Investments into rental and resale business models can generate numerous economic benefits. By enabling the same item to be obtained and utilised by many customers over its lifetime, clothing rental and resale models can increase the revenue stream per garment when compared to traditional linear models, which rely on volumes sold to generate revenue. The increased utilisation rate, combined with the lower costs that may be achieved as raw material needs are reduced, also allows for a lower price point per garment (sale or rental). As such, resale and rental models can be used as effective tools for tapping into new, more price-sensitive customer segments. This may be particularly valuable moving forward as the post-pandemic economic uncertainty is expected to increase the share of customers in this segment significantly. In fact, over 60% of consumers have reported reducing their spending on apparel during the crisis, with about half expecting that trend to continue post-pandemic. Nonetheless, consumers are likely to cut back on accessories, jewellery, and other discretionary categories before reducing their spending on apparel and footwear. There is also evidence that clothing-as-a-service models, such as rentals, may increase customer loyalty to service providers, thereby generating consistent revenue streams. For example, clothing rental technology platform, CaaStle’s data revealed that their fashion business clients using the platform to implement their rental offering before the pandemic, experienced a 125–175% increase in spend year-over-year among active customers.
These business models are supported by a change in customer sentiment around apparel consumption and ownership, with a McKinsey study showing that 20% of customers want to reduce their clothing consumption following the pandemic. Moreover, 71% of customers are expressing a greater interest in circular business models, such as rental, resale, and refurbishment, and want to invest in higher quality apparel after the pandemic. This has already been felt by industry actors, as 54% of apparel and textile brand sustainability leaders have noted an increased customer interest in environmentally conscious practices and products since the onset of the pandemic.
Rental and resale models can also offer environmental advantages, increasingly called for by policymakers and consumers alike. For example, a 5–10% reduction in a garment’s carbon, water, and waste footprint has been shown to be attainable by extending its lifetime by a mere three months, assuming garment purchasing is subsequently decreased as well. In fact, compared to buying new, one pre-owned purchase is said to save on average 1kg of waste, 3,040 litres of water, and 22kg of CO2. Furthermore, a 2019 study found that 65% of second-hand clothing purchases in the US and UK, and 41% in China, successfully prevented the purchase of a new item. These savings could be substantial, given the current environmental damage caused by the fashion industry. In 2015, the greenhouse gas (GHG) emissions from textiles production totalled 1.2 billion tonnes of CO2 equivalent i.e. more than the amount produced by all international flights and maritime shipping combined. At the current rate, the textile industry is poised to account for over 26% of the global carbon budget by 2050. Meanwhile, according to thredUp’s 2020 Resale Report, in the aftermath of the pandemic, 70% of customers are seeing a greater need for fashion to address climate change than ever before. Policymakers are also increasingly drawing their attention to the environmental impacts of the fashion industry. The French Circular Economy Law already bans the destruction of unsold or customer returned items, while groups like the UN Alliance for Sustainable Fashion and the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment & Footwear Sector have been formed to address the fashion industry’s sustainability issues. This mounting pressure, paired with the accelerating customer demand for environmentally responsible clothing, affects the whole fashion industry and further enhances the attractiveness of new business models—such as rental and resale—as investment opportunities.
Substantial growth is currently happening and projected to continue into the future within clothing rental and resale markets. Before the pandemic, strong growth was projected for both rental and resale business models, with revenue from rental models poised to increase by USD 801 million between 2019 and 2023 with a CAGR of almost 11%, while the apparel resale sector was set to grow from USD 5 billion to USD 23 billion between 2018 and 2023. In 2019, one studyfound that 87% of clothing retailers were eager to trial resale models, and 61% wanted to test rental models.
These trends are only expected to grow following the crisis, with heightened awareness and concern over the fashion industry’s substantially negative environmental footprint and increased customer demand for more responsible garments. In fact, a study released since the onset of the pandemic by the resale platform, thredUp, has projected that the total second-hand market will grow from USD 28 billion in 2019 to USD 80 billion by 2029, reaching nearly twice the size of the fast fashion segment in the same period. Resale models are expected to drive this increase, with their growth projected at 414% in the next five years, while the overall retail market is predicted to shrink by 4% over the same period. Even clothing rental models, despite having taken an initial hit due to people’s confinement to their homes and some concerns around perceptions of hygiene, are expected to bounce back relatively quickly following the relaxation of global confinement measures and recommencement of social gatherings. This has already been evidenced in China where clothing rental platform, YCloset, began to see a gradual recovery in their business as lockdown measures were eased. Moreover, some retailers are even newly adopting these business models in the midst of the pandemic. For example, Selfridges introduced their new clothing rental model during the summer of 2020.
Meanwhile, the strength and resilience of resale business models have been demonstrated by many companies which, after making innovative adaptations to increase operational hygiene (by e.g. enabling contactless home delivery), have thrived during the crisis. Peer-to-peer resale businesses, Depop and Vestiaire Collective, for example, reported sales increases of 150% in the US mid-April compared to the same time last year, and 54% in early May compared to February, respectively. In fact, it bears noting that a number of business models—B2C, C2C, C2B2C—can be adopted to engage in clothing rental and resale. For larger fashion retailers, partnerships with innovative and more agile clothing rental and resale organisations may offer a more attractive, faster, and easier path to adopting these business models compared to building these capabilities in-house, while also creating more jobs in garment repair and refurbishment. These partnerships are already being utilised by various players as exemplified by The Renewal Workshopand Trove, which build and operate resale programmes for clothing brands like Carhartt and Patagonia, offering collection, cleaning, repairing, and even selling of the brands’ pre-owned garments.
Increased use of digital technologies will allow a greater uptake of these business models. The rise of fashion e-commerce has accelerated since the outset of the pandemic. One study on German and UK customers conducted in April 2020 found that 43% of respondents had begun purchasing fashion items online for the first time ever since the start of the pandemic, and 28% expected to reduce their purchasing in physical locations in the future. As such, investments into developing e-commerce platforms that facilitate the rental and resale of clothing will be crucial to reach customers, and can also allow smaller brands and creators easier access to markets, thus potentially positively impacting job creation. In fact, many smaller fashion brands, such as Baja East that saw sales rise by 64% in April compared to March by focusing more heavily on direct-to-consumer and digital marketing, have attributed these strategies to their ability to weather the shock of the pandemic. Other digital solutions, such as innovative customer engagement through social media, livestream sessions turning physical stores to virtual shopping stages, and omnichannel inventory capabilities, have also proven themselves to be valuable for businesses during the pandemic by increasing sales and customer engagement. However, to attract and incentivise customers to use these platforms, they will need to be designed and developed with convenient user experience in mind, as customers have become increasingly overwhelmed by the amount of choice and are discerning of platform interfaces and deliveries. For clothing rental and resale businesses to become more resilient and aligned with shifting demand, investments should then also be directed towards increasing the digital capabilities of these companies.
Design will play a key enabling role in the success of clothing rental and resale businesses. To enable the garments’ safe and extended circulation, clothing must be designed with durable and non-hazardous materials that can sustain several use cycles. At the same time, design decisions should be made to ensure the emotional durability of the item is also prolonged, i.e. that customers continue to value and want to wear it, or else it will not be circulated to its greatest physical potential. To achieve this, solutions such as ‘timeless’ designs (i.e. classic, seasonless designs in patterns and silhouettes), or greater garment adaptability can be adopted to avoid premature obsolescence of the items. For example, Petit Pli designs children’s clothing that can be expanded to fit as the child grows. To gain the most value out of an investment, investors should also ensure the rental and reuse businesses in which they are investing, take into account these design principles into account as well.