From new clothing rental platforms to traditional retailers, businesses in the fashion industry jumped on the rental trend well before the pandemic. 

However, even after the initial shock caused by COVID-19, Clothing as a Service (CaaS) keeps growing. 

Unlike the traditional clothing industry, which was based on one-off transactions, the rental model opens up new opportunities for players in the space. The rise of the subscription model is rewriting the rules of the game and tipping in favor of access over ownership. 

Let’s take a look at what the clothing rental landscape looks like right now and how things are evolving in this space.

Why use clothing rental services in the first place?

Let’s start by looking at things from a zoomed out perspective. Clothing rental services allow customers to browse through a vast selection of clothes and select what they want to rent for a limited period of time. 

The best part about this model: all the heavy lifting is on the company’s end. Rental platforms partner up with logistics companies that manage the entire process, from warehousing and cleaning garments to gathering customer feedback.

Clothing rental platforms offer fashion items from different brands that customers can filter by categories and styles. Some platforms, such as Nuuly, even offer “rent the look” inspiration and ease the renting process by allowing customers to rent a complete look in just a few clicks. 

But what if you fall in love with a piece? In that case, you can keep the item and pay a discounted price. 

“Our pricing is dynamic, and even the average percent off doesn't stay constant. The demand on our inventory is a big factor in how we price.” -Dave Hayne, President of Nuuly and CTO of URBN

The rise of Clothing as a Service

Buying clothes is so last decade. As online shopping became more popular, customers switched bricks with clicks. However, fashion is a specific category, so buying something without seeing and trying it out turned out to be very challenging. Soon customers started ordering multiple sizes and returning everything that doesn’t fit well. 

Data shows that 30% of shoppers deliberately over-purchase and then return unwanted items, and 19% admitted to ordering multiple versions of the same piece so they could make a decision when they receive the products.

As more and more industries started testing the “Product As a Service” model (XaaS), it became clear that clothing is next on the list. 

“Clothing as a Service is a distribution model in which clothing and accessories are provided to customers on a temporary basis, often through rental or subscription.” -Vogue

Some of the most significant benefits of the CaaS model include: 

• Building a recurring revenue business 
• Develop a long-term relationship with your customers
• Avoid seasonal markdowns
• Leverage insights to understand customer behavior and make data-driven decisions
  

In the Clothing as a Service model, besides the list of available products, exceptional logistics and customer service can become vital competitive advantages.

Even though the model is more than a decade old, it has become increasingly popular over the last few years. Let’s take a look at some of the top players in the space. 

One of the first players in the clothing rental space, Rent the Runway, was founded in 2009. Using this platform, customers can rent, subscribe, or buy designer apparel and accessories. RTR monthly memberships range from approximately $69 to $199. Recently Rent the Runway expanded into resale. Previously only members were able to buy items at a discounted price. Now no membership is required for customers who want to buy used designer clothes. 

StitchFix is a personal style service for men and women which started in 2011. Customers can find what they love from a curated list based on recommendation algorithms and data science. Alternatively, they can get hand-selected pieces by a stylist for a one-time styling fee. The first step is taking a style quiz so customers can get personalized recommendations. 

The subscription service Gwynnie Bee was founded in 2011, originally serving plus-sized women. In 2018, they included sizes 0 through 8, but with a twist — they’re adding smaller sizes only for items that are available from 0 through 24 to encourage brands to make more plus-size apparel. The company also introduced CaaStle—a technology platform that allows retailers to offer a subscription clothing rental business in parallel to their existing channels. 

Nuuly is another company ready to disrupt the clothing rental market. Founded in 2019, Nuuly is owned by URBN, the parent company of the popular brands Urban Outfitters, Anthropologie, Free People, and Terrain. Customers can pick six items each month for a monthly subscription of $88, choosing from curation of hundreds of designers and labels. 

From Ties And Heels To Sweatpants

The onset of the pandemic forced people to stay indoors for months. Work from home, closed restaurants, and canceled events wreaked havoc on the fashion industry. People switched ties and heels for sweatpants and pajamas. 

Data from Amazon shows that growth in apparel sales fell by an average of 40 percentage points between mid-February and mid-March 2020. And while it looked like the initial shock will slowly wear off, according to eMarketer, apparel and accessories saw the sharpest decline in 2020 at 16.4% YoY.

Here’s the thing: Consumers were spending most of their time at home, and they didn’t need to buy new clothes. As a result, there was a 93% decrease in the fashion industry’s economic profit from 2019 to 2020, as estimated by McKinsey.

Clothing subscription boxes also faced a challenge. With people being stuck at home and all the reasons for renting an item postponed or canceled, the market size for fashion subscription boxes dropped 22% year-over-year in the second quarter of 2020. 

The unpredicted situation caused by the pandemic required adjusting and pivoting. To stay afloat, Nuuly offered customers the possibility to pause subscriptions instead of canceling. The flexibility was crucial for many other subscription businesses. According to The Subscribed Institute, there was a 40% increase in the number of companies offering the suspend option since the beginning of 2020. 

On top of this, Nuuly focused more on renting casual wear and everyday items that customers can use while at home, which helped them go through the waves of the pandemic and stay buoyant. Data from Nuuly shows that casual wear represented 68% of rentals in April 2020.

Post-pandemic recovery: Renting is the new black

The results from Nuuly’s actions were fruitful. The clothing subscription box first saw an uptick in consumer behavior and customers starting to reactivate their accounts (or newly subscribe) in March. Site traffic and rentals increased by 25% from March to April. 

As things started to look up, the demand for more fashionable items increased. For the month of April 2021, dresses made up 32% of Nuuly’s rentals versus 18% in April 2020. 

The clothing renting market sales almost recovered to 2019 levels by the fourth quarter of 2020.  

Data from Second Measure shows that in the second quarter of 2021, combined customer counts among the competitive set increased 45% YoY. The highest YoY customer growth rates in Q2 2021 came from Rent the Runway and Nuuly, which both grew 78% YoY. As of Q2 2021, 32% of Nuuly’s customers were new. 

Similarly, Rent the Runway’s share of new customers reached 23% in the same quarter. Other clothing rental companies such as Gwynnie Bee and Le Tote had a smaller percentage of new customers in Q2 2021, at 9% and 7%, respectively. 

The fashion industry is seeing a resurgence. As reported by CommonThread, the largest B2C ecommerce market segment is expected to reach a total market size of $1 Trillion by the end of 2025.

COVID-19 was the catalyst of a mindset shift in the way customers live, spend their time, and the importance of products they buy. Since the onset of the pandemic, people have become aware that we don’t need much. The accessibility and democratization of fashion made clothing rental more attractive than ever. 

Customers enjoy the freedom of guilt-free browsing and renting clothes, and buying only those items they truly love. 

Does that mean big changes are afoot in the fashion industry?

It remains to be seen. But one thing is for sure: renting is here to stay. According to Statista, the revenue of the rental apparel market worldwide is expected to increase to approximately seven billion U.S. dollars by 2025.

Beyond renting: Resale market boom

Besides the benefits of the sharing economy, clothing rental companies are also offering the possibility to buy used items at a discounted price. Nuuly has reported that 50% of its customers have purchased a Nuuly item over the course of their membership.

“We have absolutely seen sales from purchases go up over time. Looking at the last three months alone, we saw about a 65% increase in purchases over the same time period last year.” -Dave Hayne, President of Nuuly and CTO of URBN

Recently, the fashion brand Madewell announced a new program, Madewell Forever, by partnering with Resale-as-a-Service (RaaS) provider thredUP. According to Derek Yarbrough, Madewell’s CMO, over 40% of millennials and Gen-Z shoppers have shopped secondhand fashion over the past 12 months.

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As reported by Harper's Bazaar, the resale market is growing at a rate 11 times faster than traditional retail and should be worth $84 billion by 2030, twice the size of fast fashion.

Focus on sustainability

Despite the hardships over the last year, the fashion industry is entering a new decade with significant customer awareness and behavioral shift and awareness. 

A report by McKinsey and Global Fashion Agenda revealed some jaw-dropping numbers. The global fashion industry produced around 2.1 billion tonnes of greenhouse gas (GHG) emissions in 2018 — 4% of the worldwide total. This number will likely rise to around 2.7 billion tonnes a year by 2030 if we don’t take any actions over the next decade. 

The good news is that rental extends a product’s life by 1.8x, based on the average number of rentals during a product’s lifetime, and could ultimately contribute to lowering fashion’s greenhouse gas emissions, according to the same report. 

As an addition to its sustainability practices, Nuuly launched a new product offering called Re_Nuuly. The idea is to fix, upcycle and put back into circulation damaged items. The first collection in collaboration with Riley Vintage was launched in April 2021. 

Fourteen million tons of clothing end up in a landfill each year. Clothing rental services offer customers a way to step out of the fast fashion cycle and engage with fashion in a more eco-conscious and sustainable way.

Legacy fashion retailers are testing the renting model

Traditional fashion retailers have also dipped their toes into the renting model by taking a page from the clothing rental company's playbook.

The fashion designer Rebecca Minkoff recently started offering customers the option to rent clothes from her website without a monthly subscription. Using the “borrow” option, customers can wear an item as many times as they like during the rental period and later buy it at an adjusted price. 

This feature is powered by rental technology platform CaaStle, which works with other brands such as Banana Republic, Express, and Destination Maternity, to provide them with rental-based subscription services. 

Department stores such as Neiman Marcus, Nordstrom, Bloomingdales, and Selfridges have also started offering rental services.

What’s interesting to see is that luxury brands have also jumped on the subscription apparel rental bandwagon—Ralph Lauren being the first by introducing ‘The Lauren Look’ platform. 

Leveraging user-generated content and creator marketing to spark interest

New ways of shopping require new ways of communicating with customers. Tech-savvy clothing rental platforms are aware that the digital-native customer is immune to flashy, polished ads. Instead, they want to read reviews, get a first-hand opinion, and engage with creators. 

To meet customers’ expectations, Nuuly shows user-generated content on the product pages, where customers can get a feel of how an item looks on different people. Data from Salesforce shows that visitors spend 90% more time on sites that include UGC galleries. 

Nuuly is also using the power of crater marketing to attract customers’ attention and build spark interest. Content marketing is a powerful tool for marketers, as customers engage with creator content seven times longer than digital ads. By partnering with content creators, Nuuly is spreading the message of interacting with fashion items in an authentic, non-intrusive way. 

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