Hertz has plenty of employees, massive computer systems (if they paid healthcare.gov prices to program and run their servers, it would wipe out 100 years of profits!), shuttle buses, etc. Hertz also has huge admin costs, presumably, to clean up after minor accidents (figuring out which insurance company is responsible, getting the car fixed, hunting down the various parties for reimbursement, etc.); a cracked ski, on the other hand, can be dealt with on the spot.
Readers: Who can explain this “skinomics” question?
Seasonality would drive up the cost for skis; what are the proprietor and real-estate doing outside of ski season? Also, it may be tougher to finance and insure ski equipment, whereas vehicles are trivial. Although, I expect the manufacturers provide favorable terms for rental houses.
Heh, heh, Philip, isn’t what you describe the essence of market-driven capitalism: you set the prices not after your costs, depreciation and some healthy margin of profit, but after that what the market will bear, what customers are willing to pay for your products or services. You calculate your theoretical maximum earnings (100% gear rented out 100% of the time with no damage), then you do the worst case scenario for the same period, then you set the more realistic earning goals in between divided by the number of rentable units=pair of skis, etc. that you possess, and set the price in accordance with that.
In fact, to the local seasonal rental businesses in competition with one another, you-the-customer is sort of interchangeable… as they all know that not any one shop there has the capacity to serve more than a limited number of clients (even in 100s/day). So they run what effectively is a cartel, at best two cartels, one at each end of the (still screwed up) price range, with nothing in between. Capitalism 101.
[In theory some socialist-/ collectivist-/ anti-capitalist-minded locals could band together, and open up a Red-Green Ski Rental shop at half the others’ prices, and thrive for a while… they wouldn’t be able to serve more than a bunch of people, and other shops near by would temporarily lower their prices. After a time they’d be shunned out of the local Chamber of Commerce-friendly community, and castigated for destroying the “business atmosphere” or something.]
Phil, this is not a full response, but you’re leaving out liability expenses as a category. (Most ski areas won’t rent just a set of skis anymore without adjusting the bindings too for liability reasons.)
I’m guessing those are higher in rentals than ownership.
Only rich people ski, so renting ski equipment can be expensive.
Of course, why do only rich people ski? Because it’s so expensive!
You see the same thing in a lot of other “rich people” hobbies like sailing, flying and horses.
I did some downhill mountain biking this past summer at Winter Park Resort, CO. A half-day rental for a $4000 bike + gear was about $90.
Russ Roberts and Robert Frank discussed the cost of car hire vs. bike hire on econtalk recently.
Some interesting stuff in the transcript from 38min30sec onwards, here:
http://www.econtalk.org/archives/2016/01/robert_frank_on_3.html
Contributing factor is that it is costly and inconvenient to fly with the ski gear. I don’t know anybody who drives to ski places and rents. For kids it can make sense to do season rentals which are about $80 and saves you the hassle of buying/selling each year and going through mid season size changes.
Hertz is a giant corporation that achieves economies of scale. They can probably also negotiate low purchase prices with Kia in a way that an independent ski shop cannot do with sporting goods manufacturers.
What Vince said. Having lived in Colorado for 30 years (Phil I would have loved to given you a tour of Beaver Creek!), I have seen skiing prices explode (Vail walk up life ticket price is $175) but the crowds continue. In fact the most expensive lift tickets – the top 5 are Colorado resorts (http://goo.gl/ysI10F)
Dan is also correct.
Most ski rentals are mom/pop operations relative to a giant corporation like Hertz. And as Alex states mostly rich people ski!!
Hertz has about $15B of assets and 30,000 employees, so about $500,000 of assets per employee. That’s a pretty high ratio, I think the typical ratio is more in the range of $200,000, which is probably where the ski shop falls. Per dollar of assets, we can assume that Hertz labor costs are less than half that of the ski shop.
“Now,” Hammond said, “think how different it is when you’re making entertainment. Nobody needs entertainment. That’s not a matter for government intervention. If I charge five thousand dollars a day for my park, who is going to stop me? After all, nobody needs to come here.”
Jurassic Park.
The number 1 rule for skiing is looking good. How are you going to look good on last seasons old skis? $85/day is the price you pay for ski fashion.
There are a lot more rental cars in the world than skis, hence no economics of scale for skis. The duration for a car rental is longer than skis, so the staff needs to work a lot less to keep a fleet of rental cars on the roads than to keep a fleet of skis on the slopes.
I think it’s basic supply and demand. First, the ski resort typically have a monopoly at the site, and this accounts for the difference in price at the resort versus downtown. Going downtown to rent skis means lost opportunity to ski during some very precious leisure time set aside for that purpose. And the decision to travel to a ski resort without any gear sually amounts to a decision to return home without any gear either. So it’s basically a temporary captive market, that is willing and able to pay a premium.
Most Hertz agncies are set up as concessions at airports, alongside several competitors. Price competition is immediate and intense.
A second consideration is how much value is lost by the gear or the car at each rental. Hertz cars are eventually resold at a healthy discount, but they are still good cars with a lot of mileage left on them, and command a pretty good share of the original price. Used rental ski equipment, on the other hand, would typically only sell to very price conscious buyers.
@Dave C: Hertz cars are eventually resold at a healthy discount, but they are still good cars with a lot of mileage left on them, and command a pretty good share of the original price.
In 2002, I bought an ’01 Ford Taurus SES w/ 20K miles in like new condition from National car rental at 40% off MSRP. It’s been a cream puff and still drive it everyday, now w/ 120K miles.
A microeconomics explanation would be something along the lines of…
1) On-mountain ski-hire stores can be become an oligopoly because there are a limited number of locations to put them that are convenient for customers. Due to the oligopoly, the few stores that get the good spots will have pricing power allowing them to price well above their marginal cost
2) Related to 1), consumers’ price elasticity of demand for ski-hire is low as there are few substitutes. If you didn’t bring skis to the mountain, where else would you get them from
3) A related line of thought is that it would be a lot easier for small business ski-hire stores to coordinate prices than it is for Hertz and Avis. The former would not attract much attention from the Justice Department, the latter certainly would
4) Bargaining power of consumers is low. Customers make relatively small one-off purchases (rentals) and probably the ski hire store doesn’t care about pissing off customers by overcharging them
Alex: The ski rental places that are charging the same price per day as Hertz charges for the Kia Optima are not “on-mountain”. It doesn’t surprise me that the on-mountain places are crazy costly (up to $100/day) since real estate clustered right around the lift is expensive. But why are the “off-mountain” places expensive? They are in strip malls where prices for other goods are fairly low.
The real interesting question is not why ski (and bike and windsurf) equipment is too expensive to rent relative to car rental. The real question is why it is too expensive today, but was not 20 years ago? What has changed about America, that has made consumer/business interactions more like in Europe?
My recollection from living in Denver 1995, is that in town ski rental was $5-8, and on resort rental (Keystone, not Vail!) was $10-15.
The other ripoff, is that if you have a partial set of ski equipment, the rental cost to complete it is typically 80-90% of the cost of renting complete equipment.
Philg: “But why are the “off-mountain” places expensive? They are in strip malls where prices for other goods are fairly low.”
They just have to be cheaper than the on site providers or their off-site competitors (which there aren’t typically many of). There is a limited market for ski rentals, which means there are fewer competitors. The vigorous price drops you apparently expect would quickly kill it as a reasonable business.
People who rent ski equipment tend to ski infrequently.
For regular skiers, owning is not only much cheaper. It’s also much more convenient.
People (who ski regularly) flying to the resort -might- rent stuff too (to avoid having skiesbas luggage) but they may tend to rent better equipment (sometimes as “demos”).
(You seem to have an overly simplistic view of the economics here.)
Why doesn’t the same reasoning work for the Walgreens in the same strip mall? If they charge less for aspirin than the boutique next to the lift, the rich skiers will pay that price happily, even if it is a lot more than a Walgreens in Denver would charge, right? Yet this is not what we observe. The Avon, Colorado Walgreens adjacent to the $50/day ski gear rental shop charges exactly the same price for aspirin as a Walgreens in Denver. And in fact I imagine that ski gear rental in Denver is also, on a percentage of capital cost, also vastly more expensive than car rental in Denver.
Philg: “The Avon, Colorado Walgreens adjacent to the $50/day ski gear rental shop charges exactly the same price for aspirin as a Walgreens in Denver.”
Why should it have the “same reasoning”? Why are you so sure rich skiers would “pay that price happily”?
Skiers buy aspirin at Walgreens where they live when they are not skiing. Is it worth Walgreens losing good will by giving the impression that they are ripping regular customers off?
Again, rich skiers aren’t generally renting ski equipment.
$40 per day for a $2,100 car works out to be $4 for a $2,000 set of equipment. If that was the most they could charge, you wouldn’t be able to rent skis.
Of course, Hertz is selling the car after, what?, a year, for, what?, $14,000? Of course, ski rentals are (most places) done for 2 days out of 7 and only when the weather allows for skiing. Car rentals are, overall, a more regular business.
And, renting involves paying for a service in addition to the object being rented.
(You seem to have an overly simplistic view of the economics here.)
davep: “rich skiers aren’t generally renting ski equipment.”
I’m going to hazard a guess that you haven’t been to Beaver Creek!
philg: “I’m going to hazard a guess that you haven’t been to Beaver Creek!”
I haven’t been to Beaver Creek (I’ve been to other places).
I suppose you are suggesting that Beaver Creek is expensive.
philg: “”…rent a set of ski gear? Boots, skis, poles, and a helmet from the resort will cost $85/day”.
I’m interpreting “rich skiers” as “wealthy people who ski regularly” (more than 2-3 times a year). Those people might be renting “demo” skis (basically, higher end skis that you rent). They aren’t renting ski boots (they are using the boots they own that they know fit).
This isn’t anything that -skiers- do (regardless of whether they are rich or poor). That is, skiers might rent -skis- but they aren’t renting a “set of ski gear”. That’s something that people who don’t really regularly ski do.
People who go to Beaver Creek as a “local” place aren’t renting skis (except to try a different ski). It’s not only more expensive, it’s also much more inconvenient (it takes time to pick up the skis and drop them off, time better spent actually skiing).
Also, there are people (rich or not) who might travel to Beaver Creek on vacation who might rent skis (not “gear”) because they want to use a ski more appropriate to western skiing (and don’t own that kind of ski).
Note, that I’m not rich but I used to ski a lot.
https://www.rentskis.com/#!/product/153
“Demo” skis are $65/day + $15 for boots and helmet.
“Casual” skis are $45/day + $15 for boots and helmet.
It’s interesting they don’t have any discounts for multiple days.
http://www.basemountainsports.com/ski-rental-rates/
Demo ski package is $53/day ordered on line.
Casual ski package is $40/day ordered on line.
“package” should mean including boots. Helmets are an extra $8.
Your strip mall:
http://rental.christysports.com/store_locations.php?Store=Christy-Sports-Lakewood-Denver-West
Demo package is $24/day
Casual package is $20/day
You can buy a helmet for $80 (maybe, less).