Thanks...It's New To Me

What if your apparel business had a 100% rate of returned items? The stuff of most retailers’ nightmares is the very core of businesses like Rent The Runway, Armarium, and Style Lend. These apparel rental companies, amongst a growing group of peers, are transforming the way that consumers access and consume fashion. With business models that essentially enable temporary custody of high-value fashion items at a fraction of the cost of ownership, a new generation of consumers can get their hands on brands that have historically been the stuff of dreams and a bigger paycheck.

The apparel rental market has grown on the heels of the far-reaching sharing economy revolution, an economy that is slated to reach $20B by 2020. Uber and Airbnb have transformed how we get from point A to B and experience new cities, respectively. Moreover, it provides the owner of said asset a revenue stream to offset the cost of ownership. While you might be thinking the investment in a house is in a different league than that of an evening dress, the underlying demand and economic constraints are similar, particularly if you are a ‘millennial’. Think about it like this: you’re a 20-something who is attached at the hip to social media, you see your favorite influencer on Instagram wearing the latest designer duds, you really, really love it …but you’re broke. In a previous day and age, that was the end of the road. Maybe you found a vaguely reminiscent design at your favorite fast fashion retailer, but it wasn’t the same and you knew it. Enter the fashion rental market. Whether you want a designer dress for a special occasion, or you have to have the latest trend, but know you will likely only wear it for a limited amount of time, the rental market is poised to address a new generation of consumption and become a major force in the fashion industry.

The Shared Closet Revolution

There are a couple of types of shared marketplaces that have emerged over the past decade. The first is the traditional short-term rental marketplace, the likes of Rent The Runway and Le Tote, where you either pay per piece or have an ongoing subscription to a rental service. With this model, timing and availability are everything. With the bulk of items rented for a specific event, their logistics model has to be air-tight, because “if we mess up it’s not just the customer who hates us,” says Rent The Runway’s head of marketing, A.J. Nicholas, “her friends hate us, her sisters hate us, her mom hates us.” No pressure or anything.

The second type and subset of the rental market is essentially the reverse of the previous model where users sell gently-owned items they own to the rental companies. On Style Lend, for example, sellers take a 50% cut of the price if their items are rented out. The opportunistic shopper knows this provides both a way to offset the cost of the initial purchase, and it gives them more to put towards their next big-ticket purchase. It’s a (mostly) virtuous cycle …at least in my shopaholic’s rationale.

It Looks Easier Than It Is

The supply chain of the rental market may, on its surface, looks pretty simple. They’re not manufacturing anything; they’re simply picking items and getting them from point A to point B. Simple, right? Not so much. Whereas you normally only have to worry about getting the order to a customer once (barring the dreaded and costly return),

The average number of times a single dress at Rent The Runway is worn is 30 times!

That mean it goes on 60 different journeys that must be carefully timed and coordinated to reach recipients within a precise window. In fact, within some urban zones, delivery happens within the same day. Oh, and don’t forget about the fact that the dress will come back to the retailer worn. So, whether that white dress has the unfortunate red wine stain or a pair of pants a loose hem, it has to be made ready and wearable for the next lucky person. And therein, you begin to see the complexity of the business model that these companies have undertaken. Indeed, Rent The Runway considers themselves a technology company first and foremost. Undoubtedly, without a finely tuned logistics and back-end operations system in place, the model would come crashing down on the heels of poor customer experiences.

Let’s talk more about the technology that is the backbone of these rental marketplaces. To start, these brands have been quick to realize that apps are critical interfaces to the customer experience. The apps cater to the mobile millennial consumer who is wholly comfortable with making purchase decisions on-the-go. Any barriers to onboarding users to the app are avoided with seamless linking with Facebook accounts (not to mention the valuable demographic data this automatically extracts on behalf of the company).

We’ve all been suckers to great product photography where IRL, that garment looks significantly different than you had hoped. And if you’re buying something for a special event (and guaranteed to be photographed), getting exactly what you expected is even more top-of-mind. Rent The Runway realized that enabling their members to share photographs of themselves in garments, along with their sizing specifications, eases any hesitation or barriers to purchase. But what other tools, powered by technology, do rental brands offer that help incentivize and improve the customer experience? Look no further than your own personal stylist. First we’re telling you that you can afford designerwear, and now you have a stylist?? Yep, welcome to retailing in 2017. There are both live and chatbot versions of stylists available, so whether you have sizing questions or questions about coordinating an outfit with the right accessories, the potential incremental sales are worth the capital investment.

Where Does Rental Go From Here?

There continues plenty of speculation around how large the shared apparel market will become, in part because it is indeed a different ecosystem than housing and auto, where the shared economy has flourished. Nonetheless, the right socioeconomic forces are in play that have made this a perfectly acceptable proposition to millennial shoppers and beyond. It’s worth a discussion, however, on areas in which the shared apparel market still has room to evolve and grow.

The assortment on offer at many of the players in the space looks very much like what you would see at a typical e-commerce retailer, but if you’re a discerning and brand-focused shopper, there is still a sense that there are limitations to the offering. This might be due to brands’ restrictions on being sold through third-party sellers or that the items are ever-so-slightly out of synch with the latest trends. Some luxury fashion brands perceive this market with a degree of skepticism, as to whether it is potentially harmful to brand image. But they might be wise to do the math as to what it means to, first, gain access to a youthful consumer base and build a future following, and second, what that financial arrangement based on rental fees could mean to the top-and bottom-line.

And what about instant gratification? Isn’t this what has fueled no small part of e-commerce’s growth over the past decade? If you’re lucky enough to be located in or near a major metropolitan area, these services have you covered. But if you’re not, there’s still the typical waiting period for a delivery. Rental fashion has yet to reach Amazon levels of fulfillment, but achieving this might be that final barrier that ultimately gives this market the push it needs to fully insert itself into the mainstream wardrobe.

Lastly, if we think about how retail might evolve in the next five-to-ten years, we have to consider what it would look like if more retailers offered the option to rent, in parallel with their regular purchase option. Yes, it does involve a back-end investment, but knowing how price-sensitive yet brand-savvy shoppers are, it seems like an avenue that deserves further exploration.

Time to look at both your closet and your business model a bit differently? We think so.

This post was originally published on WhichPLM on May 31, 2017.