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Fashion Can’t Ignore Rent the Runway

The apparel-rent service has become a significant driver of sales for some of the world’s most popular fashion labels. Now, a new revenue-sharing model has large-scale players, including Levi’s and J.Crew, jumping on board.
Rent the Runway | Photo: Courtesy
By
  • Lauren Sherman

NEW YORK, United States — Rent the Runway chief executive Jennifer Hyman has spent the last decade trying to convince fashion designers that letting her buy their clothes — so that she could, in turn, rent them to consumers over and over again — was a lead generator, not a brand killer.

She must be saying something right, given that Marni, Proenza Schouler and Derek Lam are just a few of the fancy-fashion labels currently for rent on the site. However, there are still holdouts.

"Our customer's number one brand that they want on Rent the Runway is Gucci," she said in a recent interview with BoF. "Mr. Pinault if you're listening....you already know that I love you and respect you. We will be very excited when we develop a partnership with Gucci several years down the line."

Hyman has a reason to be confident. After being written off by many as a special occasion-only service — a place where brands could effectively offload old product — the launch of Rent the Runway’s $159-a-month unlimited subscription has made some rethink their position.

In just two years, the service now generates more than half of the company’s sales — most recently estimated to be over $100 million in 2016 — with women using it, on average, 120 days in a year. That means Rent the Runway is placing big wholesale orders at the beginning of each season, making it an increasingly important account for brands that can no longer rely on department stores to meet their revenue goals.

Many brands now need Rent the Runway as much as Rent the Runway needs them. And this week, the company is introducing a new revenue-sharing model that could potentially increase their dependence.

Up until now, Rent the Runway has done what every other multi-brand retailer does: It buys product directly from the brand in a single transaction. While it’s not abandoning the wholesale model altogether, a new service, called RTR Platform, will offer more flexibility — and potentially bigger profits — for participating brands.

Instead of simply being paid a one-time fee for an item, brands will get a cut of the revenue generated with each rental. (The percentage breakdown varies from brand to brand and is dependent on a number of factors, including how well the brand already performs on the site, and general consumer demand for the label.)

RTR hopes brands will sell them more — and better — items by raising the potential payout.

Here’s how it works: Rent the Runway and the brand work together to create an “ideal assortment for rental.” That means products that are made from sturdy, dry-cleaning safe materials, and that speak to the customer’s desire for trend-driven, novel products. (They love colour and embellishments.)

The styles are then ingested into the RTR Platform. Rent the Runway takes care of everything that most brands are not currently equipped to do around rentals: fulfillment, reverse logistics, inventory care and customer service.

While the promise of a bigger paycheck is a big incentive for brands to join RTR Platform, it’s also an opportunity gain insights into how the rental consumer behaves, not to mention the durability of a specific item.

“It’s allowing them to turn on a rental revenue stream overnight,” said Maureen Sullivan, chief operating officer at Rent the Runway.

The model decreases Rent the Runway’s inventory risk because they are not investing in the product upfront. (That being said, some brands have been incentivised to onboard with upfront payments meant to help pay for production of inventory.) Most importantly, Rent the Runway needs more inventory for its growing subscriber base, and this model allows the company to scale up quickly.

A Club Monaco look available on RTR Platform | Photo: Courtesy

For the consumer, it means a wider breadth of product across multiple apparel and accessories categories. (RTR Platform products will be indistinguishable from products bought outright.) While many of Rent the Runway's longtime brand partners — including Jason Wu, Rebecca Minkoff and Prabal Gurung — are joining the platform, several larger-scale players — including Levi's, J.Crew and Club Monaco — are also partnering with the service for the first time. That's because Rent the Runway shoppers are increasingly using it for every-day wear. (Denim is the number one category.)

Sure, consumers may still be buying closet staples like black blazers and straight-leg jeans outright, but there’s now a chance they’re renting that piece first. Some customers have even hacked the system, opening multiple accounts so that they can keep more items in rotation. Currently, the “unlimited” service only allows a customer to rent four items at a time, although the company has hinted that an extended subscription is in the works.

Rent the Runway’s competitors have already begun to address growing demand. In March 2018, Gwynnie Bee, which specialises in plus-size rentals, launched CaaStle, a white-label, turn-key service that allows brands to launch rental via their own sales channels. (Ann Taylor, Express and Vince are clients.)

While Rent the Runway and CaaStle are offering a similar service, integrating into the Rent the Runway platform is in some ways less risky from a branding perspective. Consumers are already comfortable renting from Rent the Runway; renting directly from a brand may feel more foreign. It could also be considered a better value. Ann Taylor's monthly subscription fee is $95 to rent three garments at a time. Rent the Runway's monthly subscription, which allows four garments at a time, may be more expensive, but it offers access to hundreds of brands.

That is perhaps part of the reason a company like Levi’s may be so eager to join up. For Levi’s, it’s also about the nature of the product. Denim still has a higher barrier to entry online because of how challenging it is to get just the right fit.

They're realising something is happening, and they want to be on the ground floor of understanding how their product operates in this.

Integrating into Rent the Runway allows customers to experiment with new styles without committing straight away, and also allows Levi’s to give more exposure to its products other than jeans, like tops and jackets. It’s also sticking with more premium styles. A pair of “wedgie” jeans, for instance, costs between $98 and $158 at retail.

Then, there are the long-term justifications: Not only does Levi’s need to better understand how the new consumer generation likes to shop, it also needs to live up to its reputation as a business dedicated to sustainability and waste reduction.

"We know that our customers are interested in alternative ownership," said Brady Stewart, senior vice president of digital for the Americas region at Levi Strauss & Co. "This gets people into our product while still reducing our overall environmental impact."

For brands eager to get one step ahead of ever-changing consumer behaviour, Rent the Runway’s new model is a compelling sell.

“They’re realising something is happening, and they want to be on the ground floor of understanding how their product operates in this, to figure how it’s going to change their strategy long-term,” Sullivan said.

But even if it wins out over competitors, can RTR Platform send Rent the Runway on its way to becoming a $100 billion business? (That’s right: Hyman believes the company can be as big as Uber or Netflix.) It won’t be easy. The online clothing rental market, which surpassed $1 billion globally in 2017, according to a report from Allied Market Research, is still a fraction of the overall market for clothes and footwear, which was valued at $1.7 trillion in sales in 2017 by Euromonitor.

What’s more, Rent the Runway is spending a lot of money to get this service off the ground. By sharing revenue, they’re making less money on each item, hoping that it will allow them to scale instead.

In order to get to the size it wants to be, launching into more categories may be imperative, as will cementing its relationship with an even-wider breadth of both large-scale and high-end brands. Potential categories could include kid’s, men’s or home, although the company would not confirm any plans.

Rent the Runway is also focusing on building out its own physical retail after exiting a partnership with Neiman Marcus, now one of its biggest competitors. After all, Rent the Runway is now fighting for brand exclusives just like any other retailer.

Now whether or not we’ll ever see a Gucci Dionysus bag on site remains to be seen, but it no longer sounds so farfetched.

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