The vision behind Rent the Runway was simple: to give shoppers access to designer apparel and accessories they might otherwise not want, or be able, to purchase. The approach generated strong, if not stellar, sales growth until it introduced a subscription service called Rent the Runway Unlimited in 2016. The offering—aimed at helping professional women maintain a fresh wardrobe—lets a shopper keep up to four items at a time, which she can keep as long as she likes. Last year, the retailer introduced another, less expensive option called Rent the Runway Update that allows shoppers to rent four items a month.
The subscription services quickly struck a chord with shoppers. The subscription business helped Rent the Runway grow an Internet Retailer-estimated 21% last year and, this year, the retailer expects Unlimited to account for the majority of its revenue.
The apparent success of Rent the Runway Inc.’s subscription model, as well as one of its clear benefits—it generates recurring revenue, helping to reduce the burden for the merchant to spend to acquire new customers—has driven a number of established retailers to test similar subscription businesses over the past few months. It also has led to the creation of a vendor that helps those merchants handle the logistics of building out a subscription-based apparel business. And while it is still early days for some of those copycat retailers, at least one, New York & Co., is finding the model is helping it generate incremental revenue.
New York & Co., which launched a subscription service called NY&C Closet in July 2017, says that 50% of its subscription customers are new or were lapsed customers (meaning they hadn’t made a purchase with the retailer in the last 12 months), and they’re spending incrementally more than the prior period. Besides New York & Co. (No. 141), Ann Taylor and Express (No. 97) also recently began offering rental clothing subscriptions. And there’s plenty of room for growth; a recent report suggests more competitors will likely enter a rapidly growing market that is expected to be worth $1.9 billion by the end of 2023, according to Research Nester’s “Global Demand Analysis & Opportunity Outlook 2023” report.
Women’s apparel retailer New York & Co. in July 2017 became the first established retailer brand to launch a clothing subscription rental service. Ann Taylor followed, launching its service in October 2017 and offering its service for $95 per month at InfiniteStylebyAnnTaylor.com. And then Express launched one in October 2018.
And while there are now at least four significant retailers offering subscription services, each has a specific customer niche. Rent the Runway, No. 252 in the Internet Retailer 2018 Top 1000, attracts the most affluent shoppers; 18% of its shoppers make more than $150,000 per year compared with Express, which only has 11% of shoppers in that range, and New York & Co. with 7% of shoppers in that income range. New York & Co. and Express draw most of their shoppers from the $100,000 and under annual salary range, according to Internet Retailer’s Top500Guide.com. Those differences are reflected in the monthly rates; Rent the Runway charges as much as $159 per month while New York & Co. charges $49 per month and Express, $69 per month.
Despite those differences, technology and logistics platform company CaaStle is the common thread that runs through the Ann Taylor, New York & Co. and Express services. CaaStle is a spawn of the women’s apparel subscription clothing retailer Gwynnie Bee, which was launched six years ago.
Clothing as a service
CaaStle’s pitch is that it makes it relatively simple for retailers to launch a subscription service; the retailers provide the inventory to the CaaS, or Clothing as a Service, and CaaStle handles the rest—including technology, reverse logistics, customer service, marketing and merchandising for the model—says CaaStle founder and CEO Christine Hunsicker.
CaaStle operates distribution centers in Phoenix and Columbus, Ohio. The distribution centers hold an inventory separate from the retailers’ regular inventory, as well as provide the retailers with garment care and dry cleaning systems to manage cleaning, shipping and returns for its retail clients. The cost of these services is factored into the subscription fees the retailers charge their customers—CaaStle works closely with the retailers to determine how much to charge for their service. The company declined to discuss how much retailers pay for the service.
Getting the service up and running takes three to five months during which CaaStle builds and manages the various aspects of the subscription model—from the website and databases to algorithms and analytics—while the retailer focuses on generating customers, Hunsicker says.
Offering a subscription service enables a retailer such as New York & Co. to build deeper relationships with consumers, says Robert Ferrario, the retailer’s vice president of strategy and growth initiatives.
That’s particularly important for a retailer like New York & Co., which has closed 150 retail locations since 2012. “As you close stores, it forces you to work harder on other delivery models,” he says.
The key to the service is to offer shoppers the items they’re looking for, he says. When a shopper signs up for an account at NYandCompanyCloset.com, she’s asked to build a virtual closet by selecting items that appeal to her from an array of styles. From there, the shopper can prioritize the items she wants to receive sooner than others. It also ensures the shopper immediately receives a new box once she has returned her current box.
“The virtual closet allows the customer to have a constant flow of new styles,” he says. “The option to rent allows her to try new fashion that she otherwise might not purchase.”
While the available rental options are a subset of the full assortment New York & Co. sells to its customers, the retailer analyzes what subscribers are renting to add new, similar styles, Ferrario says. It also adds new products weekly. Shoppers can purchase items they rent through the service at a discount.
While the NY&C Closet test is ongoing, the retailer is “pleased with the results and in the process of expanding it to more customers,” he says, declining to provide specific figures.
Express takes apparel rental for a test drive
The Express take on the clothing rental model, Express Style Trial, is similar to the New York & Co. service. Shoppers can rent three items at a time for $69.95 per month with unlimited exchanges. Shoppers can keep the items as long as they want before shipping all three items back for free.
When Express receives the three rented items, it sends three more garments. It requires the shopper to send all three items back before it sends the next shipment. Express Style Trial ships new items in about two to three days from the time it receives the returned items, the retailer says, declining to elaborate on delivery times.
As with New York & Co., shoppers also can purchase items they find through the service at a discount. Shoppers can cancel their subscription at any time. Currently, the service does not rent shoes or accessories, and shoppers cannot return their items to or rent items from Express stores.
When subscribing to the service, a shopper creates an account on ExpStyleTrial.com and populates her “closet” with eight items. “The more garments you add, the faster the turnaround time,” Express says on its website. Once a shopper has eight items in her closet, she can rent her first box. Shoppers prioritize items in their closet so the service knows which items she would rather get first. “We’ll try to ship those first,” the retailer says.
One way the retailer seeks to differentiate its service from the competition is by allowing subscribers to receive the wide array of sizes—0 to 18—that the retailer sells.
CaaStle’s Hunsicker has several initiatives across product, brand and customer experience to drive growth, and Express Style Trial is one of them. “Express sees Express Style Trial as an opportunity to create a new way for consumers to engage deeply with the brand,” she says. (Express could not be reached for comment on its service.) “The model has the ability to attract new customers and deepen connectivity with existing customers.”
While Express is “optimistic” about its rental service over the long term, it doesn’t expect Express Style Trial to make a significant impact on its bottom line this year, Jim Hilt, the retailer’s chief customer experience officer, said in a recent interview with CNBC.
New York & Co., Ann Taylor and Express operate their subscription rental websites separate from their e-commerce sites because CaaStle handles the logistics of the service, including website management.
And, for the most part, they’ve been relatively muted in promoting the services. For example, Express didn’t market Express Style Trial on social media until Oct. 30 when it posted an Instagram video introducing the service. The retailers haven’t displayed the subscription services prominently on their e-commerce homepages—the links are buried at the bottom in the footer.
“Acquisition costs can be prohibitive, and we have the benefit of leveraging our customer database and surgically identify segments that may respond to New York & Co. Closet,” Ferrario says. “From a new customer acquisition perspective, we are using digital channels to raise awareness.”
Although the service is still in its infancy for these retailers, CaaStle’s Hunsicker sees rental subscription services as complements to retailers’ core business. “More consumers are paying for access, on-demand services and convenience, and a rental model supports that,” she says.
Whether these services are sustainable in the long term for retailers is still unclear, but more merchants are joining the trend. CaaStle in November signed up apparel brands Vince and Rebecca Taylor for the same subscription rental service. In mid-November Vince launched its subscription rental service Vince Unfold for $160 per month, while Rebecca Taylor rolled out Rebecca Taylor Rntd for $159 a month. CaaStle also “has a strong pipeline moving into 2019,” Hunsicker says without revealing more.
However, some analysts are skeptical about whether a subscription model that doesn’t offer designer apparel will work. “Everyday wear is so inexpensive, especially at stores like New York & Co. and Ann Taylor, that I don’t think renting is necessary,” says Sucharita Kodali, vice president and principal analyst at Forrester Research Inc.
Even so, the prospect of a new line of business for some retailers—many of which are struggling—may be too enticing for some to pass up.
“We have built the program to attract new customers and expand our engagement with existing customers with a compelling service that lets the customer choose,” Ferrario says. Of course, success will be predicated on whether those shoppers continue to find the service compelling
over the long term.
@StephCretsIR
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