Buy or Rent? Why Retailers Like IKEA are Renting out Products to Customers
By Tricia McKinnon
Why buy anything when you don’t have to? From clothing to home décor to furniture more and more rental services are sprouting up to give consumers access to merchandise without having to own it. Analysts estimate that the global clothing rental market, for example, is growing at a rate of 20% per year and will grow from $1 billion in 2018 to $2.5 billion by 2023. Perhaps that only represents a small slice of the overall clothing industry but these estimates are likely very conservative. Who would have predicted in 2009 the year before Uber launched that by 2018 ridesharing services like Uber and Lyft would capture 87.5% of the market? No one except, well maybe Uber.
A survey by Bloomberg provides insight into what type of merchandise US consumers are most likely to rent. Coming in first place is exercise equipment followed by electronics (#2), furniture (#3) bicycles (#4), cars (#4), clothing (#6) and fashion accessories (#6). If you are wondering if services like these are here to stay take a look at some of the underlying trends driving the growth of these services and you will see why rental merchandise is not a fad.
1. The great recession hangover. Although consumer confidence in the US is at a high the great rescission hangover continues. Many people who became thriftier during the great recession still have those habits today. Additionally, despite the economic recovery wages have not increased by the same amount. As a result for US citizens in their 20s and 30s home ownership is the lowest it has been in 30 years. With this sentiment as the backdrop you can see why rental services are alluring to many. Instead of dropping $1,200 on a new couch why not rent it for $55 per month from Feather, a furniture subscription company. This route requires less financial commitment while at the same time giving you what you need.
2. Access. A big part of the shift to less ownership has to do with access. Rental businesses give consumers access to merchandise they may have always wanted to buy but could never afford. That’s a very compelling value proposition. I don’t need a six figure salary to wear that Badgley Mischka dress I love. Instead I can rent it from Rent the Runway as part of its $159 monthly subscription plan. At the end of the day these services are tapping into a very basic human need. We all have things that we want but may not be able to afford. A rental service solves that need even if it’s only for a short period of time. The other human need that this type of service taps into is the need for novelty. We all love to have something new and can get bored with what we have pretty quickly. Especially in an age of constant stimulation where you are annoyed if your social media feed doesn’t refresh in less than a second you can see how that habit could impact your own tolerance for how long you are enamoured with any recent purchase.
3. Sustainability. A lot of the clothing we wear ends up in landfills. For example, 50% of the fast fashion clothing that is made is thrown away within the same year. The fashion industry on its own will use 25% of the global carbon budget by 2050. Environmental causes are growing in importance for many especially millennials. They are concerned about climate change and are starting to show their commitment to these causes with their pocket books. Renting goods is a way to be kinder to the environment. Instead of buying a product, using it, then throwing it away you can rent products for as long as you need them. When you don’t need them there is someone else waiting in line instead of the merchandise landing in a landfill.
It is also important to realize that while there is a lot of discussion about the importance of sustainability it isn’t always the driving factor that makes consumers decide that they want to start renting items. In a survey conducted by speciality outdoor retailer REI about the motivation behind the desire of its existing and potential customers to rent items environmental impact came in sixth. The top motivation for renting items was to try new regular and seasonal activities without having to make a commitment to purchase an item.
4. Instagram. Who would have thought that one app could have such a big impact on our culture, the retail industry and our habits, especially the habits of millennials and gen Z. A quick search on Instagram for the hashtag #OOTD (translation: outfit of the day) shows that there are 268 million posts on Instagram using that one hashtag. I can only imagine how many impressions and likes for posts associated with that hashtag have been generated. In the billions for sure.
The need to constantly change one’s wardrobe and have a new fresh look each day is being fueled by Instagram. There is a large and growing group of consumers that like to wear something once, document it for everyone to see and then move on to the next post. As a result more people are buying merchandise, wearing it and returning it. This behaviour is known as “wardrobing” and it is having an impact on return rates. According to a study by Bloomberg 20% of shoppers buy outfits and then return them just so that they can have fresh looks. Sounds frivolous? The behaviour is real and it is impacting the retail industry.
Always needing to look immaculate on Instagram can get expensive fast. While some consumers may want to stick to wardrobing so that they don’t have to pay for anything clothing rental services might be a more practical alternative for others. For a cheaper cost than buying merchandise outright consumers can get access to items they might not normally be able to afford and it allows them to easily change up their style.
Which segments within retail are trying to capitalize on this trend?
1. Within the clothing industry Rent the Runway allows customers to rent clothing that ranges from casual items to designer gowns. The retailer launched online in 2009 and it opened its first free-standing store in 2014. Earlier this year, after a round of funding Rent the Runway was valued at $1 billion. One of the rental plans the company offers customers is a subscription plan for $159 per month that allows customers to have unlimited rentals.
Early this week Urban Outfitters launched Nuuly. Nuuly is a clothing rental service that has over 1,000 items from more than 100 different brands. The company created the new service from scratch and is handling everything including fulfillment, logistics and laundry in house. The cost of the program is $88 per month and customers receive six items for rental. Customers have an assortment of brands to choose from including: Anthropologie, Free People, Reebok and Levi’s. Urban Outfitters is expecting the service will add $50 million in annual revenue and will have 50,000 subscribers within one year.
2. Within the furniture sector IKEA has a goal to become a climate positive (which means to reduce more greenhouse gas emissions than the IKEA value chain emits) and circular company by 2030. In accordance with this goal earlier this year IKEA started testing furniture rentals in the Netherlands, Sweden, Switzerland and Poland and the retailer plans to extend these tests to 30 markets this year. In Sweden and Switzerland it is testing renting furniture to companies using a subscription model. In the Netherlands it is testing a rental package targeted at students.
Speaking about the company’s goal to become a circular company Jesper Brodin, CEO of Ingka Group (parent company of IKEA) said: “our future success will lie in our ability to reshape and improve our business model in all aspects. Testing out opportunities for leasing offers is one of the ways we are challenging ourselves to deliver on our transformation strategy, and become a more affordable, accessible and sustainable business. Climate change and unsustainable consumption are among the biggest challenges we face in society - business development like this shows how we are working hard to deliver to our vision to create a better everyday life for the many people.”
Another rental service within the furniture category is Feather. It costs a minimum of $99 of per month to use Feather’s furniture subscription service for customers without a membership. Customers that use the service can rent a variety of furniture from sofas to desks to lamps. They even have cribs for $19 per month. It also offers air conditions which the company delivers and installs. That could be of great use during the summer. All monthly payments can be put towards purchase of the item rented.
3. Within the home décor sector West Elm is partnering with Rent the Runway to offer home décor merchandise for rent. As part of the Rent the Runway subscription service (for $159 per month) customers can choose from 26 different exclusive home décor bundles. These bundles include decorative pillows, throws, shams, quilts, and coverlets for the bedroom and living room. This will be the first time Rent the Runway is moving outside of clothing and accessories rentals. Speaking about the partnership Rent the Runway Co-Founder and CEO Jennifer Hyman said: "just as our closet has become an area that we now share online, it's the same thing happening in our home." "They've moved from personal to public spaces because of social media."
4. Within the outdoor equipment sector specialty outdoor retailer REI announced at the end of last year that it was expanding its rental offerings. Some of the new items the retailer will have available for rental include: snowshoes, skis, snowboards, fully equipped camping, and backpacking kits. REI expects that rentals might make up the majority of purchases within the next five to 10 years.
5. Not to be left out, within the catch all category is Joymode, a start-up based in California that offers a wide range of merchandise for rent including cooking appliances, gaming and tech (VR headsets), camping equipment and luggage. The company was started to service consumers that need an item like luggage or folding chairs but do not use it every day. Members typically spend between $22 and $29 a month when using the service for a minimum of three months. Some of the most popular items rented out by customers are Dyson vacuums and Arlo Skye luggage.
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