Exclusivity for Rent

My roommates and I got into a somewhat heated discussion the other day. Who decides that the trademark LV on a Louis Vuitton bag makes it a worthy thousand dollar purchase? Why can that and similar brands endure for centuries without innovation or much change at all? In other words, who do luxury brands think they are?!

Bearing that in mind, I wanted to analyze the industry from a different perspective than Addison and her post did. Instead of looking at luxury brands’ relationships with social media, particularly though Instagram “influencers,” I took it a queue from the two other themes shaping our class. In a similar struggle, luxury brands are wrestling to balance their deep tradition and exclusivity with emerging technology and digital business. CB Insights took a closer look at this in their report that came out February 8th. In this report, they identified seven trends transforming the industry, all of which I would argue relate directly to the changing technological landscape:

  1. Incumbents are following startups online.
  2. Startups are offering services to rent luxury goods.
  3. Luxury brands are upgrading their in store customer experience.
  4. Emerging luxury brands are personalizing luxury goods online.
  5. Startups are changing the way goods are produced with eco-friendly luxury materials.
  6. Startups are easing the process of authenticating luxury goods.
  7. Blockchain is reducing the cost, both monetary and temporal, of investing in luxury assets.

Of these seven trends, though, one stuck out to me in particular. Trend #3—Startups are offering services to rent luxury goods. While surely not the most groundbreaking, most futuristic or most relevant of the seven, the ability to rent luxury goods will surely be the most disruptive to the industry. To understand why, it’s important to go back to the “Five Pillars of Luxury Brands.” Someone might want to check that copyright with Muhammad—I’m thinking that he and Islam came even before Hermès.

  1. Rarity
  2. Social Status
  3. Hedonic and Refined Experience
  4. Exceptional Performance and Quality
  5. Creative Leadership

The first two, rarity and social status, are particularly relevant to the discussion around luxury good rentals and the disruption of the industry. By allowing customers to “rent” this type of good, emerging technologies (startups, their websites and apps) are increasing a given brand’s prevalence in everyday life. To see this in action, let’s imagine we are all back in high school. One day, your parents gift you a 2018 Porsche 911. Don’t ask why. Just because! They’d prefer to take the T to work, anyway. As you pull into your high school’s parking lot (presumably) filled with old suburbans and dinky, hand-me-down sedans, your shiny 911 not only stands out…it conveys unequivocal privilege. It screams “I have what you will never dream of!!” And, of course, it’s the only one of its kind. EX-CLU-SIV-I-TY.

Change gears. That scenario would be a whole lot different if, suddenly, everyone’s parents had access to a $100,000 sports car that they let their child borrow (rent, if you will) for the week. Despite the fact that you own this luxurious car, everyone else has access to it. By default of being so ubiquitous, so omnipresent, your Porsche is no longer rare nor does it convey nearly as much about your status as it did when no one else had the same car. The idea of luxury dissolves.

Apply this idea to the luxury fashion industry, and you can understand what brands are up against.

“The Other Kids”

Of companies that exist for renting luxury fashion brands today, there are there primary business models that emerge.

Rent the Runway: The “Netflix of Clothing” 

To date, Rent the Runway has received over $176 million of funding since its founding in 2009. Of the three companies discussed here, I would think that it is the company that you all are most likely to have heard of.

Rent the Runway is a company that rents out designer clothing and accessories. Customers have the option to rent for a four or eight day period or under a variety of subscription models. What is unique about Rent the Runway, though, is that instead of shelling out top dollar to build an inventory of designer clothing and accessories, the company partners directly with designers to buy pieces at wholesale prices. The first question that most people tend to ask when they hear that luxury brands willingly support the rental model is “Why?!?!” In exchange for wholesale prices and access to their collections, Rent the Runway offers the brand data they collect on customers. This ranges from information about the fit to preferences in style, etc.

In the larger context of luxury brands and emerging technology, this model allows the luxury brand to retain control. They can decide to opt in, reaching new types of customers. On the contrary, they can also decide to opt out, ensuring that the brand remains exclusive and elite. Bearing that in mind, one limitation is that the site will always be only as good as the luxury brands that are willing to participate.

Bag, Borrow or Steal: The “Netflix of Handbags”

Bag, Borrow or Steal is the second largest (to RTR) company offering rentals for luxury goods. Contrary to Rent the Runway which mostly deals in clothing, it specializes in high end designer handbags and jewelry. Another difference between the two companies is that Bag, Borrow or Steal does not partner with luxury brands. Instead, they purchase handbags at the full list price. With each one costing on average several thousand dollars, this makes for very high upfront costs. The company has said that they do not make money on rentals until much later in the bag’s lifecycle, after several rental periods.

However unfortunate for Bag, Borrow or Steal, under this model, the luxury brands lose out more. The brand retains zero control over its products. As long as the company has sufficient funds to buy one handbag, they can lend it to whoever they want as many times as they want until it is unusable.

Style Lend: The “Airbnb of Fashion” 

Finally, enter Style Lend, a company born out of the growth in the sharing economy. Similar to Rent the Runway and Bag, Borrow or Steal, customers have the option to rent designer clothing, shoes and accessories. However, Style Lend does not partner with designers or purchase pieces at full retail price. Instead (hence the “Airbnb” nickname), the company relies on the general public to supply the designer items in their closet available for rent.

Similar to Bag, Borrow or Steal, under this third model, luxury brands retain no control.

Other companies capitalizing on the rental of luxury goods include ArmariumEleven James, Flont, and ArmGem, amongst others.

So, Now What? 

After putting together this blog and reading all of the miscellaneous articles that I did, I’ve decided that it’s not all that surprising that luxury brands find themselves in the precarious positions that they are in today. I don’t really feel all that bad for them. They pride themselves on a long history and tradition of exclusivity (most luxury brands have been around since the mid 1800s), yet they expect to stay relevant in today’s world, founded in innovation, technology and the sharing economy. Two ends that seem entirely at odds with one another.

I’ll leave you all with a statistic published in 2016 by Boston Consulting Group. Today, “nearly half of all consumers—and a majority of Millennials—say they’re buying fewer products and purchasing more experiences. By 2022, the experiential segment is forecasted to amount for nearly two-thirds of the total luxury market.”

Luxury fashion brands = products. Luxury rental services = products for experiences.

I’ll let you do the math.

 

Additional Sources:

  1. https://www.cbinsights.com/research/future-luxury-trends/?utm_source=CB+Insights+Newsletter&utm_campaign=e2dc76c6a5-ThursNL_02_15_2018&utm_medium=email&utm_term=0_9dc0513989-e2dc76c6a5-90017997#subscription
  2. https://www2.deloitte.com/content/dam/Deloitte/global/Documents/consumer-industrial-products/gx-cip-global-powers-luxury-2017.pdf
  3. https://www.bcg.com/en-us/industries/consumer-products/luxury.aspx
  4. https://isys6621.com/2018/02/12/luxurys-love-hate-relationship-with-social-media/
  5. https://techcrunch.com/2014/03/20/style-lend-launches-out-of-y-combinator-to-be-the-airbnb-for-womens-closets/

7 comments

  1. This is really interesting and informative. Thanks so much for sharing

  2. I think this post comes at a great time because it highlights a lot of the aspects of collaborative consumption discussed in the MIT article “Adapting to the Sharing Economy” that we’ll discuss next week in class. Rent the Runway is the perfect example of a product service system because it allows its users to share products that are owned by the company itself. Their business model focuses on selling the use of the product, rather than ownership and, as you mentioned, places emphasis on the experience.

  3. Molly Pighini · ·

    I think you did a great job highlighting the challenges that companies face within the changing retail landscape. I agree that luxury brands are more vulnerable than ever as a result of companies like Style Lend and Rent the Runway. I also believe, however, that there are some customers who would not use rental services out of principle. This way of thinking might stand to save some players in the industry.

  4. I thoroughly enjoyed this article, especially since I’m currently doing research into luxury goods. I think the pressure for prestige-oriented companies to reinvent themselves is very real in many European countries and the United States, considering those stats about purchasing habits and the focus on experiences over things. In these markets, the value proposition of a luxury good is very dubious for many market segments since people are shifting towards non-tangible goods. On the other hand, I’m not sure if those luxury companies would be willing to embrace the sharing economy – at least, not yet.

    In Asian consumer markets, there are countless members of the ever-expanding yuppie and upper-middle class segments that are fighting, sometimes quite literally, for the chance to be the first to lay their hands on a Birkin bag or Tiffany bracelet. The culture of these countries places a high emphasis on material goods and maintaining flawless appearances. Luxury companies are very aware of these factors, with companies shifting projected sales volumes to reflect a growing dependence on Asian markets to uphold their bottom lines, and lessening their financial dependence on Western markets.

    While I believe there one day may be a time when luxury goods companies will have to contend with exhausted markets, I believe it’s a day that is at least a generation or two away. When that time comes, only then will those companies will be truly forced to innovate in either their business model or product offerings.

  5. Great post! I think you did a great job highlighting this particular trend with luxury brands. It actually really made me think of the show Parks and Recreation. If you have seen you, you may know what I’m talking about. If not, in the show, one of the main characters realizes that a dilemma exists where parents don’t want to buy their younger kids nice clothing, as they will just grow out of them in a year or two. To solve this problem he has a business idea to open up a store where you can rent nice clothing for your growing children. I loved this part of the series because it truly is a genius idea, and I wondered why no one did it before. Even though the particular companies you mentioned aren’t exactly renting luxury brands to kids, I’m glad to hear that they are catching on to changing consumer preferences and working to meet their needs!

  6. I thought this was a really interesting way to talk about the diminishing power of luxury brands. I don’t think that a brand like Louis Vuitton will ever die, but I do think it will have to walk a tightrope of sorts in order to cater to a more cost-conscious consumer while still commanding a premium price for their brand.

    I also really liked your quote from BCG at the end of your post. As sad as this may sound, I think people are spending more on experiences because it is something that they can more easily boast about on their social media pages afterwards. If I go to concert, I can add it to my story on Snapchat, I can Instagram it the day after, and I can post about the fun time I had on Facebook. If I buy a new hat, the content I can create for my social media pages is very limited. In the case of the three companies that you mentioned, I think that they are doing a little bit of both. The service aspect to these companies makes it more a community aspect.

  7. Great post, Lucy!! I agree with you that sharing economy is presenting challenges for luxury brands and diminishes their exclusivity value proposition. I agree with Mike that many luxury brands are shifting focus to emerging markets in Asia where culture and growing economy present great opportunities for brands. I wonder, however, if that eventually will change too as more and more people in these countries will be able to afford it. I also think that RTR and Bag, Borrow or Steal have some improvements to make to be real competitors to luxury brands. RTR is still to strike partnerships with the majority key players in the industry like Valentino and D&G which I assume try to stay away from RTR on purpose. Bag, Borrow or Steal is only offering basic staple items. They do not have most recent, one season collections. That is probably due to high costs and short life cycle of these products. However, people who truly care about the luxury brands and fashion usually pride themselves on owning the most recent collection. I still think that these companies are disrupting the industry and I wonder if luxury brands will be able to win the place in millenials’ hearts and grow.

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