For this week’s discussion of the ‘sharing economy,’ Professor Kane asked us to watch Professor Sundararajan’s NYU lecture about crowd-based capitalism and block chain markets. Professor Sundararajan speaks to the future of the sharing economy and its rapid growth. Pricewaterhouse Coopers predicts that by 2025, the five key sectors of the sharing economy — finance, staffing, car sharing, hospitality and music and video streaming — could generate $335 billion in annual revenue, up from about $15 billion today. But as Professor Sundararajan emphasizes, the sharing economy is more than just Uber or Airbnb. We, as crowds, can become the source of capital in many different industries and markets.
In the beginning of his talk (2:45), he projects a slide with numerous logos of the largest players in today’s sharing economy today. The fourth line down, I noticed a category entitled “high-end retail”, presenting examples such as Rent-the-Runway and Eleven James. Although being very familiar with such companies, I have never pictured them to be part of the ‘sharing economy’… and then I started to question:
How does the sharing economy work for the fashion industry?
This question led to some research, which then led to my blog post because I wanted to share my findings with all of you.
The concept of the shared economy is easily applied to services like transportation (Uber), hospitality (Airbnb) and chores (TaskRabbit), but is not as seamlessly applied to the product-dependent retail segment. The challenge becomes that we as consumers do not think about our material possessions, products in our homes (or closets), as things we can “share” or borrow when needed, rather than own. Despite this consumer mindset, the sharing economy actually enables the transformation of one’s possessions into revenue streams, by enabling items to be useful all of the time, or more of the time. It is way cheaper to pay to use something for a short time rather than outright buying it. Essentially, the sharing economy offers us access without ownership.
Items in the fashion industry, especially luxury goods, are often used only once. Ownership of such expensive items is not cost-effective, but it has been the only way to ensure access to these items for the required occasions. Therefore, items in the fashion industry, especially in the luxury sector, possess the key qualities of successful sharing consumption models; high value but low usage.
I discovered that not only does the sharing economy work for the fashion industry, but it truly makes sense due to the high value, low usage nature of the products. And, as a result, dozens of fashion companies have entered the sharing economy in recent years in a number of different ways.
Fashion Rental Services
Most of us know the classic example of Rent the Runway. Launched in 2009, this US-based company now has over 5.5 million members. Beyond RTR, there are a numerous amout of start-ups in either other companies or niche fashions. Some of these include Girl Meets Dress in the UK, Chic By Choice in Europe and Glam Corner in Australia, as well as Gwynnie Bee (plus-size fashion rental) and Borrow For Your Bump (maternitywear rental). Rental models allow customers to borrow items for a set time period, typically at a 10%-20% discount of an item’s retail value. By loaning clothing on a pay-per-use basis, rental companies also lower the cost of items, giving customers access to aspirational brands they couldn’t usually afford. Greg Portell, a partner in retail and media at A.T. Kearney explains, “You wouldn’t necessarily spend $700 on a one-time use or even two-time use item, but you may spend $100 [to rent] it for a one-time use.” With more spending power and choice, but less commitment, consumers can use rental sites to constantly update their wardrobes, enabling them to keep up with fashion’s fast-turning trend cycles.
In the US alone, over $8 billion worth of clothing sits in closets, unworn, according to a report by online thrift store ThredUp. Just like idle cars or empty rooms, these possessions are sitting there with the potential to produce a profit for the owner, and delivering value to someone in need of the good. Peer-to-peer rental services connect consumers and let them borrow from each other. “That value proposition is obvious to people,” says Sundararajan. “‘I’ve got all this stuff in my closet, it would be great to rent it out.’” I even discovered a niche college closet-sharing app called Curtsy that allows you to rent clothing from girls at your school (haven’t used it yet, but definitely might try it out!).
Peer-to-peer businesses also need to figure out how to get fashion items from the owner to the user, and ensure items are in good condition. Some companies handle these logistics themselves. In the peer-to-peer rental service Style Lend, a site that let’s New Yorkers borrow clothes from others within the city, requires owners to send in items they want to rent out. The company stores them in its New York offices, and handles delivery and dry-cleaning, much like a traditional rental company. On the other hand, when UK-based Rentez-Vous first launched, users were responsible for cleaning their own items, and had to arrange to have each item delivered, or meet their customer and hand over the item in person. While this cut costs for the business, it deterred usage for customers.
So the answer to my question, “Does the sharing economy work for the fashion industry?” is both a yes and a no (or a not yet).
The nature of the products and the few successful examples show that the sharing economy can be effectively applied to this industry. But it seems challenging for fashion to ever fully adopt the shared economy model in the same manner as the automotive or accommodation industries. So far, the sharing economy has been slower to take off in retail. According to the PwC report, just 2% of the US population has engaged in a sharing transaction in the retail sector, compared to 6% for hospitality and 8% for transport. While the clothing is “shared”, these companies and sites do not embody the true nuts and bolts of the shared economy model and there are three key challenges that prevent them from doing so.
Primarily, there is the problem of the consumer mindset. Convincing people to share clothes with other people requires a much bigger behavioral shift than convincing them to share vehicles or accommodation. In my research I saw a comment on an article reading “Outerwear & bags OK, evening gowns maybe, but sharing clothing & shoes is creepy to me and I don’t see this as a category for significant apparel growth. Maybe people should just start making their own clothes and learn to knit if they want something truly unique that fits and is affordable.” (BOF.com). Some people (especially germ freaks) find the whole concept of sharing clothes a little disturbing, while many others enjoy owning something unique that is theirs. Mentally, sharing your clothing is hard when style is one of the biggest forms of self-expression. Many arguments are made that customers will continue to buy everyday staples — such as a good pair of jeans or a classic leather jacket — but turn to rentals for occasion-wear and statement pieces with a limited wardrobe lifespan.
“Consumers will become smarter about what they want to own forever and what they don’t want to own forever.” – Jennifer Hyman, CEO of Rent the Runway
Speed and Efficiency
The second barrier of fashion in the shared economy is that it lacks on-demand speed and efficiency. While it is less expensive and more convenient, these retail offerings lack the important “right now” feature consumers expect. For those using either Rent the Runway or Style Lend, unless you live in Manhattan or other major hubs of these two companies, the fashion shared economy lacks the direct-to-consumer aspect of the business. People outside Manhattan also can borrow through Style Lend, but will not receive same-day shipping. I expect the model can be expanded to apply to different cities, though. As millennials today, we expect services almost instantly, but it becomes challenges for every industry to figure out how to deliver this. A number of retailers are trying to prove their models by simply taking advantage of the existing shared economy, not creating ones of their own. They are, essentially, intersecting with Uber. Cole Haan, Nordstrom, Rent The Runway and Dick’s Sporting Goods have all explored the UberRUSH; Uber’s local delivery service. By delivering for major retailers, UberRUSH is serving as the middleman between retailers and their shoppers.
And the last barrier is simple logistics. “Logistics seems to be the key barrier to this really taking off,” says Sundararajan. Especially the peer-to-peer marketplace “has the challenge of getting enough people in so that they actually have sufficient inventory,” Sundararajan continues. In fashion, the wide range of product styles and sizes make this difficult to achieve. Rent the Runway buys each product in a range of sizes, and sends users two sizes in case the one they order doesn’t fit. But for peer-to-peer rental services, this problem is harder to fix. Because of style and fit variation, a fashion marketplace needs to offer consumers a wider range of products than sharing economy sectors such as cars or accommodation. Inventory turnover is much higher in fashion in order to keep up with trends.
In the crowded sharing economy space, where many companies don’t have such high overheads, so the investment to start such ventures in the sharing of fashion becomes a challenge compared to the absence of overhead in majority of share economy companies so far. Unlike Airbnb and Getaround, which connect users through a marketplace of third-party controlled goods, a fashion rental company must take on the role of owner — purchasing and holding all the stock they rent out. Therefore, fashion rental services also face greater logistical barriers. By contrast, fashion deals in products that are more difficult to transport between users, and require maintenance between uses — such as dry cleaning and repairs — which create operational challenges and costs for businesses. Rent the Runway has invested heavily in logistics, to ensure products that are returned to the company in the morning can be ready to ship to a new customer that evening. It is currently the US’s biggest dry cleaner, operating a 160,000 square foot fulfillment center that dry cleans 2,000 dresses every hour. The majority of returned items are cleaned and sent back out for a delivery within a day.
What the shared economy shows is that the future of consumption, even for fashion, is not ownership, but access. Although there are more challenges in the fashion industry in attaining this access, I have no doubt companies will figure out the issues with on-demand speed and logistics. The slow takeoff for fashion seems to come from us; the consumers. So my new question is: When will we be ready to share our closets with strangers? Seeing as I don’t even let my little sister borrow my clothes… I’m not sure I’m the best person to ask… but I only time will tell.