Retailers try clothing rental, but is it good fit?
Renting clothes could be the future of fashion — or it could just be a fad.
But traditional retailers can no longer afford to wait on the sidelines to find out.
That’s why a growing number are offering customers the option to rent clothes for a monthly fee instead of buying them. Bloomingdale’s, Banana Republic and Urban Outfitters are the latest to offer the services.
Even footwear chain Designer Brands says it’s considering launching a rental service for shoes.
Now a booming $1 billion business, the clothing rental sector is expected to reach $2.5 billion by 2023, according to research firm GlobalData.
When combined with resale, it will account for 13% of the total $360 billion U.S. clothing market within the decade, up from 7.3% today.
Clothing rentals are one more piece of the sharing economy, where customers — particularly those in their 20s and 30s — are less interested in owning or making big investments but still want access to different brands and services, says Steve Barr, consumer markets leader at PwC.
“You no longer have to buy into the myth of continuous consumption and that there’s pride in wearing something as opposed to pride in owning something,” said Jennifer Hyman, CEO and co-founder of Rent the Runway, which in 2009 pioneered the business model that many retailers are now trying to replicate.
For clothing retailers, rentals offer a glimmer of hope at a time when they are dealing with mounds of unsold goods that often need to be deeply discounted. Several have already gotten into the secondhand business — another popular trend led by companies like The Real Real and ThredUp.
J.C. Penney and Macy’s have partnered with ThredUp to sell gently worn clothes in a couple dozen locations. Nordstrom is testing resale at its women’s flagship store in Manhattan and online.
Many in the industry consider these necessary steps as clothing retailers watch their fortunes erode.
They, along with department stores, are expected to see their fourth-quarter earnings sink 11.3% compared with a 5.7% drop for the overall retail sector, according to research firm Retail Metrics LLC.
Last year, clothing retailers accounted for an outsized share of retail bankruptcies, according to a recent report by consulting firm AlixPartners.
“Clothing retailers are dealing with pressures on multiple fronts,” said Ken Perkins, president of Retail Metrics. “Heavy promotions, chronic traffic declines, e-commerce investment. And now they’ve got rental and resale services as well. The rental market is small, but it’s going to grow, and they have to invest in it.”
Christine Hunsicker, CEO and founder of CaaStle, a startup that manages inventory and shipping for retailers, says rental services have anywhere from a 20% to 25% operating profit compared with only 5% for traditional retailers. Last year, Hunsicker’s retail clients saw total spending for renting and buying increase twofold on average for each customer.