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Retailers are Joining the Rental Economy. Who Will End Up on Top?

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If you’ve been paying attention, you may have noticed an interesting change in consumer behavior: a growing number of shoppers are choosing to rent instead of buy. This trend is a lot more prevalent in the apparel market, but verticals like home furnishings are starting to catch on.

According to the market research firm GlobalData Retail, the apparel rental market has seen over 20% growth annually, and it’s expected to exceed $2.5 billion by 2023.

But what exactly is driving this trend? As it turns out, a number of factors come into play.

One of the biggest ones is the rise of sustainability. Modern shoppers are conscious of how their purchase decisions are affecting the environment. As such, consumers are gravitating towards the circular economy to reduce waste.

Another factor? There’s a higher demand for experiences these days. Consumer budgets have steadily shifted from being spent on “stuff” to dining and entertainment. People are spending 4 times as much on experiences over physical goods.

That being said, shoppers—younger ones in particular—still want to look good and keep up with trends. The rental economy lets people use fashionable pieces without spending a fortune on a new outfit or furniture set.

All these trends have driven brands to jump into the rental economy. Retailers are either launching their own rental services or are partnering with subscription startups to tap into the market.

Let’s look at some retailers’ notable efforts.

 

Nuuly by Urban Outfitters

In May 2019, Urban Outfitters (UO) announced that it would launch Nuuly, the company’s own apparel rental service that lets customers rent pieces from Urban Outfitters, Anthropologie, and Free People.

How it works: Subscribers can borrow up to 6 items, which they can keep for a month, before returning them to rent 6 more. Customers have the option to purchase the items they like, and UO will wash, clean, and inspect those that are returned.

Cost: $88 per month.

Retail insight: Urban Outfitter’s foray into the subscription space is an interesting one, and was likely brought about by the trends mentioned above. UO largely caters to young and hip consumers, who relish having fresh wardrobes, while remaining conscious of their environmental impact. By offering clothing rentals, Urban Outfitters can give its customers the ability to keep up with trends in a sustainable way.

The launch of Nuuly could also be a response to a recent dip in foot traffic. As more and more of its customers are opting to shop online or in other retail stores, Urban Outfitters is finding new ways to engage shoppers. Nuuly might attract shoppers who want to remain eternally chic at a reasonable cost. 

Whether or not it’s a success remains to be seen. Getting customers to subscribe to an $88 monthly service may also be an uphill battle because of UO’s mid-market price points. Customers may question whether if it makes more sense to just buy the items outright or slurge for a higher-end (albeit slightly more expensive) service like Rent the Runway.

There’s also the fact that other players are offering fashion subscriptions at lower prices, which brings us to our next retailer…

 

Express Style Trial

Express Style Trial is Express’ venture into the rental economy. Launched in October 2018, Express Style Trial uses CaaStle to handle the logistics of its service. CaaStle, a fully managed service for retailers who want to offer Clothing as a Service (CaaS) also runs the rental initiatives of other apparel retailers, including Ann Taylor, American Eagle, and New York & Company.

How it works: The service gives members access to “endless styles” for a flat monthly fee. Subscribers can rent up to 3 items at a time, and can return pieces as many times within the month to receive new ones. Members also enjoy free unlimited USPS shipping both ways.

Cost: $69.95 per month.

Retail insight: Express Style Trial’s $70 price point combined with unlimited monthly rentals may make it an attractive option for customers.

It’s also interesting that Express is choosing to emphasize the “try” aspect of the program with the name Express Style Trial. By labeling its services as a “trial,” Express seems to be preemptively addressing a concern that most customers have when purchasing apparel online: that they would end up with clothing piece they don’t like.

Using the word “trial” also suggests that the retailer wants to position itself as a go-to rental service for consumers who are looking to try or dabble in the latest fashion trends.

Whatever the case, Express Style Trial faces the same challenges as other services: increased competition and convincing shoppers to subscribe when there are several other options in the market.

 

West Elm + Rent the Runway

While other retailers are playing catch up with the rental economy, Rent the Runway is expanding to a new market: home furnishings. In March 2019, RTR announced a partnership with the home brand West Elm, in which it would offer textile rentals on the RTR platform. Beginning this summer, subscribers can select from several West Elm bundles of quilts, pillows, throws and more.

How it works: The specifics haven’t been made public yet, but it looks like the service will be offered to existing RTR members, rather than being a standalone program. Cost-wise, RTR may choose to bake in West Elm rentals into its current plans or offer them as add-ons.

Retail insight: With a valuation of $1 billion, RTR has emerged as a leader in fashion rentals. RTR’s move towards home furnishing rentals shows that the company is taking its “unicorn” status seriously and it’s committed to dominating the rental economy.

On the retailer’s side, this partnership with Rent the Runway allows West Elm to get its products into the hands and homes of Rent the Runway’s audience. And as RTR members get more familiar with West Elm’s furnishings, they’ll be more inclined to check out the retailer’s larger (and more expensive) products.

 

Crate & Barrel + Fernish

In 2018, Crate & Barrel launched a partnership with Fernish, a subscription startup for home furnishings that lets subscribers rent modern furniture for 3 to 12 months.

How it works: The execution of the rental program takes place entirely on the Fernish platfrom. Unlike fashion subscriptions, Fernish doesn’t offer fixed plans. Its fees vary depending on the item, as well as the rental period the customer chooses. A bar stool, for example, can be rented for $12 a month for 12 months while a bigger piece—like a loveseat—can be leased for $37 a month for a year.

Retail insight: Furniture rental isn’t new, but Fernish puts a modern twist by carrying contemporary brands such as Crate & Barrel and by going after younger consumers who tend to move around a lot—i.e. millennials living in urban areas.

Fernish has built a strong case for furniture subscriptions: larger pieces tend to be more expensive, and so it makes sense to rent, especially if the customer doesn’t own a home. Fernish also takes the hassle out of furniture delivery and assembly, as these services come free with the subscription. And when it’s time to move, customers won’t have to worry about selling furniture or lugging around huge pieces; they can just give them back to Fernish.

From the retailer’s perspective, Crate & Barrel is able to get its merchandise in front of consumers, which may lead to them buying from C&B down the line.

 

Ikea

Ikea is the latest retailer to give rental services a try. In April of 2019, the company announced that it would begin testing a furniture leasing program in 30 markets by 2020.

How it works: Details are scant, as the program is still in the process of being rolled out. According to reports, though, students in the Netherlands can now rent a number of pieces—including beds, desks, and tables—for around $30 a month.

Retail insight: With a large customer base, a huge catalog, and global distribution, Ikea is in a great position to go into subscriptions. Offering the service to students first is also a clever move, as it allows the retailer to further test and refine the program before a wider roll-out.

 

The Bottom Line

Subscription models are here to stay, but brands must work hard to thrive. Pioneers like Rent the Runway (in fashion) and Fernish (in furniture) are continuing to make headway by forming strategic partnerships and delivering more value.

To compete, retailers must go beyond simply offering their own version of existing rental services. They need to differentiate themselves with the right positioning and by offering their program at a price that makes sense to consumers.

In some cases, a retailer’s competitive advantage lies in the partnerships they create. By aligning themselves with the right subscription businesses and service providers, they can get their products into the hands of their target customers.

The bottom line? There’s no one size fits all strategy for how to succeed in the rental economy. The right formula depends on your products, prices and target market.

 

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