Are retail subscription models long-term viable?

Rent the Runway took the fashion industry by storm with its subscription-based retail model. The idea of renting clothes and returning them, decluttering your closet space, and having a rotating set of new pieces, was very appealing to consumers. While Rent the Runway has had its ups and downs over the year, the business is still going strong after launching its IPO last year.

The idea of subscription-based retail caught onto mainline retailers. Banana Republic, Express, Vince, and Eloquii are all retailers now offering clothing rental. Monthly rental fees can also be significantly cheaper than buying new clothes, with most under 200 dollars a month. The other benefit of clothing rental is it's sustainable. Garments are continuously used in a circular economy until they reach their end-life. There is less throwing away and much longer before pieces could end up in a landfill.

As brands look for ways to continue to scale and stay sustainable, rental is a new avenue for profit. These rental programs are still relatively new to anyone who isn't Rent the Runway, so it's still too early to report on how successful they are. However, with brands betting big on membership models, it's hard to tell how sustainable subscription-based business models are.

Former New York-based tech company Seasons tried to launch the equivalent of Rent the Runway for men, but it lasted about 2 years before ultimately shutting down on March 11, 2022. The blame for this stems from "real men don't rent", as The New York Times put it in an article discussing why clothing rental doesn't work in menswear. At the same time, if rental can't crack the menswear market, that's a sign of its current limits.

The way other retailers are thinking of it though is that they monetize one product multiple times, which is great for profit margins. Rather than someone buying one shirt at 75 dollars, that shirt can be part of a subscription model, where 15 people are paying 75 dollars to have it as part of their offerings for the month.

The good news for retailers is that the overall number of consumers using subscription models is on the rise. 80 percent of all U.S. consumers are now signed up for at least one subscription service, according to PYMNTS. Millenials are the largest generational demographic of subscription consumers. Currently, over 20 percent of all consumers use subscriptions for consumer retail products, and 34 percent say subscriptions allow them to try new and different products.

Companies launching their own rental services is still no easy feat, though. Rent the Runway has seen its share of glitches, even briefly pausing new membership subscriptions in 2019 due to missing and delayed orders. Retailers need to account for inventory management and dry cleaning costs when launching rental as well.

Companies are only looking to grow their rental services now. Banana Republic's Style Passport is one of the company's biggest initiatives right now. New customer acquisition is bread and butter for all these retailers launching rental services.

The growth of rental won't slow down anytime soon. It might still be in its early days for companies outside of Rent the Runway, but brands are betting big on rental as the next cash cow.