Rental and resale services hope to profit from inflation fears

Rental and resale companies are betting that more people will use their services as inflation rises.

Rental and resale offers have been gaining popularity with retailers since before the pandemic. During the last years, Patagonia and outdoor clothing brand Arc’teryx have launched and grown their takeover businesses. This month, denim brand Wrangler and mall retailer PacSun both launched their own lines second-hand clothes. Target, meanwhile, is revisiting the resale format with a new pilot program with the ThredUp reseller.

Prices have soared over the past year, with inflation jumping to 7.9% in February, the fastest rate in 40 years. With more Americans concerned about inflation, resale and rental providers are hoping to attract even more customers with discounted pre-used merchandise. Rental platforms like Rent the Runway hope customers will want to pay a flat fee to borrow parts for in-person occasions, rather than buying new items outright. Meanwhile, other brick-and-mortar retailers like Lululemon are launching or expanding resale programs by waiving seasonal discounts.

In its fiscal fourth quarter results, Rent the Runway posted a 91% increase in revenue, reporting $64.1 million, compared to $33.5 million a year earlier. The company also reached 115,240 active subscribers this quarter, up 110% from a year earlier. Rent the Runway CEO Jennifer Hyman cited inflation as a benefit for the rental service’s post-pandemic recovery, as customers look for affordable ways to dress. “We are entering one of the strongest rental environments we have ever seen,” Hyman told CNBC. “The inflationary environment is fundamentally a competitive advantage for Rent the Runway.”

Yet Rent the Runway is not immune to inflation itself. The company also increased its subscription prices earlier this month – from $135 to $144 per month. But, the company is trying to give customers multiple ways to use the service if they don’t want to commit to a monthly subscription. Last year, for example, the company launched a resale business that allows customers to purchase previously rented clothing and accessories.

Rental promoters say they are also seeing renewed interest amid inflation concerns. Armoire, a peer-to-peer rental app launched in 2019, is positioning itself as a better solution for returning events and weddings this year. This month the company launched a new program called Swap in time for Earth Day. Modeled after clothes swap parties, wardrobe users can share their listings on the app for lending. Once they list five items, they are notified of some store credit that they can use to borrow from other users.

In an email to Modern Retail, the wardrobe’s founder and CEO, Adarsh ​​Alphons, wrote that the platform “offers an attractive option for fashion-conscious consumers looking to combat the rising of inflation”. He also pointed out that renting was “more resilient to inflation because the transactions involve goods that have already been purchased.”

Consumer-facing resale platforms are also positioning themselves as an affordable and sustainable option for fashion-conscious consumers.

James Reinhart, co-founder and CEO of ThredUp, said in a statement that “in a world where retailers have been forced to raise prices due to inflation or supply chain pressures, consumers can always find a vast and always fresh selection of second-hand”. items on ThredUp – 100% of which are already in stock and ready to ship. Reinhart added that the company is in “a position where we can continue to supply great brands at great prices at a time when many are feeling price pressure in other parts of their lives.” In March, ThredUp reported a 35% increase in year-over-year sales for its fourth fiscal quarter.

Other resale companies are still trying to figure out how to deal with inflation in their marketing. Poshmark’s chief marketing officer, Steven Tristan Young, told Modern Retail that the company hasn’t officially positioned its listings as an alternative to stockouts and inflation. “Supply chain concerns aren’t sexy for the market,” Young said. “But we’re trying to figure out how to better frame reselling as an option in a rising inflation environment.” For its full fiscal year 2021, Poshmark reported net revenue of $326.0 million, a 25% year-over-year increase from 2020.

The rise of re-commerce

Similar trends have led to increased retailer interest in resale and rental in recent years; both types of services cater to customers who are more environmentally conscious or price conscious and, therefore, willing to own less new goods.

According to ThredUp data, more and more brands have launched in-house reselling over the past couple of years. The report, which analyzed 41 brands with resale stores such as Levi’s and Madewell – many of which are ThredUp partners – cited a 275% growth in adoption between 2020 and 2021.

Much of this growth is driven by start-ups helping retailers launch resale and rental services. ThredUp launched a business-to-business service in 2019, while a startup called Caastle helped retailers from Banana Republic to Express launch their own rental services.

Michael Prendergast, managing director of Alvarez & Marsal Consumer Retail Group, said resale programs are best suited to brands that have high prices and large audiences.

Take Lululemon, which is officially launching a trade-in and resell program after testing it last year. Dubbed “Like New,” the program will allow customers to resell their used Lululemon items in exchange for in-store gift cards. Rotating assortments will also have a dedicated section on the Lululemon website where customers can purchase the lightly used version of a product. The resale hub is being phased in as Lululemon plans to “take selective price increases over the course of the year on a small portion of our styles,” CEO Calvin McDonald said on the recent tech conference call. the company’s fourth quarter results.

Resale gives customers wider access to a brand like Lululemon, whose popular leggings cost up to a few hundred dollars. Programs like Like New are also an easy way to ensure customers spend their resale revenue at Lululemon, Prendergast explained.

Chris Ventry, vice president of consumer and retail practice at SSA & Company, said the popularity of re-commerce amid inflation is unsurprising.

“A year ago, I would have said that the sustainability and eco-friendly roots of re-commerce were quickly becoming the main driver of conversion,” Ventry said. “But that reckoning has gone back to resale’s historical roots of providing value for money.”

Ventry noted that while the supply chain continues to cause crises, sustainability as a purchasing driver has been eclipsed by price inflation. “In times of economic uncertainty, consumers frequently turn to value-for-money purchases, where opportunity has historically played an important role in buying behavior.”

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