Fashion rental platforms: 3 remedies to improve the chances of survival
Customers seem to be steadily approaching more sustainable fashion consumption alternatives like resale and rentals. Nevertheless, I believe that businesses providing sustainable fashion alternatives will struggle to become financially sustainable, because of three main reasons: they are in direct competition with an already struggling retail industry; resale and rental businesses have, by definition, low financial margins, and both demand high operational costs.
In my previous article, 3 reasons why online fashion resale and rental businesses will struggle in the future, I elaborated upon these three reasons. Now, as promised, I would like to present some strategic measures that fashion rental platforms could adopt in order to improve the viability of their businesses.
A managed fashion rental platform is a relatively new and innovative concept. The concept normally entails both a physical and digital inventory of high fashion clothing that a company rents out to customers. Providing a hassle-free rental access to designer fashion requires a complex value chain, since the company typically also takes care of delivery, returns, cleaning and insurance.
Due to a complex value chain, proving the financial sustainability of the concept would typically take many years before a consistent growth and recurring transaction revenues can be shown. This would entail heavy venture funding and a high level of risk-acceptance by investors. A continuous, effective and fast execution in parallel would be required creating happy and returning customers.
In addition, I believe that there are three additional success factors that a startup should take into account when designing their fashion rental platform business.
Target larger volume markets which already have a well-established delivery infrastructure
Fashion rentals are not suitable to be delivered across long distances and across country borders, as the provider needs to take care of both delivery and return with as little delay as possible. This creates constraints on how large a market can grow geographically. Expanding internationally would require several local warehouses and improved infrastructure, which in turn would require new costs and investments. This makes rental platforms hard to scale when starting from smaller home markets.
Two successful examples of managed rental platforms, Rent the runway and Flyrobe, both cater to huge volumes of users, in the US and India respectively. Here one should keep in mind that despite having existed for more than 10 years, 8 million regular users in U.S., 100 Million USD yearly revenues, Rent the runway has not turned profitable yet.
Given smaller home markets, it will be wise of platform providers not to constrain their market further, for example by catering to women only or by providing rentals only for specific occasions. They should rather expand their offerings to include both men and children with attractive business models from start after validating the product/market fit. This way providers will be able to get the volumes needed, and in the next instance leverage from third party suppliers who might be interested in providing value added services to their customer groups.
2. Create a community among early users from the start.
Given all the cost elements involved in managed fashion rentals, it is extra hard for a startup to spend money on expensive marketing. If you manage to involve your users and to turn them into your platform’s ambassadors, this can be a huge advantage. Friend referral programmes is the most common tactic, but it is also possible to think more creatively about this.
One interesting example is how Flyrobe in India allows their customers to host their own trunk shows.
3. Build your digital platform as open as possible
Building a digital platform from scratch is very expensive, and a managed rental platform needs to support a whole range of support functions digitally. These may be functions relating to inventory and customer management, subscription services (if offered) as well as built-in intelligence in recommendations and fit algorithms. In addition, it is essential to use design to make the platform stand out.
It is hard to keep up to speed with the development of technologies and functions with your own limited team. There are many third party softwares that provide the functionalities a provider will need to include in their platform. It will be wise to focus on developing and owning the core functionality, and rather use third-party software and APIs for other typical nice to have functions. Another advantage with this approach is that it will allow providers to outsource parts of their value chain using creative and flexible business models towards retail suppliers in the future.
I believe that with time, managed rental platforms may pave the way for unmanaged and local peer-to-peer rental platforms. It may emerge naturally, when enough consumers have got used to the idea of rentals and are willing to handle most of the work required themselves, thereby reducing the operational costs of such a solution. Many creative and profitable concepts may emerge in the future.
A struggling retail may also begin to look at rental as a way to market and attract more customers to their products and stores. The purpose of providing rentals will then be to upsell and create brand loyalty and not necessarily to make money on rentals itself, because that will continue to be hard for quite some time.
DISCLAIMER: the article represents my personal opinions based on my own observations, analysis and experiences from establishing and running a startup within fashion resale and rental industry.
Originally published on Medium in Sept 2019