In 2020, Expect a Shakeout in the Clothing Rental Market

As part of its “Retail Revolution” series, retail news platform Modern Retail explored the future of the clothing rental business. This excerpt is from a story published on December 24, 2019. Read the full article here.

By Anna Hensel

“If you think about it — rental is just 100% returns,” said Donny Salazar, CEO of fulfillment startup MasonHub. “If I’ve got an item that is on that I’ve rented and you need the item in two weeks, how do you build a system that will allow you to allocate that unit of inventory that you need, even though I physically have it, right? That is a super complex inventory allocation model that requires a lot, a lot of engineering.”

Urban Outfitter Inc.’s Nuuly, for example, had to build its own warehouse and fulfillment center in Philadelphia equipped with laundry and dry cleaning services, its own custom cloud-based inventory and warehouse management services, and hire data scientists to develop a proprietary recommendation engine in order to get its rental system off the ground.

And if rental services can’t get clothes to customers in time, it can prove disastrous. In September, Rent the Runway had to stop temporarily accepting orders after there were “unforeseen issues” with a software upgrade to its New Jersey warehouse, CEO Jennifer Hyman said in an email to customers at the time.

The incident is recent enough that it’s unclear yet just how much it will affect Rent the Runway’s business long term. Second Measure, a firm that analyzes anonymized credit card data, provided Modern Retail with data on Rent the Runway’s customer and sales growth following the September warehouse incident that indicated growth had slowed.

Specifically, Second Measure reported that Rent the Runway’s sales and total number of customers were just 1% higher in October than they were in September. But, by November, Rent the Runway 6% more customers than it did in October, and sales were 7% higher. (Rent the Runway declined to provide a comment on Second Measure’s findings).

Adding physical locations for customers to return items can lessen some of the logistics burden. This is something that Rent the Runway has started to do, by partnering with Nordstorm to allow customers to return Rent the Runway items in select Nordstrom stores. And, it could make rental especially more cost-effective for retailers who already have an existing fleet of brick-and-mortar stores.

Still there are many things out of a brand’s control that could prevent them from getting an order to a customer in time. From a carrier failing to meet delivery times or a software glitch like the one Rent the Runway experienced, it’s hard for a brand to prepare for every possible scenario.

“If an existing retailer is trying to go into rental, I think it’s going to be a tough technology and logistical challenge,” Salazar said. “But if you started your business as a rental, I think you have an advantage.”