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Clothing-As-A-Service?

The sharing or on-demand economy is a mega trend that has penetrated multiple industries and disrupted many more. The retail industry might be the next in line to be disrupted by this trend. Read our detailed analysis on this topic here.

– Amit Nath

The sharing or on-demand economy is a mega trend that has penetrated multiple industries and disrupted many more. From Airbnb, Uber, to video and music streaming, it seems people are less enamored with ownership of possessions than ever before. In fact this trend is much more prevalent with younger consumers (i.e. millennials) who are increasingly open to subscribing, renting, sharing or borrowing items that were formerly episodic purchase decisions. One of the more intriguing areas where this trend has risen is in clothing. For older generations like the “Baby Boomers”, renting or subscribing to a clothing service is a foreign concept, however as shown in the chart below, younger generations are embraced this idea en masse with the divergence between generation becoming increasingly stark.

Share of U.S. Consumers Who Have a Rental or Subscription Service

Source: Bernstein

Previously people could only hire hire items such as a tuxedo or formal wear for special occasions, while today, companies are renting customers everyday items like jeans, handbags and even sneakers for one-off fees or a low-cost subscription. This trend is showing up in the numbers, with people shopping less frequently. In fact the percentage of those buying clothes every month, two months or three months declining sharply over the last couple of years, while there has been a marked increase in those shopping just once a year, according to global market research firm Mintel.

So what is driving this trend? The truth is, renting clothing solves a huge problem for many consumers who are reluctant or unable to wear the same outfit multiple times, with nearly 20% of young people saying they won’t wear the same thing again once they have appeared in it on social media (Facebook, Instagram, etc), according to a study by the Hubbub Foundation. In addition to social pressures, many professional settings make repeating an outfit undesirable or occasions where one may want to make a fashion statement (e.g. wedding, ball, racing carnival, etc) without spending vast sums of money, the rental model helps solve that problem.

In addition to cost, people are becoming more aware of the damage fast-moving, disposable fashion is having on the planet as social media continually encourages the consumption of clothing. A recent parliamentary report in the U.K. highlighted the significant contribution the fashion industry is having on pollution levels and climate change. The textile industry is said to create 1.2bn tonnes of CO2 per year and 35% of all microplastics in the ocean are from synthetic fibres in abandoned clothing; what we wear (or don’t wear) has become a significant health hazard.

Clearly not every item of clothing is appropriate for the rental model, with more durable garments that can be dry cleaned over-and-over, more suited to renting. Obviously as utilization of these more expensive types of clothing increases, there are clear implications for brands, retailers, designers and manufacturers alike. 

The leader in the world of fashion rental is Rent-the-Runway (RTR), which has operated since 2009 and reached “unicorn” status (>US$1bn valuation) in 2019 following a $125mm funding round from Franklin Templeton and Bain Capital. While Rent-The-Runway is a private company it is said to have about 100k active subscribers, not including shoppers who rent on-off items for special occasions. Perhaps most significantly is the fact that Rent-The-Runway subscribers are reportedly growing at 150-200% per year, an astonishing pace. Its US$159 monthly subscription service, offers users unlimited designer rentals, shipped directly to their door which the company describes as an “endless closet controlled by you”. Products on Rent-The-Runway are relatively premium, with median retail price points of US$375 for dresses, US$365 for jackets & outerwear, US$250 for bottoms, and US$225 for tops, hence having a rolling inventory of this clothing of this quality for only $159 per month is quite attractive for many consumers. In addition to Rent-The-Runway, there are numerous other clothing rental and subscription services that are emerging all over the world, as companies look to satisfy this growing consumer need.

Clothing Rental Services (US$ Per Month)

Source: Bernstein

While on the surface renting designer clothing may not appear to be an ideal situation for the big brands and fashion labels, which would likely favor more outright purchases, Rent-The-Runway has a unique pitch. It claims to be helping unlock value from customers who otherwise not have made an outright purchase, experienced a product or label and hence are effectively serving as another distribution channel for brands, as they face shrinking purchases from department stores. The data certainly points to clear substitution out of the retail channel for Rent-The-Runway subscribers, with Neiman Marcus, H&M and Urban Outfitters most significantly impacted by the unique niche created by this fast growing solution to clothing, Rent-The-Runway is seeking to fill.

Rent-The-Runway Subscribers Versus All U.S. Consumers (Change in Annual Fashion Spend)

Source: Bernstein

 

Amit Nath is a Senior Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.

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Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.