Bloomingdale’s, Urban Outfitters, Banana Republic, Ann Taylor, Loft by Ann Taylor, Rebecca Taylor, Express, Vince and American Eagle all have something in common: They are chasing after the apparel rental economy, which Rent The Runway helped catalyze back in 2009. Almost a decade later, these legacy retailers are jumping into the game, trying to figure out if they can disrupt their own business model of selling clothes before someone else does. Looking at the assortment, price and scale of each experiment speaks volumes about the future of the apparel rental landscape. 

Assortment 

The product assortment for each rental program generally falls into two buckets: multi-brand and monobrand. The former have much wider selection while the latter have much more limited selection because of their inherently smaller product assortment. 

Rent the Runway is the clear leader when it comes to breadth, with somewhere between a 20-200x larger selection than competitors. The company is a decade old, which gives it an advantage since it takes time to build trust with brands to sell on a platform, especially when you are a first mover. However, Le Tote is four years younger than Rent the Runway but has “thousands of styles”—a fraction of the 20,000 items Rent the Runway sells. 

Brands ideally have reason to sell on as many multi-brand rental platforms as possible, but it’s likely that the majority of their rental income will come from a single player such as Rent the Runway, even if they have their own rental offering. Additionally, while legacy department stores with endless but undifferentiated assortments are struggling to grow, the newness of the rental model incentivizes multi-brand rental platforms to gather as wide and deep of an assortment as possible. This is the opposite of what multi-brand retailers are doing today to rebuild their value proposition, which is moving towards highly curated and unique assortments. At the same time, multi-brand rental platforms will start to focus on more exclusive products—Bloomingdales is experimenting with this—which further encourages customers to rent with them versus someone else. 

Price 

Pricing for each rental program generally falls into two buckets: affordable and premium. 

The affordable services are betting that their products and customers align with an entry-level price point, while the premium options are betting that their brands, product selection and customers demand more and are willing to pay for it. Interestingly, there is little correlation between the price of the service and the size of the assortment. Instead, the quality of the products in the service dictates the price, even if the selection is limited (Vince is the most expensive but has only a fraction of the selection that Rent the Runway does). 

Multi-brand rental companies, compared to monobrand ones, have a much more compelling value proposition. Very few shoppers, especially women in the target market for these services, buy and wear only one brand. Instead, they shop across many brands at many price points, making it a lot harder to justify spending tens if not hundreds of dollars a month for one brand’s assortment versus access to over 600 brands from Rent the Runway. 

Similar to what is happening in the entertainment industry, there is a finite limit on how many streaming services people will pay for. Netflix and Disney are table stakes (many households will likely have both), but beyond those two it will be an all-out race for the remaining users and spots between the other media conglomerates (NBCUniversal, WarnerMedia, ViacomCBS, etc.). In the rental world, Rent the Runway is Netflix, Urban Outfitters could be Disney (given its wider reach and greater accessibility)—all of the other services have to fight for the rest. 

Scale 

Rent the Runway launched in 2009 and was the first mover in the space. This was expensive—the company has raised over $340 million in equity and $200 million in debt in order to change consumer opinion and habits, while building the world’s first rental infrastructure. Rent the Runway earns an estimated $200-$250 million in annual revenue, which is below the amount it has raised, but many of those investments will pay off well into the future. It is now the largest dry cleaning business in the U.S., evidence of its scale and expertise, which it fully owns. 

Ann Taylor, Express, American Eagle, Vince, Rebecca Taylor and others all rely on CaaStle, which is a rental-as-service platform, to run their entire rental businesses. CaaStle owns all of the rental infrastructure, both physical (warehouses, logistics) and digital (ecommerce, customer service), which allows a company to get started renting in a much shorter amount of time. While this allows them to get off the ground much faster than if they had to build their own infrastructure, CaaStle has an immense amount of leverage in the equation and by outsourcing these operations, brands are not able to learn about the intricacies of the rental model, compared to operating and owning it themselves. 

One counterargument is that renting is like fulfillment and not every brand needs to own its distribution centers—for many, there is no need to. But fulfillment centers are commodities and there is plenty of competition (Amazon, Quiet Logistics, etc.), whereas renting is a big shift in the consumer landscape that brands and retailers, especially legacy ones, need to fundamentally understand and embrace. Without much competition, these legacy retailers could find themselves in a challenging position with CaaStle, since the technology company would hold all the cards. Separately, it will be interesting to see if Rent the Runway decides to turn its platform into a service, similar to what Farfetch did with Black & White, its ecommerce platform. 

Another counterargument is that legacy retailers who have millions of customers provide more scale than Rent the Runway. Urban Outfitters, for example, expects its rental service to attract 50,000 customers and earn $50 million in revenue in the first year, which would be between one-quarter to one-fifth of Rent the Runway’s estimated annual revenue, but it would get there in less time. This is a projection, and it could be totally wrong, but one can’t deny that this built-in demand is valuable. Even so, it will not always translate into direct revenue depending on who owns the operations—CaaStle says that rental businesses run at 25% operating profit, which is much higher than most apparel brands, but with CaaStle taking a big cut of this, the difference is less striking. 

Urban Outfitters, however, seems to have built its own rental infrastructure, and therefore will earn more revenue than some of its competitors that are using a third-party service. Another interesting move is that Le Tote—who also owns its rental infrastructure—plans to acquire Lord & Taylor, which would give it control of the legacy department store, allowing both companies to integrate the rental model and operations in their DNA. 

Since rental will play a large role in the future of the apparel industry, every brand and retailer needs to figure out its strategy and determine what it will own and what it will outsource. While offering rental as a product is a short-term gain—as it is for the brands and retailers above—the true potential is rental as a business, which it is for Rent the Runway, Le Tote and potentially Urban Outfitters. When something is just a product—legacy retailers make 99% of their revenue from selling, not renting apparel—realizing the true potential of new business models is incredibly challenging. Sometimes it’s better to own, not rent.