29 November 2018 Courier Dec/Jan 2019

The fashion rental economy will be tested in 2019

The sharing economy has revolutionised how we book our holidays, who we hitch a ride with and how we order takeaway. Is fashion next?

The founder of fashion rental company Rent the Runway, Jennifer Hyman, thinks fashion is ripe for sharing economy-style disruption.

Around 6% of shoppers who make up the £1.8tn global fashion industry have already tested out rental for themselves. And in 2019, the figure is expected to rise sharply.

Hyman has reportedly pitched her vision of the future to Airbnb: she hopes one day (very soon) travellers will arrive at their destinations with a wardrobe full of items picked out by her company to match the local weather, any planned activities and even the wearer’s personal tastes.

She’s not the only one who sees bright things in fashion rental’s future. Retailers are currently in the process of signing deals to lease tech and logistics solutions built by fashion rental startups. The industry has reached a turning point.

But it’s not been an easy proposition to bring to the mainstream. After just five years in business, bridesmaid dress rental company Vow To Be Chic wound up its operations in September, saying it didn’t have enough cash to keep going.

Part of the problem is convincing customers to rent. People have grown used to consuming music and TV via subscription services, and hitching rides in other people’s cars with Uber and Blablacar. But they have a stronger sense of ownership over their personal style. Plus, the idea of having to keep making trips to the post office to return worn clothing is hardly enticing.

That’s not the biggest challenge, though. Put bluntly, rental is a logistical nightmare. There’s no blueprint for building a business on the premise that 100% of items sold will be returned. Warehouses need to be capable of accepting orders, laundering clothes and doing quality checks smoothly enough to get items in and out as quickly as possible. Many legacy brands are grappling with the fact that small challengers are doing retail better than them online and offline; they don’t have time for warehouse R&D.

With the big retailers at bay, a number of young brands have been plugging away at these challenges, and proving that fashion rental can operate smoothly and efficiently. Next year, brands such as Rent the Runway and Le Tote in the US, and Panoply City in France, will be doing some serious expansion. This includes finalising deals to lease out their tech to larger organisations, while also figuring out how to make fashion rental apply beyond special events – stretching to weekends away and getting dressed for work.

Building a fashion rental business

Rent the Runway washes, presses and sometimes repairs up to 2,000 pieces of clothing every hour. ‘It’s wild,’ says Lena Anderson, the company’s head of communications. ‘We’re not a fashion company. We’re a logistics company.’

This kind of turnaround is partly what makes growing a fashion rental business so tricky. ‘Imagine a business where you have 100% returns,’ says Rakesh Tondon, founder of San Francisco-based everyday clothing rental brand Le Tote. ‘Not only do you have to figure everything out yourself, because there’s no template, you have to build all of the technology. We wanted to find an off-the-shelf warehouse product but it’s almost impossible.’

Le Tote has raised almost £50m in funding, while Rent the Runway has amassed more than six times as much: £325m. Indeed, launching a fashion rental business requires significant upfront investment. As well as pouring cash into a large warehouse facility and building tech often from scratch, a huge inventory of clothing needs to be purchased. Then there’s the problem that no one rents clothing regularly yet (just 6% of shoppers have ever rented clothing, according to Forrester Research).

The warehouses

In less than a single day, Rent the Runway can receive a piece of clothing and carry out the necessary cleaning and repairs before shipping it on to the next customer. When it opens a second warehouse facility in Spring 2019 in Dallas – a project that’s been about 18 months in the making – the company says it will get even quicker.

Le Tote takes just 14 hours to do the same at its warehouse, pictured above. It’s a huge improvement from when it launched, when clothing would disappear for days while it was sent off-site to be washed.

Tondon says Le Tote tested out hundreds of different boxes before settling on a selection that had the right weight-to-size ratio (shipping now accounts for 25% of Le Tote’s revenues, down from 33% two years previously). He also points out that bringing dry cleaning in-house has cut down the amount of time it takes to get a piece of clothing back into the rental ecosystem.

In Europe, meanwhile, Panoply City is catching up with Rent the Runway and Le Tote when it comes to how quickly it can turn items of clothing around. ‘We haven’t internalised dry cleaning; we use a third party,’ Emmanuelle Brizay, who founded the business in 2015 with Ingrid Brochard, says of the Paris-based company.

‘We are in the process of getting a warehouse together where [dry cleaning] will be directly on site. It’s a long process, requiring expertise and scale.’

For Brizay, the logistical complexity of running a fashion rental business is what’s keeping the larger players from entering the market. ‘When you buy clothing online, if you get the item on Tuesday instead of Monday, that’s ok. It doesn’t change your overall experience,’ she explains. ‘When a girl rents a dress for four days, if you deliver it late, you might have missed the event. You could ruin her weekend.’

The popularity game

Le Tote’s focus for 2019 is to attract as many new customers as possible – while also becoming profitable. ‘We have the infrastructure and the people to execute on it,’ says Tondon. ‘We’re in a good spot to organically double our user base by the end of next year.’

The way people shop for clothes has changed significantly in recent years. Fast fashion brands like Zara have made it possible for consumers to stuff their closets full of low-cost items; meanwhile, the ubiquity of Instagram means people are more likely to notice when someone wears the same outfit too many times.

At the same time, shoppers have become more conscious of the damage these companies do to the planet – fashion is the world’s second most wasteful industry – and the guilt of seeing a cheap H&M top hanging in a closet, unworn, is growing. When the Westfield shopping centre group surveyed customers in 2017, it found that one in five people would be interested in borrowing clothes from their favourite stores. Fashion rental brands are, therefore, in the perfect position to pounce.

Despite all of this, fashion rental brands still have a relatively small user base. In May, Rent the Runway said it had nine million members – a long way off the 180 million people who visit Asos’s website on some months.

Making it easy to return clothes will help customers to keep using the platforms – Panoply has been experimenting with a retail showroom, while Rent the Runway has announced a partnership with WeWork, where customers can pick up and drop off clothes at 15 co-working spaces in the US. But these improvements alone are unlikely to capture the remaining 94% of the population that have been too cautious to try rental so far.

Healthy competition

Competition from big brands can only be a good thing for the startups. If shoppers see a brand they love experimenting with rental, the hope is that they will become more likely to give it a go. Then if they like the experience, they could turn to the trailblazers for their next rental fix.

Le Tote has been quietly launching its service in China, in partnership with the family behind China’s largest footwear company, Belle International. It debuted the service in beta mode in January; in October, it launched the service to the wider Chinese public. It’s going up against local brands YCloset and MSParis, which each has a similar everyday clothing rental offering. In China, a third of the population is under 40 – and 66% of those are considered ‘high income’ individuals. They spend big on travelling and luxury items and, hopefully, fashion rental.

An even better scenario, though, is one that’s going to emerge next year. Rather than building out high-tech warehouses themselves, retailers will choose to become customers of the fashion rental startups.

In June 2018, UK retailer Browns Fashion announced a two-week long partnership with Armarium, a luxury fashion rental brand. Browns said it was exploring ways to extend the life cycle of its stock – rather than just flogging it at a discounted price at the end of the season.

Le Tote and Panoply are in talks with several large brands – they won’t share names yet – who want to introduce their own rental offerings. Le Tote and Panoply will provide their tech and warehousing know-how to make it happen on a white-label basis. ‘We’ve been asked by several retailers if we could operate a white-label service for them,’ Brizay confirms. ‘We’re talking about big brands. It’s a significant step to accelerate market maturity.’