Can Rent the Runway ever become the Spotify of fashion?

Why buy a Tadashi Shoji runway dress when you could just rent it?
Why buy a Tadashi Shoji runway dress when you could just rent it?
Image: Reuters/Shannon Stapleton
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If you believe Jennifer Hyman, CEO of Rent the Runway, her company is a major disruptor in fashion. It rents out designer clothes from some 500 different brands to subscribers who pay a monthly fee, allowing them to borrow a high-end wardrobe for much less than it would cost to actually buy. The company has thrived, topping $100 million in revenue last year and becoming profitable for the first time.

One particular segment of fashion retail should be afraid, Hyman says, and that’s fast fashion. ”I plan to put Zara out of business,” she told Glossy after Rent the Runway announced a new, lower-priced subscription plan that will make the service accessible to more customers. The new $89 plan allows subscribers to borrow four items per month. The standard plan, which offers unlimited items per month, is increasing to $159, but now allows customers to borrow four items at a time, rather than the previous three.

The narrative of Rent the Runway’s narrative as a fast-fashion killer (paywall) is one Hyman has been pushing for some time. She raised the point last year, for instance, when speaking with Quartz about a partnership the company established with Neiman Marcus. As Hyman sees it, people shop fast fashion for trendy items, while they invest more in classic wardrobe staples that they’ll keep for years.

It makes sense, then, that people would prefer to rent fleetingly fashionable items instead of buying them. Consumers are also increasingly open to renting what they want through a service, rather than owning something outright. Think of the way streaming services such as Spotify have changed the music industry and eliminated the need to actually own the music you listen to.

But there’s more than a little hyperbole in Hyman’s comments about putting Zara out of business. For starters, Zara pulled in €15.4 billion (about $18.1 billion) last year, across 93 global markets. Rent the Runway’s revenue, while growing fast, is still a drop in a bucket that size—and the company only operates in the US. According to research firm NPD’s Checkout Tracking data on e-commerce apparel, which analyzes actual spending by consumers who have opted into their panel, only 5% of Zara’s US online buyers also subscribe to Rent the Runway.

Still, Rent the Runway’s success does raise some questions about the future of shopping: Could clothing rental, including Rent the Runway and the growing crop of similar businesses, steal enough customers from fast-fashion brands in the US to make a noticeable dent in their sales?

We surveyed retail experts who keep an eye on not just the clothes people buy, but also how they shop. They include:

  • Deborah Weinswig, managing director at Fung Global Retail & Technology, a retail think tank
  • Manik Aryapadi, a principal in the retail practice of A.T. Kearney, a global strategy and management consulting firm
  • Sean Maharaj, a director in the retail practice of AArete, a global consultancy specializing in data-informed performance improvement
  • Marshal Cohen, chief industry analyst at the NPD Group, a global market research firm

The experts offered a mixed bag of responses that say as much about the changes in retail as they do about Rent the Runway’s chances of success.

Can clothing rental take down fast fashion in the US?

“There’s little danger that fast fashion can be disrupted by the clothing rental trend,” says Aryapadi. While categories like bridesmaid dresses and tuxedos “have a clear bullseye on them,” he believes it’s far too early to label Rent the Runway a disruptor. It’s not even clear yet whether shoppers will adopt clothing rental in large enough numbers to drive long-term, sustainable growth.

Weinswig, on the other hand, believes clothing rental could siphon some sales away from fast fashion, but like Aryapadi, she felt brands such as Zara weren’t the ones that were really vulnerable. ”Millennials in particular appear to like the option of renting a trendy but inexpensive dress or an expensive designer gown rather than buying one,” she says. “That said, apparel rental is more suited to special occasion apparel and formalwear due to the infrequent usage but high value of such clothing.”

Maharaj believes Zara’s designer-on-the-cheap appeal actually makes it a target. “It’s hard to say whether [Rent the Runway will] ultimately dominate the market,” he says. “But if numbers tell a story, then other higher-end fast fashion retailers should be worried, and should expect to feel the heat over the next 1-2 years.”

Cohen was the only one who said outright that rental really could upend clothing retail. “Can a rental model displace a traditional retail model? Darn right it can,” he says. “Just look at Uber/Lyft vs. Medallion Taxis. Rental when done right has the ability to bring a much more affordable and perfectly acceptable approach to dressing.”

Is clothing open to the same sort of disruption as transportation and music were?

In theory, clothing rental threatens to do to fashion what companies such as Uber and Spotify did for transportation and music—but clothing is a completely different kind of product. Is it even open to that kind of disruption? Is it possible for Rent the Runway to become the Spotify of fashion?

Cohen clearly thinks so. He says even luxury fashion is at risk, and that department stores and boutiques should watch their backs as clothing rental grows.

But Aryapadi had a different response. “Clothing is a unique category,” he says. “Unlike services such as music downloads or cab rides, people feel an emotional connection to brands and what they stand for. A positive and engaging consumer experience is also part of the equation. While this doesn’t make clothing ‘immune’ to the rental concept, it’s fairly resistant.”

Weinswig says that “CEOs of rental startups believe that renting apparel will become more common than purchasing it,” but again, she sees it mainly applying to clothes for special occasions.

Who else stands to win or lose?

Obviously Rent the Runway and Zara aren’t the only players involved here. Others not mentioned may stand to gain or suffer as well. Weinswig says clothing-rental services could succeed in categories such as maternity wear, plus-size clothing, and specialized performance gear for outdoor sports. Maharaj points out that a rise in clothing rental would hurt traditional apparel retailers beyond fast fashion. “Timing is everything, and this all comes at a time when traditional retailers are still trying to reposition themselves in the world of Amazon,” he says.

Did someone mention Amazon? Aryapadi believes if the e-commerce giant got involved in clothing rental, that could change the story entirely. “It is possible that if Amazon makes headway into subscription services, their subscription base and platform commerce flywheel could alter consumer preferences, the prevailing sentiment being, ‘If Amazon is doing it, it’s perhaps worth trying,'” he says. “In the same way consumers came to expect next-day or two-day delivery, it wouldn’t be out of the running for Amazon to successfully monetize the clothing rental market.”

The takeaway

While there’s no clear consensus on how big a threat rental services such as Rent the Runway are to fast-fashion chains, the likelihood is that Zara is safe at least for the foreseeable future.

What is clear is that clothing rental ties into broader shifts in the way consumers are thinking of ownership. It might take a bigger company than Rent the Runway to prompt a widespread change in the way people buy—or don’t buy—their clothes, but even Aryapadi, the most skeptical of the group, seems to believe it’s possible, given the right circumstances.

As Cohen points out, ”Rental has gone from a dirty, used, and low-end perspective to an even cleaner, easier, more convenient way to shop luxury.”