While I’ve always been skeptical of the sustainability of Clothing as a Service (CaaS) for mall brands, COVID-19 and the new reality it created have further exposed the weakness of this business model.
Because, as much as fashion rental services try to frame their business as one based on software, big data, and technology-driven logistics, they are ultimately defined by fashion. And there’s no question that fashion’s recovery will be a difficult one as long as the novel coronavirus is a threat, and as long as people avoid mass gatherings and other opportunities to show off new wares.
As companies extend their work-from-home timelines, and schools postpone school openings (or re-imagine the classroom experience), the customers who subscribe to Rent the Runway or Le Tote or Gwynnie Bee have a new calculation to make amid a deepening recession: one that may result in the unsubscribing of non-essential services. (Tangent: but certain segments of the subscription box market, like beauty boxes, are thriving.)
Rent the Runway, the industry leader, has avoided bankruptcy (so far) by quickly making deep cuts (“slashed the company’s costs by 51%, and furloughed or laid off half the workforce“), raising new financing, and changing some aspects of its business model (“pivot to a revenue-sharing consignment model from the old wholesale model that requires big capital outlays with no guaranteed payback“ and “the company will make it easier for subscribers to buy lightly used clothes through its app and website. That will be expanded for nonsubscribers down the road“); these are all steps that have proven prudent in hindsight, and places RtR ahead of its counterparts in traditional retail. However, no amount of cost reduction can save a company when the industry is in freefall, so the next year will be a crucible for the RtR brand.
Another major player in the space, CaaStle, which counts retailers–Ann Taylor, Express, American Eagle, Bloomingdale’s, Banana Republic, etc.–as customers, has been relatively silent, leaving outsiders to speculate about its health. It last raised $100 million in a 2015 Series A round, and has seemed financially prudent or at least cost flexible. Further, unlike Rent the Runway or its clients, CaaStle is business-to-business so its survival hinges more on its ability to retain existing accounts (assuming these retailers survive COVID19) or to expand beyond fashion (which was always the goal). I also stalked the (public) Twitter account of its CEO and she has been regularly (re)tweeting lighthearted items so I will guess irresponsibly that things are not that dire at CaaStle.
Le Tote, on the other hand, seems to be faring… less well; it “instituted significant company-wide layoffs” in April and sued Urban Outfitters at the end of June for breaching an NDA signed when UO entered into discussion to acquire Le Tote in 2018. AND the deal Le Tote signed at the end of last year to acquire Lord & Taylor is looking less lush against the abysmal retail landscape.
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Once seen as the future of fashion, rental services in the near term will struggle alongside traditional retail, and will be subject to massive culling. Ultimately, what separates companies that survive from those that don’t comes down to the flexibility of their cost structure and the amount of short-term debt they hold. Most companies that filed for bankruptcy protection during this downturn were already facing hardship before COVID-19, and the virus accelerated the decline rather than produce it.
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Do/did you rent fashion? If you stopped, what will bring you back to the fold?