New Economic Realities   //   December 15, 2023

Fashion rental services are recalibrating their approaches in 2024

Fashion rental services are heading into 2024 with the goal of bringing more budget-cautious customers into the fold.

For players in the space, performance is mixed. Earlier this month, Rent the Runway reported that its third-quarter revenue had dropped 6.3% to $72.5 million. Its subscribers also declined for the first time since the company went public in 2021, per Telsey Advisory Group. Urban Outfitter Inc.’s Nuuly, meanwhile, turned a profit in the third quarter and enjoyed a 68% year-over-year increase in subscribers for the three months ending Oct. 31, 2023. Back in April, tuxedo rental platform The Black Tux told Glossy that revenue was 35% higher than pre-pandemic levels.

Some of this disparity stems from rental companies’ business models. For example, in an earnings call, Rent the Runway’s co-founder and CEO Jennifer Hyman pointed to an “inventory depth issue” as one reason for lack of growth. Nuuly, on the other hand, has the benefit of offering items from its sister brands like Anthropologie, Urban Outfitters and Free People, which makes controlling inventory easier, Nora Kleinewillinghoefer, partner at Kearney, told Modern Retail.

Consumer behavior also plays a role. While some shoppers may be more willing to spend money on rental than full-price items, others may be hesitant to do either if they can repurpose something from their closets, Kleinewillinghoefer said. “We are seeing consumers be a lot more hesitant in their spending decisions in the latter half of this year,” she said.

To try and encourage more shoppers to use their sites, several rental platforms are making changes in time for the new year. Rent the Runway, for instance, launched a luxury collection called The Vault in early December that is exclusive to one-time rentals. Pickle, a peer-to-peer rental app founded in 2021, opened its first-ever storefront in New York City last week after adding some 50,000 items through listings. ReSuit, a peer-to-peer rental and resale app that launched in February, is working to bring more designers to its site by waiving platform fees for one year, co-founder Nada Shepherd told Modern Retail.

These changes follow other updates that companies rolled out in 2023. Nuuly, for example, increased the cost of its standard monthly plan from $88 to $98 in April for new subscribers. In March, Rent the Runway updated its subscription plan to permanently add an extra item to every shipment. Beyond price or quantity of item, however, more platforms are switching up their assortments and sales channels to appeal to consumers desiring different experiences.

Rent the Runway curated a new collection of high-end gowns for its service The Vault. Many of the participating brands, including Zac Posen and Etro, were not on Rent the Runway previously. In an interview with Modern Retail, CEO Hyman called The Vault the company’s “first foray into true luxury.”

“This is what the customer wants,” Hyman said. “She is someone who is more familiar with luxury than she’s ever been because of social media.”

While Rent the Runway launched a Designer Collective on Amazon in January, it does not consider those offerings luxury, Hyman explained. Rather, Rent the Runway defines luxury goods by MSRP and by brand. Items in The Vault typically retail for $1,000 to $8,000, although their rental prices can vary from $30 for a Paris Georgia slip dress to $400 for an Oscar de la Renta gown.

Hyman said Rent the Runway will judge the success of The Vault based on how well it communicates the new offering to its existing members. “We think that this will bring a lot of customers back to the special occasion business who might have been customers when they were in their 20s and now might be in their 30s or early 40s and want a different kind of evening-wear assortment,” she said. “And of course, these brands bring in their own new customer bases.”

“We feel like when people find out that we have these incredible brands on our site, that will create more interest in coming to Rent the Runway overall,” Hyman added.

As a new app, ReSuit is still building its user base and marketplace, Shepherd told Modern Retail. Right now, the app has some 800 members and 200 listings, she said. “We have a lot of people going to the app, [but] we need more things on the platform right now,” Shepherd said.

Heading into 2024, Shepherd said she hopes to see more designers on the platform, as well as collections designed specifically for ReSuit. Any designers who partner with ReSuit won’t have to pay credit card processing fees for 12 months, Shepherd said, meaning that they’ll get more of the revenue. “If they have deadstock with a beautiful gown, but they don’t want to sell it for 80% off, they can maybe achieve their ROI… by renting it out [on ReSuit],” she said.

Meanwhile, Nuuly will enter the new year with 200,000 subscribers, a first for the brand, as well as a new fulfillment center in Raymore, Missouri. That facility will allow Nuuly “to grow well into the future, supporting in total over three times our current subscriber count,” Dave Hayne, president of Nuuly, said on an earnings call.

Projections for the rental market’s growth vary depending on the source. One estimate puts the sector’s CAGR at 8.5% by 2030, while another says 10.6% by 2033. (An estimate in 2019 set the CAGR at 11% by 2023.) Kearney’s Kleinewillinghoefer said these estimates are “a little on the bold side” considering the challenges that remain in rental, such as shifting trends, seasonality of items and growing competition.

When it comes to rental, “I think there’s a lot of growth potential in breadth of market, and I do think more consumers are gaining trust and being introduced to it,” Kleinewillinghoefer said. Still, she added, “I think it’s still a relatively new experience for many consumers.”

This article has been updated to reflect that Rent the Runway has historically offered one-time rental services.