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:
- Incumbents are following startups online.
- Startups are offering services to rent luxury goods.
- Luxury brands are upgrading their in store customer experience.
- Emerging luxury brands are personalizing luxury goods online.
- Startups are changing the way goods are produced with eco-friendly luxury materials.
- Startups are easing the process of authenticating luxury goods.
- 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.
- Social Status
- Hedonic and Refined Experience
- Exceptional Performance and Quality
- 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.
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.