Clothing Rental:The Commercial, Economic and Environmental Solution
A monstrous 235 million items of unwanted clothing were dumped in UK Landfill 2017 (World Economic Forum, 2018). Overconsumption in the economy is posing a serious issue from both a commercial and environmental perspective.
Moreover, as consumers reach their saturation point of consumption they are increasingly becoming more aware of their purchase patterns. In general, the economy has seen a slow down in consumption.
Wear and Return
Further many retailers are also seeing an increase in consumers wearing items and returning them. This problem of wear and return poses serious supply chain issues for retailers.
Given the commercial, environmental and economic challenges associated with online retail does clothing rental offer a method to disrupt clothing retail and create a more sustainable business model for retailers. As Urban Outfitters sets to disrupt the affordable clothing sector by renting clothes to its customers. Urban outfitters is launching Nuuly, the clothing rental subscription service, Customers will be able to rent six items of clothing per month at $88.
Retailers looking to adopt a similar approach to tackle the freeriding associated with online shopping should consider the following.
THE SUBSCRIPTION ECONOMY
According to Royal Mail, the subscription box market is forecast to grow to £1 billion by 2022. In 2017, the subscription box market was valued at an estimate £583 billion. 6/10 business in the UK are looking to diversify their offering to offer subscription services (Retail Times). Currently, 24% consumers are signed up to a subscription service, with popular subscriptions including beauty and grooming products.
Clothing Rental is set to be worth $1,856 Million globally by 2023 (Allied Market Research)
Global Online Clothing Rental Market to Surpass US$ 3,299.6 Million by 2026 (CAGR)
The operational And commercial issues of diversifying into clothing rentaL
While there is already an established practice of offering clothing rental among high end brands, achieving economies is likely to be more difficult for affordable brands.
With a subscription service, you are likely to be giving away clothing worth a significant amount for value for a fraction of the cost. One thing to choose as a retailer is to determine whether you charge a security deposit or like in the case of Amazon, notify the consumer there will be a charge if goods are not returned within a certain time frame
Operationally, the rental will cause an array of process related and cost-related issues. Retailers will need to consider
1. Delivery and Returns Handlers: From an operations point of view, delivery and returns of rental items are likely to happen on the same occasion. Therefore creating the need to choose shipping handlers who offer this service; but also have a great delivery service and price.
2. DryCleaning: Rental would mean clothing would be returned, and need to be dry cleaned and sent out again.
3. Stock Management: Stock would need to be divided into rental and shop stock.
4. Quality Control: Quality control will prove challenging for retailers, as service quality will be at the forefront.
For any retailer looking to venture into the rental, the customer experience should be considered of the utmost importance. If the offering and process are complicated from a customer perspective, uptake is likely to be lower.
From a customer perspective
a. The process of rental should be seamless and explained simply.
b. The delivery and returns process should be considered.
c. New Customer Acquisition should be carefully thought out, initial uptake of the process would need careful evaluation.
d. Clarity on process, important dates,
e. Clarity on what lines will be available for rental
LIFETIME CUSTOMER VALUE
When offering clothing rental to consumers, lifetime customer value is crucial; given the likely churn rate of consumers who try for 1-3 months and abandon the service. Retailers could consider reducing this with the implementation of time-based pricing. Variable pricing based on monthly rolling contract or opt-in for a month. You could offer variable pricing based on the duration of subscription with your customer i.e. varied prices for customers who are on rolling monthly contracts vs yearly.
One way to differentiate the annual price offering is to take the VIP approach, offering incentives such as sale previews, holiday month and a host of customer benefits for subscribing to an annual rental membership.
When pricing the rental subscription, an array of factors will come into play. Operationally, renting is set to be more costly than a simple purchase transaction
Many retailers choose to charge 33% of the actual purchase value of goods to the consumer.
Another factor to consider is the product lifecycle i.e. when do you retire an item of clothing and what happens to it after it leaves the rental chain. Retailers may choose to partner with charities and global foundations to ensure the clothes don’t end up in landfill.