Urban Outfitters To Start Renting Clothes (#GotBitcoin?)

Retailer launches $88 monthly service, jumping into market led by Rent the Runway. Urban Outfitters To Start Renting Clothes (#GotBitcoin?)

Urban Outfitters Inc. is jumping into clothing rental, trying to tap one of the fastest-growing areas of fashion without discouraging shoppers from visiting its stores.

The company, which owns the namesake chain along with Free People and Anthropologie stores, is set to launch this summer an $88 monthly service that allows consumers to borrow six items from those brands and outside labels like Gal Meets Glam and Reebok, as well as vintage pieces sourced from flea markets and dealers.

The new business, called Nuuly, will be run as a separate entity by David Hayne, chief digital officer at Urban Outfitters and son of the company’s co-founder and chief executive. Mr. Hayne, who started at the retailer folding shirts at a store in Philadelphia, has held several company positions since 2001, including chief operating officer of the Free People brand.

The rise of fast fashion and online shopping is driving the growth of the rental apparel market, which has been growing by more than 20% annually, according to GlobalData Retail. The market, excluding costume rental, was valued at about $1 billion in 2018 and is projected to surpass $2.5 billion by 2023, the market research firm said.

Mr. Hayne said executives at Urban Outfitters focused on the rental model when discussing how to diversify their business. The company, which also sells house wares and beauty products, has taken unconventional steps for a clothing seller before. In 2015 it bought a pizza chain.

Now the retailer is betting Nuuly will attract new shoppers and boost purchases by current ones—and not cannibalize sales. Within a year of operation, Mr. Hayne expects Nuuly to attract 50,000 subscribers and be on pace for more than $50 million in annual revenue.

“We certainly don’t think the customers are just going to stop purchasing,” he said in an interview at the company’s headquarters in Philadelphia. “Purchases make sense for things you know you’re going to use often; rental makes sense for things you would like to try.”

On Nuuly’s website, customers will choose six garments, which will arrive with a reusable bag and a prepaid postage label. They must keep the clothes for a full month, then return them to obtain six more. They can also buy the items. Returned garments will be washed, dry-cleaned and inspected at company facilities before being sent to another customer.

Urban Outfitters reported rising comparable sales in recent quarters, boosted by growth online. But in March, the company said its sales were weaker than expected; and so far this year its stock is down about 19%. The company reports its quarterly results after the market closes Tuesday.

Clothing rental is also getting a boost from shoppers’ desire to have a new outfit for every Instagram post and an increasing awareness of sustainability issues, said Naomi Braithwaite, a lecturer at Nottingham Trent University who has been conducting research on consumers’ attitudes toward clothing rental. One challenge for middle-market brands, she said, is that shoppers are more resistant to renting less-expensive garments.

“It’s already so convenient to buy the fast fashion and everyday things,” she said.

The largest player in clothing rental is Rent the Runway, which was founded in 2009. The company rents out dresses, tops, coats and other items from designer labels such as Reformation, Rag & Bone, A.L.C., as well as luxury brands like Proenza Schouler and Prabal Gurung. It offers flexible rental plans, including allowing shoppers to exchange their garments an unlimited number of times throughout the month. Earlier this year, the company said it was valued at a $1 billion.

Several mall retailers, including Ann Taylor, Express and American Eagle, have started renting out their clothes by using CaaStle, a startup that provides a web platform for retailers and handles logistics such as shipping and dry cleaning. For $95 a month, Ann Taylor lets shoppers rent three pieces at a time and swap them throughout the month. American Eagle offers a similar service for $50 a month.

Christine Hunsicker, CaaStle’s CEO and founder, said brands were worried at first that the rental business would cut into sales, but the service has brought new customers, increased spending among existing shoppers and delivered a profit. She said a clothing rental business, when run well, has about a 25% operating profit, compared with low single digits for a clothing retailer. “Rental is a significantly more lucrative business than selling clothes,” she said.

Like Rent the Runway, Nuuly has hired its own engineers, data scientists and product managers to develop the technology. The brand is building a warehouse and fulfillment center outside Philadelphia with dry cleaning and other laundry facilities. For the past several months, employees have been working with laundry consultants to learn how to lengthen the life of each garment through different wash options.

Mr. Hayne said Nuuly chose to focus on lesser-known brands to set itself apart and that its plans, pricing and assortment could evolve over time. “We have the ability to control the destiny and think about the right way to shape this in the future because we don’t need the underlying technology and infrastructure,” he said.

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