Rent the Runway invests significantly in logistics
American sharing economy platform, Rent the Runway, which allows people to rent up-to-the-minute fashions instead of buying them, has become the nation’s biggest dry cleaner, operating a 160k square foot fulfilment centre that dry cleans 1,500 dresses every hour. This large facility allows the platform to turnaround dresses within 24 hours of receiving them back from previous renters. Fashion insiders are predicting that the success of such services could have a profound impact on the high street as these platforms allow consumers to use high-quality fashion items at a low rate, rather than buying cheaper, lower-quality items on the high street. However, NYU Professor, Arun Sundararajan, is less concerned, stating that although sharing could have a negative impact on retail sales, it could increase overall economic activity within the fashion industry.

LONDON, United Kingdom — For a long time, we've had to buy the items we want to use, regardless of how much or little we use them. For items we need access to all the time — like fridges — or items we feel it would be strange to share — like toothbrushes — ownership makes sense. But for items we only use once in a while, ownership is not cost-effective, and yet, it is often the only way to ensure on-demand access.

Today, technology has created platforms for new online marketplaces and provided better channels of communication to connect users and owners, which have made sharing resources at scale cheaper and easier than ever. Customers can hire a car for an hour with Getaround, stay in a local’s spare room with Airbnb, or hitch a ride in someone else’s vehicle with Uber.

The growth of the sharing economy has been rapid. Pricewaterhouse Coopers predicts that by 2025, the five key sectors of the sharing economy — staffing, finance, car sharing, travel and music and video streaming — could generate $335 billion in annual revenue, up from about $15 billion today. As of 2015, global investments in sharing start-ups totalled more than $12 billion — more than double the investments in social media start-ups — according to Deloitte.

For owners, the sharing economy transforms possessions into revenue streams, by enabling items to be useful all of the time: someone who only uses their car to drive to and from work each day can rent the vehicle to other drivers in the interim. For customers, the sharing economy provides convenience, value (it’s cheaper to pay to use something for a short time rather than buy it outright) and a greater choice of products and services. It also offers access without ownership — something that has resonated with millennial consumers, who came of age in the recession and are economically-minded, and who increasingly value experiences over material goods.

But can the sharing economy work in fashion?

Clothing and accessories often have high value but low usage — characteristics of other items that have proved popular in sharing consumption models, explains Arun Sundararajan, a professor at NYU’s Stern School of Business. “It’s quite common to have clothing that costs three figures or four figures,” he says, many of which are bought and worn only occasionally. In the US alone, over $8 billion worth of clothing sits in closets, unworn, according to a report by online thrift store ThredUp.

As a result, dozens of fashion companies have entered the sharing economy fray in the last few years, adopting a number of different business models to tap the opportunity.

Fashion Rental Services

Rental models allow customers to borrow items for a set time period, typically at the cost of 10 to 20 percent of an item’s retail value. Perhaps the best known of these is US-based Rent the Runway, which launched in 2009 and today has over 5.5 million members. However, the swath of start-ups in the field includes Girl Meets Dress in the UK, Chic By Choice in Europe and Glam Corner in Australia, as well as more niche ventures, such as Gwynnie Bee (plus-size fashion rental) and Borrow For Your Bump (maternitywear rental).

“The reason someone buys a suit, or shoes, or a gown, is to have easy, inexpensive access to the stream of services that item provides. If it’s possible to rent, one can enjoy that stream of services for a brief period,” explains Michael Munger, professor at Duke University.

By loaning clothing on a pay-per-use basis, rental companies also lower the cost of items, giving customers access to aspirational brands they couldn’t usually afford, says Greg Portell, a partner in retail and media at A.T. Kearney. “You wouldn’t necessarily spend $700 on a one-time use or even two-time use item, but you may spend $100 [to rent] it for a one-time use.”

With more spending power and choice, but less commitment, consumers can use rental sites to constantly update their wardrobes, enabling them to keep up with fashion’s fast-turning trend cycles. “You’re able to experience a trend without feeling horrible that you’ve paid all this money for something you can wear once or twice,” says Trisha Gregory, co-founder and chief executive officer of Armarium, an app-based luxury fashion rental service that launched in April.

This proposition is particularly attractive to millennial and Generation Z consumers, many of whom shop at affordable, fast fashion retailers to regularly update their “look,” says Robin Lewis, chief executive officer of the Robin Report, a retail strategy publication. “They may know the quality isn’t the finest, but they’ll wear [an item] for the weekend and it won’t bother them — it’s disposable,” he explains.

"You used to be able to wear one outfit to work and then repeat it on the weekend with a group of friends. Now, because you've already photographed yourself and put the photo up on Instagram, you need more variety," adds Jennifer Hyman, co-founder and chief executive officer of Rent the Runway.

But unlike Airbnb and Getaround, which connect users with a marketplace of third-party controlled goods, meaning consumers can monetise their own unused assets, a fashion rental company must take on the role of owner — purchasing and holding all the stock they rent out.

Fashion rental services also face greater logistical barriers. “Uber and Airbnb are software programmes…all [they] have to do is connect folks who could exchange on their own,” says Michael Munger. By contrast, fashion deals in products that are more difficult to transport between users, and require maintenance between uses — such as dry cleaning and repairs — which create operational challenges and costs for businesses.

Rent the Runway has invested heavily in logistics, to ensure products that are returned to the company in the morning can be ready to ship to a new customer that evening. It is currently the US’s biggest dry cleaner, operating a 160,000 square foot fulfilment centre that dry cleans 2,000 dresses every hour. The majority of returned items are cleaned and sent back out for a delivery within a day.

Peer-to-Peer Platforms

Peer-to-peer rental services connect consumers and let them borrow from each other. “That value proposition is obvious to people,” says Sundararajan. “‘I’ve got all this stuff in my closet, it would be great to rent it out.’”

But this model has specific challenges: “Every peer-to-peer marketplace has the challenge of getting enough people in so that they actually have sufficient inventory,” Sundararajan continues. In fashion, the wide range of product styles and sizes make this difficult to achieve. Rent the Runway buys each product in a range of sizes, and sends users two sizes in case the one they order doesn’t fit. But for peer-to-peer rental services, this problem is harder to fix. “It’s hard to rent a dress or a gown from someone who only owns one size,” says Munger, “There is not enough density to allow peer-to-peer connections.”

Peer-to-peer businesses also need to figure out how to get fashion items from the owner to the user, and ensure items are in good condition. Some companies handle these logistics themselves. In the US, peer-to-peer rental service StyleLend requires owners to send in items they want to rent out. The company stores them in its New York offices, and handles delivery and dry-cleaning, much like a traditional rental company.

Meanwhile, ​when it first launched, users of UK-based Rentez-Vous were responsible for cleaning their own items, and had to arrange to have each item delivered, or meet their customer and hand over the item in person. While this cut costs for the business, it made usages less smooth for customers, and the company has recently introduced an integrated dry cleaning service and last minute delivery option to make transactions easier for both owners and renters.

Industry Impact

So far, the sharing economy has been slower to take off in retail, compared to sectors such as transportation or hospitality. According to a 2015 report by PwC, just 2 percent of the US population have engaged in a sharing transaction in the retail sector, compared to 6 percent for hospitality and 8 percent for transport.

But some believe that, if the fashion sharing economy flourishes, its effect on traditional retailers could be profound. Rent the Runway's Hyman predicts that fast fashion businesses, in particular, could be affected, as customers use rental services to borrow high quality on-trend seasonal pieces, rather than buy cheaper versions on the high street.

Customers will continue to buy everyday staples — such as a good pair of jeans or a classic leather jacket — but turn to rentals for occasion-wear and statement pieces with a limited wardrobe lifespan, she says: "Consumers will become smarter about what they want to own forever and what they don't want to own forever."

“Our service will supplement the capsule wardrobe,” agrees Armarium’s Gregory. “They’ll use us to stand out from the crowd at a cocktail party or make a good impression on a job interview or a date.”

“[Buying] is not about disposable things, it’s about things that can last and that you can rent if you’re not using, and will keep their value for a long time,” adds Neal Gorenflo, co-founder of Shareable, a news and connection site for sharing businesses.

But although sharing could have a negative impact on retail sales, “it would actually increase economic activity overall,” argues Sundararajan. “Through renting and transporting and all of that, the money you spend on clothes will go up, even as the number of clothes you buy goes down.”

Limits on Sharing Fashion

“Logistics seems to be the key barrier to this really taking off,” says Sundararajan. Because of style and fit variation, a fashion marketplace needs to offer consumers a wider range of products than other sharing economy sectors, like cars or accommodation. Inventory turnover is also much higher in fashion, to keep up with trends. In the crowded sharing economy space, where many companies don’t have such high overheads, this can make fashion companies less appealing to venture capitalists.

Convincing people to share clothes with other people requires a much bigger behavioural shift than convincing them to share vehicles or accommodation — both of which have been available to rent for years. “Part of the attraction [of fashion] is wearing a creation for the first time… the sense that the item is new,” explains Munger, who says some customers may also feel uncomfortable wearing something worn by a stranger.

Lewis agrees: “People are still interested in buying apparel. I can’t imagine that they’re just going to rent and share forever and forget about that.”

Editor's Note: This article was revised on April 10th, 2016. A previous version of this article misstated that users of Rentez-Vous were responsible for cleaning their own items, and must arrange to have each item delivered, or meet their customer and hand over the item in person. This is incorrect. The company has also recently introduced an integrated dry cleaning service and last minute delivery option. A previous version of this article also misstated that Rent the Runway dry cleaned 1,500 dresses every hour. This is incorrect. It is 2,000.