Fashion in a circular economy
Upon reading about the circular economy and the benefits it would bring not only to the environment but also to companies and the global economy, I’ve been fascinated by companies that are doing more than merely inching toward the vision: those that completely embody it. Rent the Runway, in a sea of retail challengers like Stitch Fix, Prime Wardrobe, Everlane, and Poshmark, is a prime example of a business that’s rooted in a circular model. McKinsey defines the movement as follows:
[a] profound shift [that] brings opportunities for organizations to create value and safeguard the environment by improving their management of resources, eliminating waste through better design, and maximizing the circulation of products, components, and materials in use
Like Glossier, Rent the Runway is a female-led, New York-based, newly anointed unicorn. The company rents designer clothing out on a piece-by-piece basis or as a subscription that costs $89 per month for four pieces or $159 per month for an unlimited rotation of four pieces (a customer can swap any of the four items any number of times throughout the month). It purchases wholesale from designers like a traditional retailer and charges as low as 10% their value to rent; the customer can even purchase the product for as low as 50% if he or she would like to keep it. It’s powered by their own dry cleaning facility (the largest in the world, that houses 770 of Rent the Runway’s 1,200 employees), an enivronmentally questionable reliance on UPS, and brick-and-mortar locations in its most popular areas: New York City, San Francisco, Chicago, Washington, D.C., and Los Angeles. Rentals can now be dropped off at WeWork locations to speed up the rotation process.
The company also shares customer behavior information with its suppliers. Jan-Hendrik Schlottmann, CEO of fashion label Derek Lam, spoke with the New York Times:
“It’s an amazing amount of data that traditional retailers don’t always share: What other brands is she wearing, how many times do our dresses get dry-cleaned and still come back as new? You learn a lot from that and from reading the comments the clients make online. It’s great market research, frankly.”
Other than the recently announced nuuly (a very similar rental service that seems to be exclusively for Urban Outfitters’ family of products), there doesn’t seem to be any company that is approaching the fashion industry from this angle. The prime suspects that are seeking to disrupt fashion retail fall into the categories of better buying and re-commerce.
Specifically, Prime Wardrobe and Stitch Fix are going head-to-head to make the purchasing experience more convenient and care-free by shipping goods to people such that they can try them on before committing to a purchase. On the other hand, The RealReal and Poshmark are pursuing the value in used clothing:
re-commerce works by building online communities; people shopping each other’s (and celebrity spawns’, and even celebrities’) hand-me-downs like personal stores, returning to the closets — in re-comm parlance — of those who respond to comments quickly and offer personalized deals — Lauren Levy, New York Magazine
Although re-commerce moves in the direction of reducing waste and increasing reuse of clothing, neither re-commerce nor better buying emphasise the service aspect of circular economy that keep products in motion. Both perpetuate the traditional model of clothing ownership, in other words, they’re just new ways of shopping.
Rent the Runway’s primary focus on rentals is a grand leap toward the circular economic ideology, and falls in line with the models of companies like Omni (a formerly storage-based San Francisco startup that recently sold off its storage division to focus on its rental business), or even Uber and Lyft, that reframe our consumption of goods (i.e. a snowboard or a car) as services. I personally think that the projections for Uber and Lyft’s models of car-as-a-service are shaky, demonstrated by their current losses; however, Rady School of Management professor Vish Krishnan considers that these short-term losses and subsidised fares are intended to change consumer mentality on car ownership before the ride-hailing companies would increase prices to meet or exceed costs and phase out human drivers.
Although Rent the Runway has not disclosed figures on their financial performance I think that it has a much stronger potential when comparing its model that involves owning the clothing they rent (unlike Omni, which pays out to its owners) and their low recurring costs. It only pays for dry cleaning and shipping, unlike Uber and Lyft, that must pay human driver wages that supposedly cover gas, insurance, maintenance and depreciation.
If you can’t tell, I’m rooting for Rent the Runway (and those that emulate its model) to play a larger role in the future of fashion. I’m concerned about a notable number of horror stories but understand that online reviews can generally be heavily negative. Should Rent the Runway improve its image and scale to the point of profitability, I think it’s an excellent example of the potential future of fashion.
