Monday , May 16 2022

Why Merchants Stalk Hire a Runway with Knockout Services


Lisa Batito wore a dress from Rent the Runway.

Source: Pia Wilson

When Lisa Batito needed clothing for a themed work event, she turned to Rent the Runway instead of Stitch Fix or her local department store.

Through the clothing hire company, she knew she could find the perfect dress for an animal print themed event. She would not need to wear the dress again, so she was glad she had the opportunity to rent instead of buying.

"It gives me the ability to always have something new without clothes sitting in my wardrobe and not using them," says Batito, a Montclair, New Jersey publicist.

She pays $ 159 a month for the unlimited Rent the Runway service, which gives her access to the company's high-end designer apparel design. She can carry things as long as she wants and can return them for a fresh batch when she is done.

This trend is not lost on traditional retailers. The Gap-owned Banana Republic announced Thursday that it plans to launch a clothing rental service to try to attract customers like Battito. Macy & # 39; s said this week that it is considering launching a rental service while its subsidiary, Bloomingdale & # 39; s, will launch one in mid-September. Urban Outfitters also opened a rental subscription box earlier this month.

The spread is partly fueled by the desire of brick-and-mortar retailers to adapt to changing consumer habits and find new revenue streams. According to a report from data analytics firm GlobalData, the rental subscription market is estimated at about $ 1 billion in 2018 and is expected to grow more than 20% annually, reaching $ 2.5 billion by 2023.

CaaStle, a startup company that specializes in inventory management and delivery for these businesses, helps make experimentation easier. Banana Republic and Bloomingdale have selected CaaStle as their partner in the new endeavors.

Startups say 50% of rental subscribers who sign up with retailers are new, digitally local customers. The other half spend 125% more on the brand during the year.

The new Knife Flood from Rent the Runway Retail is a change from trying to get into styling services like Stitch Fix, which has achieved some success. Through the service, users pay a fee to have clothing selected by a stylist and sent to them every few weeks or months, which they can purchase or send back. In 2018, the company reported $ 1.2 billion in sales, and its active customer base grew 17% to 3.1 million from the previous year. Since January, its shares have increased by 36%, with the company estimated at about $ 2.4 billion.

But other companies have not been as successful. In February, J.C. Penney announced that it was shutting down its menswear subscription service. In 2018, Gap pulled the plug on a subscription service that includes boxes for baby clothes, pajamas and baby outfits. In 2016, Nordstrom wrote off the value of its $ 200 million Trunk Club business style. He still manages the service, which he bought for $ 350 million two years ago.

Buying fatigue

Batito was a Stitch Fix subscriber. She paid a $ 20 per month styling fee, which was applied as a credit to the items she purchased, and she returned everything she didn't want. But she thought hiring was much more sustainable. She could choose the items herself instead of choosing a stylist. She also didn't have to keep buying new clothes or throwing away old clothes.

"This makes you wear out of something and it's not just sitting there," she said. "It really seems like a better way to do things than to just keep buying things and wanting more."

She also said that not having to clean dry clothes is another big plus.

Sucharita Kodali, a Forrester analyst, said many users are tired of subscription services and feel pressured to buy every few weeks or months because of the recurring styling fee.

"Why do you want to lock yourself in a recurring stream of fees when there is so much choice in fashion and you can already buy what you need when you need it? It just becomes really difficult to make a compelling case long-term," she said ,

Fix Fixt declined to comment.

The call for sustainability

That's part of the reason companies like Urban Outfitters instead resort to rental services, imitating Rent the Runway and Le Tote, which cost $ 79 a month. Le Tote is also nearing a deal to buy a luxury Lord & Taylor department store. Kodali said these models are interested in sustainable clothing methods because there is less waste when renting clothes.

Sustainability also boosts the popularity of ThredUp, an online second-hand clothing and consignment shop. Macy's and J.C. Penney & # 39; s have announced that they will experiment with providing ThredUp floor space in stores.

But Kodali said the rental services are still facing their fair share of challenges. One of the biggest is how to deal with cleaning your clothes after returning them.

Resale and rentals are important models and only you will see more and more merchants entering this space.

Christine Hansicher

CaaStle CEO

"Dry cleaning and shipping are expensive and it's a significant expense," Kodali said. Running a runway, which launches its rental service in 2016, is one of the most popular options. It operates a 250,000 square foot warehouse in New Jersey and has just opened one of 300,000 square feet in Texas. Warehouses are thought to be the largest chemical preparations in the country. The company reached an estimated $ 1 billion after a funding round in March and currently has more than 11 million members.

Urban Outfitters also said it will build a 300,000-square-foot facility with a full-service dry cleaning system to support its rentals. The move will cost $ 3 million.

"We believe that there is a great opportunity to change the $ 120 billion market for women's apparel in the United States," said David Hane, Urban's Chief Digital Officer. The company expects about 50,000 subscribers to sign up for their Nuuly rental service within 12 months. If that goal is estimated, it can reach $ 50 million in revenue at the end of this period.

"We are ready to respond to a stronger subscriber interest and believe that several hundred thousand subscribers are possible in the first few years," said Hain, who is also president of Nuuly.

Urban Outfitters, valued at about $ 1.9 billion, saw its stock decline by more than 40% since January.

Attracting a younger client

For retailers who do not want to build their own service from above, CaaStle may be another option. Started in 2018, the company is trying to make it easier for retailers to start their own monthly rental service, and dry cleaning and delivery are part of the service.

Banana Republic has partnered with CaaStle on the Style Passport service, which will cost $ 85 a month to rent three pieces at a time.

"Style Passport will help increase revenue and help us reach out to younger buyers who value great style and want an affordable, sustainable way to try new fashion," said CEO Mark Breitbard in a statement.

The technology platform has also launched rental services with American Eagle Outfitters, New York & Company, Express and Vince Camuto.

Vince's box, which costs $ 160 a month to rent four items at a time, kicked off last year.

"Part of it was to attract a younger customer who still doesn't have the attraction of being a real full-price client of Vince. This is a way to introduce it to the brand, "said Vince CEO Brendan Hoffman.

Kodali from Forrester said these companies work with CaaStle because it is a "brand building tool" and helps them get into the rental business without having to invest a lot of capital or worry about logistics.

"I think if we didn't exist, you wouldn't see so many companies moving into space," said CaaStle CEO Christine Hansiker, whose startup is partnering with 11 retailers. Hunsicker also believes that CaaStle is one of the reasons Urban Outfitters has set up its own service.

"Resale and rentals are important models and only you will see more and more merchants coming into this space," she said.

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