Lisa Batitto was wearing a dress from Rent the Runway.
Source: Pia Wilson
When Lisa Batitto needed an outfit for a work event, she turned to Rent the Runway instead of Stitch Fix or her local department store.
Through the clothing rental company, she knew she could find the perfect dress for the animal print event. She didn't want to use the dress again, so she was glad she had the opportunity to rent instead of buy.
"It gives me the opportunity to always have something new, without wearing clothes in my closet and not being used," said Batitto, a Montclair, New Jersey publicist.
She pays $ 1
This trend is not lost on traditional retailers. Gap-owned Banana Republic on Thursday announced plans to launch a clothing rental service to try to catch customers like Battito. Macy's said this week that they are considering starting a rental service, while Bloomingdale's subsidiary will launch one in mid-September. Urban Outfitters also rolled out a rental subscription box earlier this month.
The spread is partly driven by the desire of brick and mortar retailers to adapt to changing consumer habits and to find new revenue streams. According to a report by data analytics company GlobalData, the rental subscription market was valued at around $ 1 billion in 2018 and is expected to grow more than 20% a year and reach $ 2.5 billion by 2023.
CaaStle, a startup specializing in Managing inventory and shipping for these businesses helps make experimentation easier. Banana Republic and Bloomingdales used CaaStle as their partner in the new ventures.
The startup said 50% of the dealers who sign up at dealerships are new, digitally native customers. The other half spend 125% more on the brand the year before.
The store's new flood of Rent the Runway knockoffs is a shift from an attempt to dab styling services like Stitch Fix, which has seen some success. Through the service, consumers pay a fee to have clothing selected by a stylist that can be sent to them for a few weeks or months, which they can buy or return. They can also order a single standalone box without subscribing. In 2018, the company reported $ 1.2 billion in sales and its active user base increased by 17% to $ 3.1 million from the previous year. Since January, the stock has risen 36%, valuing the company at around $ 2.4 billion.
But other companies have not been as successful. In February, J. C. Penney announced his termination of the menswear subscription service. In 2018, Gap pulled the plug on a subscription service that included boxes for baby clothes, pajamas and children's outfits. In 2016, Nordstrom wrote down the value of the $ 200 million styling business Trunk Club. It still runs the service, which it bought for $ 350 million two years ago.
Battito had been a Stitch Fix subscriber. She paid a $ 20 styling fee a month, which was used as a credit for items she bought, and she returned everything she didn't want. But she thought renting was much more sustainable. She could choose the items herself instead of a stylist picking on them. She also did not have to continue to buy new clothes or throw away old clothes.
"This way you get wear and tear on something, and it's not just sitting there," she said. "It seems like a better way to do things than to just buy things and keep wanting more."
She also said that not having to clean her clothes is another big plus.
Sucharita Kodali, an Forrester analyst, said many consumers are tired of subscription services and feel pressured to buy a few weeks or months because of the recurring styling fee.
"Why do you want to lock into a recurring billing flow when there is so much choice in fashion and you can already buy what you need when you need it? It becomes very difficult to make a compelling case in the long run," he said she.
Stitch Fix declined to comment.
The Sustainability Appeal
That's part of the reason why companies like Urban Outfitters instead turn to rental services and imitate Rent the Runway and Le Tote, which cost $ 79 a month. Le Tote is also nearing an agreement to buy luxury department store Lord & Taylor. Kodali said these models are in the customer's interest in sustainable clothing methods, since there is less waste involved in renting clothes.
Sustainability also drives the popularity of ThredUp, an online second-hand clothing and shipping store. Macy's and J.C. Penney's announced that they would experiment with providing ThredUp floor space in stores.
But Kodali said that rental services still face their fair share of challenges. One of the biggest is how to deal with cleaning clothes after it's returned.
"Dry cleaning and shipping are expensive and it is a significant cost," Kodali said. Rent the Runway, which launched its rental service in 2016, is one of the most popular options. It operates from a 250,000-square-foot warehouse in New Jersey, and just opened a 300,000-square-foot warehouse in Texas. The warehouses are believed to be the largest dry cleaners in the country. The company reached a valuation of $ 1 billion after a funding round in March and today has more than 11 million members.
Urban Outfitters also said it will build a 300,000-square-foot facility with a full-service dry cleaning system to support its rental. The move will cost $ 3 million.
"We believe it is a great opportunity to reshape the $ 120 billion women's clothing market in the United States," said David Hayne, Urban's largest digital officer. The company expects around 50,000 subscribers to sign up for its Nuuly rental service within 12 months. If it reaches this goal, it estimates that there may be $ 50 million dollars in revenue at the end of this period.
"We are prepared to respond to stronger subscriber interest and believe hundreds of thousands of subscribers in the first few years are possible," said Hayne, who also serves as president of Nuuly.
Urban Outfitters, valued at around $ 1.9 billion, has seen the stock fall more than 40% since January.
Recruiting a Younger Customer
For retailers who do not want to build their own service from scratch, CaaStle may be another option. Launched in 2018, the company is trying to make it easy for retailers to start their own monthly clothing rental service, and dry cleaning and shipping handling is part of the service.
Banana Republic partnered with CaaStle for its "Style Passport" service, which will cost $ 85 a month to rent three pieces at a time.
"Style Passport will provide incremental revenue and help us connect with younger buyers who appreciate good style and want an affordable and sustainable way to try new fashion," CEO Mark Breitbard said in a statement.
The technology platform has also launched rental services with American Eagle Outfitters, New York & Company, Express and Vince Camuto.
Vince's box, which is at a more expensive end of $ 160 a month to rent four items at a time, was launched last year.
"Part of it was attracting a younger customer who doesn't have the wealth yet to be a true Vince full-price customer, and this is a way to introduce her to the brand," said Vince CEO Brendan Hoffman.
Forresters Kodali said that these companies partner with CaaStle because it is a "branding tool" and helps them get into the rental business without having to invest a lot of capital in advance or worry about logistics.
"I think if we didn't exist, you wouldn't have seen so many companies move into the space," said CaaStle CEO Christine Hunsicker, whose startup partners with 11 dealers. Hunsicker also believes CaaStle is a reason why Urban Outfitters created its own service.
"Resale and rental are important models, and you're just going to see more and more dealers coming into this space," she said.