Are Rental Services the Answer to Apparel Retailers’ Woes?


(Bloomberg Opinion)—In an era when fashion trends change in a nanosecond and people increasingly live their lives on camera, many shoppers have a “one and done” approach to outfits: they want to wear a look a single time and then move on to the next.

But mid-range retailers angling to help shoppers look good in selfies don’t want to end up with a pile of unsold multicolor sequin party dresses, and they can’t bear the increasing cost of consumers wearing and then returning garments.

Could rental services be the solution? It’s a well-established practice at the high end, but getting the economics to work for affordable brands is tricky. And it looks like the enemy of efficient retail – it’s a complicated business that could sap traditional sales.

But the risks haven’t stopped Hennes & Mauritz AB from thinking about it. Express Inc. is among U.S. brands that have already got started.

It’s worth a shot. Sales are being squeezed in both America and Europe as women’s spending on clothes is increasingly getting shifted to experiences such as vacations and meals out. Renting could help retailers adapt to this new reality, as well as solve some of fashion’s perennial problems.

A chain stuck with a bloated inventory – perhaps because it has been a little too bold in its buying choices – could divert surplus items to a rental operation, where consumers might be more inclined to take a risk with fashion-forward pieces. This could offer a better economic outcome than getting rid of the excess through heavy discounts. Markdowns to shift unwanted stock can be a real drag on margins.

Then there are the millennials. Their demand for fresh looks is prompting some to order garments, wear them, and return them to retailers as unwanted goods.

One in five U.K. clothing consumers admit to this behavior, according to research firm Mintel. This makes “wardrobing,” as the practice is known, a big and expensive problem. It undoubtedly contributes to online retailers’ returns rates, which can be as high as 50 percent of everything sold.

Chains could try to cope with both of these challenges by starting up a rental service. After all, they already deal with returns, some cleaning and repairs to resell garments.

But it’s much harder to persuade consumers to hire affordable apparel than catwalk creations, where Rent the Runway has demonstrated the appeal. That’s because there are so many cheap and chic options available.

Still, there are some models that could work. Hirestreet, a U.K. start up that works independently of retailers, offers 10-day leases starting at around 10 pounds ($13) on mid-market occasion wear from the likes of Inditex’s Zara and Asos Plc.

This compares well with the cost of buying an item from a fast-fashion retailer, and could persuade consumers to switch from wardrobing to hiring. This also looks financially viable, and could give chains an incentive to experiment. It seems to be working for Hirestreet as well – although it is investing heavily in stock right now, its core operation is profitable.

In the U.S., CaaStle operates rental services for its own Gwynnie Bee brand as well as for third-party retailers including Express, American Eagle Outfitters Inc. and Ascena Retail Group Inc.’s Ann Taylor. It charges a flat fee per active subscriber to provide all aspects of the offer, from logistics to laundry.

Christine Hunsicker, chief executive officer of CaaStle, says the economics do stack up: retailers using its platform to offer rental subscriptions can generate operating margins of 25 percent. That compares pretty well with the profitability of a mid-market fashion chain.

Apparel leasing has its limits as an industry. While the U.S. market could reach $4.4 billion by 2028, according to GlobalData, that would represent just 0.9 percent of total clothing sales in that year.

And it probably won’t work for all retailers. Those selling a large assortment of basics such as denim, which customers are happy to purchase, aren’t a good fit.

But for some chains, such as those focused on younger fashion, renting can go a long way toward tackling wardrobing. And for many others, it could be a useful way to bring in new customers. Hunsicker estimates that some 50 percent of subscribers are new to the retailer or have not shopped with it for the previous 12-24 months.

It can also help brands cope now that the tide is beginning to turn against disposable fashion. British lawmakers recently proposed a penny tax on all new garments. Indeed, H&M is considering it along with other initiatives as part of its broader sustainability agenda – though an additional benefit might be shifting some of its $4 billion of unsold stock. It’s also a way for clothing chains to tap into consumers’ increasing willingness to participate in the sharing economy.

With so much industry pressure and so many customers trying to figure out how to shop a selfie, one solution may be for retailers to dip the toe of their party stilettos into renting.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

To contact the authors of this story: Andrea Felsted at [email protected] Sarah Halzack at [email protected]

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