Coverage: Urban Outfitters will start renting clothes

Urban Outfitters Inc. is jumping into clothing rental, trying to tap one of the fastest-growing areas of fashion without discouraging shoppers from visiting its stores.

Khadeeja Safdar of The Wall Street Journal had the news:

The company, which owns the namesake chain along with Free People and Anthropologie stores, is set to launch this summer an $88 monthly service that allows consumers to borrow six items from those brands and outside labels like Gal Meets Glam and Reebok, as well as vintage pieces sourced from flea markets and dealers.

The new business, called Nuuly, will be run as a separate entity by David Hayne, chief digital officer at Urban Outfitters and son of the company’s co-founder and chief executive. Mr. Hayne, who started at the retailer folding shirts at a store in Philadelphia, has held several company positions since 2001, including chief operating officer of the Free People brand.

The rise of fast fashion and online shopping is driving the growth of the rental apparel market, which has been growing by more than 20% annually, according to GlobalData Retail. The market, excluding costume rental, was valued at about $1 billion in 2018 and is projected to surpass $2.5 billion by 2023, the market research firm said.

Kenneth Hilario of the Philadelphia Business Journal reported that Nuuly will need to attract members to be profitable:

The South Philadelphia company’s revenue grew to a record $1.13 billion in the fourth quarter. Total company sales increased by 4% thanks to a 3% comp increase in the retail segment, a 3% increase in wholesale sales and $6 million in non-comp sales.

Gains were driven with less reliance on promotions, CEO Hayne said during an earnings call.

Nuuly’s profitability and sustainability will be dictated by how many members the company can attract, said Poonam Goyal, sector head and senior U.S. retail analyst at Bloomberg Intelligence, in an interview with the Philadelphia Business Journal.

The expectation for Nuuly is to add 50,000 subscribers and generate over $50 million in annual revenue, the Journal reports.

“This is only sustainable and profitable when you have a large number of subscribers,” Goyal said. “Up front it will not be profitable. Just like Rent the Runway, you have to drive them to scale to be profitable.”

Anna Meyer of Inc. magazine reported that the clothing rental market is growing:

The company’s move is well timed. According to research firm Allied Market Research, the global online clothing rental market collected $1.01 billion in 2017 and is expected to reach $1.85 billion by 2023. Young buyers who want to be able to update their wardrobes frequently but also say they care about environmental sustainability are largely driving the trend, according to global consulting firm McKinsey & Company‘s 2019 State of Fashion report.

At $88 a month, Nuuly’s offering is on par with other rental services. Besides RTR, startup clothing rental businesses include Le Tote and Haverdash. The latter two startups offer plans at cheaper price points than RTR with options from more accessible designers and brands. While RTR offers a series of subscription options, its unlimited plan costs $159 a month. Le Tote offers customers eight to 10 items a month for under $100. At Haverdash, the service provides three garments at a time, with unlimited exchanges, starting under $100 a month.

While RTR and other clothing rental businesses rely on big name fashion brands to attract customers, Hayne told the Journal that Nuuly will supply under-the-radar brands buyers are curious about to set itself apart. The thought is, people may not want to buy a brand they’re unfamiliar with, but they will test it out. And even then it could lead to sales, as Nuuly customers may also purchase the items they rent.

Similar to RTR, Nuuly plans to manage all operations in-house. The company has hired its own engineers, data scientists, and product managers to create the technology needed for the rental service, according to the Journal. The company will also operate its own warehouse, fulfilment centers, and laundry services in Philadelphia.