“We have seen a massive consumer behavior shift unfold over the past several years, with our ... [+]
In “If you can’t beat then, join them” fashion, Nordstrom just announced that it will extend its partnership with Rent the Runway, which officially commenced in June of this year.
Come Monday, Nordstrom will offer rental drop-off boxes in 24 more stores from the existing five stores where it has been testing the service since then. This will bring the number of RTR drop-off boxes to about one-fourth of Nordstrom’s existing fleet of 113 full-priced stores nationwide.
The new drop-off boxes will be in place just in time for the retailer’s busiest shopping season. In addition, RTR members will gain exclusive access to Nordstrom services, such as styling and gift wrapping.
And in more news, Nordstrom will become a “platform partner” with Rent the Runway to contribute inventory to the rental service, which has been described as the “Netflix of fashion.”
Further the two companies are also looking into launching exclusive designs to either rent or buy, so both will have another pair of eyes on styles that are growing in demand in one channel or another. With next-generation fashion customers being at RTW’s core, this will help Nordstrom keep abreast of the increasingly fickle younger fashion consumers who may not yet be shopping in its full-priced stores.
In pivoting toward the rental economy, this famously service-oriented retailer is going even deeper into the experiential economy. For Nordstrom, adding services and new ways for customers to interact with the brand are critical to its success. Its Rent the Runway partnership does both.
“Our key differential when we serve customers well is when they engage with us either with services and/or across channels, all of a sudden, the level of spend goes up, their level of satisfaction goes up, and their sales go up,” said Kenneth Worzel, company COO in a recent presentation about Nordstrom’s local market strategy.
The sharing economy is shrinking the buying economy
While the fashion rental business is still small relative to the overall global fashion market, about $1.1 billion in 2018 as compared to an estimated $1.3 trillion, it is projected to grow twice as fast, some 10.9% CAGR compared with 4% for the fashion market.
My guesstimate is that the rental economy will advance even faster than that, since an estimated 40% of the online clothing rental business is concentrated in the U.S., yet the U.S. makes up less than 10% of the global fashion market.
And other traditional fashion retailers are exploring the rental market as well. Most notably Le Tote, a competiive online fashion rental service, just acquired Lord & Taylor. Neiman Marcus has dabbled in it too, with a Rent the Runway shop-in-shop, but only in its San Francisco store. American Eagle, New York and Company, Ann Taylor, Express, and Urban Outfitters are now renting their fashions as well.
Milllennials don’t want to carry the load of owning more things
Much has been written about the anti-materialism shift among Millennials. Study after study has shown they are spending more on experiences and less on buying things.
The reasons for this shift are manifold. They want the greater comfort and quality of luxury, and many grew up in households that indulged in same, but their relatively lower incomes compared to older generations have put luxury goods largely out-of-bounds. So they’ve turned toward rental as well as pre-owned luxury goods to satisfy their need.
They also tend to live in urban areas, where space is at a premium. Rental services, as well as resale platforms like Poshmark, The RealReal, and ThredUp, allow them to bring in new fashion items and send back or sell off unwanted ones. The latest Business of Fashion-McKinsey State of Fashion survey found 41% of consumers find fashion rental services more relevant to them in 2019.
In that same study, the researchers point out that one in seven of this Instagram generation considers it a “faux-pas” to be photographed in the same outfit twice. “Young people today crave newness,” they write.
Rent the Runway fills that need for the growing number of consumers who only want to wear an outfit once or twice, and for them it is a more environmentally-friendly choice than buying fast-fashion clothing from H&M and Zara. Being conscientious consumers is a value this generation holds dear.
Younger consumers have done the calculation and found they get more for their money by paying for access to the things they want where and when they want it, rather than paying the even higher price of owning them. And their access-only options are growing rapidly.
They don’t need to buy cars anymore when they have Zipcars, Uber, and Lyft. They don’t need to buy DVDs when they have Netflix and Amazon Prime. So, why do they need to buy clothes that they would have to store, clean and care for when they can rent them instead?
Happiness comes from experiencing more things, not owning more of them
And most especially, human psychology is at play. The growing body of happiness research has shown that people get more happiness from the things they do than the things that they own.
Professor Thomas Gilovich, one of the leaders in the happiness field, explained, “Our experiences are a bigger part of ourselves than our material goods. You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless, they remain separate from you. In contrast, your experiences really are a part of you. We are the sum total of our experiences.”
Nordstrom is a retailer founded on selling people things, but now it understands the next generations’ shift to experiences. Where before its exceptional service experience served the goal of getting customers to buy more of those things, today Nordstrom is shifting to selling the service as an end in itself. The service-centric Nordstrom Local stores are a reponse to that, as is its expanding partnership with Rent the Runway.
Nordstrom has learned what Jennifer Hyman, Rent the Runway CEO, has long known. “We have seen a massive consumer behavior shift unfold over the past several years, with our community now relying on Rent the Runway as a near daily utility.”
Today, Rent The Runway has achieved $1 billion unicorn status. But Hyman believes its runway is much longer than that. “We believe that this business can be a $100 billion company. We believe that this is applicable all over the world, and it’s applicable in all different kinds of categories.”
Note: The number of new Rent the Runway drop boxes to be added to Nordstrom stores is 24 rather than 25 as originally posted. Rent the Runway provided this correction on Nov. 18 @ 10:55 a.m.
