Why Brands and Retailers Are So Excited About Rental Services

In an age when e-commerce is flourishing and brick-and-mortar stores are struggling to compete, clothing rental services have become one of the fastest-growing sectors of the fashion industry.

Rent the Runway, for instance — the company that pioneered the idea in 2009 with designer accessories and apparel — now works with more than 600 brands and is valued at over $1 billion, according to reports.

Dozens of other fashion rental companies have since emerged in the space, and a number of traditional retailers are adding the service to their existing business models.

As of now, none of the rental services offer footwear, but some — including Rent the Runway — told FN they believe there’s a good chance footwear could be included down the line.

So what makes the sharing economy so beneficial for labels and retailers alike? Below are four reasons companies say they are jumping on the bandwagon.

1. Millennials Like It

For brands with higher-end or luxury offerings, fashion-rental platforms can be crucial for making customers out of millennials — a generation that now accounts for 30% of the population and that may be more reluctant to spend top dollar, experts said.

“Gen Y watched their parents weather hard financial times [in the Great Recession], so they’re very concerned about costs,” said Deb Gabor, branding strategist and CEO of marketing agency Sol Marketing. “These platforms offer an easy way to expose younger audiences to luxury labels they may be resistant to — to gain their trust and ultimately become buyers with a low initial risk to their pocketbook.”

But it’s about more than penny-pinching. Millennials are also particularly concerned about ethical and environmental issues — and one benefit of swapping clothing is that it reduces the volume of apparel that ends up in landfills.

According to a Deloitte study of more than 13,000 millennials around the world, 42% said they had initiated or deepened a relationship with a company because they believed it had a positive impact on society or the environment, and 37% said they would back away from a company they perceived to be behaving unethically.

“Sustainability and being good citizens of the world is really important to Gen Y and aligning with brands that share the same values,” said Gabor. “Clothing rental services hit that eco-friendly note, while also appealing to the younger generation’s desire to impress people on social media by never wearing the same look twice.”

2. It Boosts Brand Discovery

In today’s hyper-competitive fashion landscape, it can be tough for lesser-known brands to build awareness. But rental services are effective in helping put them on the map.

“With a leasing structure, consumers are offered a no-strings-attached opportunity to expand their taste and broaden their fashion horizons, opening the door for experimentation with new looks and undiscovered or contemporary brands,” said Jan-Christopher Nugent, co-founder and CEO at e-commerce technology company Branded Online.

In fact, Rent the Runway reports that 98% of its subscribers discover and try a brand for the first time on its platform — and that action can often translate into actual sales for a label on its e-commerce site.

“It’s a proven method that being exposed to a brand on a trial basis encourages people to seek out that brand and make it permanently part of their wardrobe,” said Melissa Gonzalez, CEO and founder of the Lionesque group, an experiential retail agency that has created pop-up shops for brands like Puma, Reebok and M.Gemi. “Not only does the customer become accustomed to a brand’s aesthetic, but they’re now familiar with the quality and fit and can thus confidently make a purchase.”

Rent the Runway
Rent the Runway introduced a kids’ clothing service in April 2019.
CREDIT: Rent the Runway

Parker, a women’s label that has been available on Rent the Runway since 2011, has experienced the positive effects of such brand discovery. According to Parker president Suzanne Silverstein, 25% of the label’s top e-commerce customers discovered them on Rent the Runway. And of these same customers, half reported that in addition to buying, they consistently rented styles from the brand.

However, there can also be downsides to joining a rental platform. When customers are exposed to a brand for the first time through a rental platform, there is a chance their impression of the product could be skewed since items are pre-worn and may not be in top condition. And for more-established labels, they lose the ability to control the customer experience.

“Each rental platform comes with it its own sales and marketing channels,” said Gabor. “For example, when you walk into a Valentino store and buy something, it’s impeccably wrapped in a box and beautiful shopping bag. But when you order an article of clothing from the same brand through a rental platform, it may come wrapped in plastic, stuck inside a garment bag or left sitting on your front porch. The experience of renting the clothes should be equal to the experience of wearing the clothes, so customers aren’t turned off.”

3. Retailers Like New Revenue Streams

Despite any drawbacks, an increasing number of companies are launching rental services, including a number of traditional retailers.

Women’s apparel company New York & Co. became the first established retailer to offer a rental model in July 2017, while Express and Ann Taylor launched their own versions in late 2018.

And URBN, parent of the Anthropologie, Urban Outfitters and Free People chains, is set to launch its clothing Nuuly rental service this summer. In addition to offering styles from a range of third-party designers, the company will stock looks from its owned brands on the new platform.

David Hayne, chief digital officer for URBN and president of Nuuly, told FN he believes the model will be sustainable for the company as it aims to meet changing consumer demands.

“We believe there is a large opportunity to reshape the $120 billion women’s apparel market in the U.S. and are committed to Nuuly’s success,” said Hayne. “We don’t think that customers will stop shopping through existing channels, but we do think that shoppers are looking for additional options to add newness and variety to their wardrobe.”

He added that not only will the platform benefit from URBN’s existing customer base, but it could help drive down the cost of goods and delivery expenses by buying alongside its e-commerce brands and leveraging carrier rates that those brands have already negotiated.

Anthropologie Store London
URBN’s Nuuly service will offer items from the firm’s Anthropologie collections, plus other labels.
CREDIT: Alex Segre/Shutterstock

4. It’s Cost Effective

Indeed, experts said there are a number of advantages to the sharing model that can benefit balance sheets and operations.

For one, allowing shoppers to sample products for less than the retail value may be more cost effective than other marketing means, especially for smaller labels.

“Building fast and get a lot of attention on the right marketing channels can be expensive,” explains Gabor. “Rental platforms can provide a more affordable alternative to generate recurring revenue; people who have tried something and have an affinity for it are a lot cheaper to acquire as customers than those who are not familiar with the brand.”

Gonzalez also noted that renting out a product over 10 times could even be more profitable than selling it once (with Rent the Runway, profits from rentals are split between the platform and the designer partner). She noted that this could be the case with low- to mid-value items, priced at $300 or less.

And when it comes to building any consumer business today, data acquisition is vital. Many clothing rental services offer their third-party labels access to exclusive item-level feedback, such as customer geography, age and sizing preferences, as well as product ratings and durability.

“Other retailers often do not have or cannot provide any insight into where, how and who their pieces are being sold to,” said James Newell, Rent the Runway’s director of merchandising. “By providing this data to our designer partners, we’re helping brands build their businesses and [we’re] impacting their production in a larger way.”

Below, watch FN’s video on top shoe players’ advice for their younger selves. 

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