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Climate crisis, war and inflation are forcing fashion and luxury brands finally to embrace the second-hand market. Demand for pre-loved watches, dresses, handbags and jewellery has exploded and is likely to remain strong with consumers fretful about the future.

In the past year, many big brands such as Cartier, Rolex and Gucci and Balenciaga have partnered with specialist retailers to offer sell-second hand items. They know that customers demand it and that’s where the market is going. Other brands are expected to follow suit including Audemars Piguet in watches.

But in our age of anxiety, why buy something for forever when you can rent it and live for today? That’s the argument fueling a surge in start-ups in the rental market for fancy dresses and handbags, the most high-profile of which is New York-listed Rent the Runway.

Market analysts say consumers are increasingly taking the view that if buying pre-owned items helps save money and is better for the planet how about going a step further and rent instead? Do we need to own everything we wear? Investors have taken heed. In the past decade, an increasing amount of entrepreneurial energy and private equity money has gone into companies that offer rental services in fashion and luxury goods. Even the biggest luxury groups LVMH, Kering, Chanel and Richemont are quietly testing the rental business model and observing what’s going on with key players, according to insiders. For an industry that thrives on the new, no luxury executive wants to miss on the latest trend.

LOSSMAKING

Still, there are plenty of obstacles to getting consumers to rent, not least a complicated business model and consumer squeamishness about the hygiene of wearing the same clothes as somebody else, especially after Covid-19. Thus, although there’s a rush of start-ups in the rental business profitability isn’t there yet, which has resulted in a few early crashes. Online retailers specializing in second-hand are also struggling to make money as Miss Tweed reported last month. The income generated by both business models isn’t big enough yet to cover costs. But that’s not to say it won’t be one day.

“I think the market for rental will grow but it will always remain smaller than the one for second-hand items,” argues Marie Dupin from Paris-based consultancy NellyRodi who is advising French rental start-up Le Closet. “Buying second-hand is now part of people’s habits, particularly among women under 40. But renting is not a common reflex yet.”

Yann Rivoallan, chairman of France’s Women’s Ready-to-wear Federation, argues that “the rental business model is now at a tipping point after having been trialed for some time.” Rivoallan, who is also founder of Everywhere Anytime, a company that provides tech coaching and training services to fashion companies, says: “Rental requires a very solid logistical back office and I think the reason why some did not succeed is because they came too early. The market was not completely ready yet, but I think it will be at some point."

In the United States, the most popular rental platform is New-York-listed Rent The Runway and its more down market rival Le Tote. In the UK, there is Hurr and By Rotation. These allow shoppers to rent their own dresses and buy stock to rent from designer brands. There’s also My Wardrobe HQ which rents luxury ready-to-wear and Cocoon which focuses on designers bags. In France, Une Robe Un Soir rents out designer clothes and Le Closet offers mainly accessibly priced fashion brands. At all the above you can purchase the clothes you rented at marked down prices if you end up wanting to wear them forever. Selling second-hand items helps these platforms renew their inventory and get cash into their coffers – something they all desperately need.

There are other complications too. Rental websites, just like second-hand ones, spend a lot of money posting items on a website with the right photos as well on shipping and handling returns. Rental also have high cleaning and refurbishing costs and the logistics involved are quite complicated. Companies specialized in the rental business need to make investments in storage and shipping platforms, e-commerce and customer relationship management software. And of course, like second-hand marketplaces, they need to publish glamorous editorial content on their websites if they want women to remain loyal and spend time browsing their pages renting or buying their goods. In short, it’s a costly and difficult business to run.

STRONG OFFER

“For rental to work, you need to have amazing dresses and accessories that people really want to try out but not necessarily buy. Your offer needs to be super strong, otherwise it won’t work,” argues the co-founder of one of Europe’s biggest second-hand online luxury goods retailer. Crucially, this person argues that rental “can only work in countries in which there is a culture of dressing up for parties and events”. That’s why rental is more popular for example in the UK (where there are also more players) than in France, because people dress up more in the UK than in France to go to parties.

As a result, consumers, brands and retailers are keen on second-hand but most of them are still cold or lukewarm on renting. Most of them are not ready yet, industry insiders say. Dupin, the consultant from NellyRodi, argues a key obstacle is that consumers are schizophrenic when it comes to fashion consumption: they want to consume less to help preserve the environment, but they continue to be seduced by new looks and trends and enjoy buying more and more stuff, she says.

There are many reasons for this. The first one is that the majority of women prefer owning their clothes than renting them. They have an emotional relationship to their clothes and accessories and like having them in their closet. It’s part of their identity and memories are associated with them. Also, some women balk at renting for hygienic reasons. These same arguments are put forward to explain why people don’t want to sell their clothes on second-hand platforms or buy pre-loved items.

IT'S COMPLICATED

It’s also the case that while buying is more expensive, it involves less hassle than renting especially for the cash-rich, time-poor: you choose, you pay, you receive. Renting is more complicated, particularly if you rent with subscriptions that allow you to regularly change your wardrobe. You need to select the items you want, order them, receive them and then send them back. Some companies offer an insurance to cover you in case you’ve lost a button or stained an item.

In this environment, Rent the Runway, the fashion rental market’s most significant player, is having a hard time convincing investors it’s got a bright future. The company’s revenue may be on the rise but it remains a lossmaking company. Its shares, which floated at $21 a share in October 2021 and valued the company at $1.2 billion, have been lingering under the $5 mark in the past 12 months and are currently at around $2. In April, the company said it expected to reduce its cash burn this year but it did not say when it would become profitable – an unknown investors do not forgive – as online luxury marketplace Farfetch knows very well.

Rent the Runway expects its active subscriber consumer base to stop growing more than 25 percent this year and revenue will not rise as strongly as last year. Total sales are forecast to reach $320-330 million, a hike of between 8-11 percent against a rise of 46 percent the previous year.

These projections are concerning since the world has got back to work after the pandemic, and more and more people in America now go out, socialize, attend events and work in the office. They are being interpreted as a clear sign of the limits to the rental model.

In France, there’s the same skepticism among investors but also some bright spots. In essence, a consolidation is underway as survivors adjust their business models. Several fashion rental businesses filed for bankruptcy during and since the pandemic. The fashion rental website Les Cachotières went into liquidation in October last year. It allowed women to rent their clothes, bought some rental stock from brands and provided white-label rental services for major French brands such as Sandro and Ba&sh. Then there was the French rental website l’Habibliothèque that ran out of money and was acquired by Une Robe Un Soir in 2019.

“We acquired their website, processes and logistics but not their stock,” explains Naïma Cardi, a former French financier who launched Une Robe Un Soir six years ago. She expects her company to become profitable on a full-year basis next year as demand for rental dresses, particularly for special occasions, continues to grow. While the website also sells some items, renting a dress for four days remains the company’s core business and focus, she says.

Cardi is used to following consumer tastes. She said vintage dresses now were all the rage and the platform would start offering some of them in September. “Vintage dresses have a story behind them and they also represent a certain savoir-faire that is difficult to find today,” Cardi said, noting that at the Met Gala in New York and the Cannes film festival, many celebrities were wearing vintage dresses from brands such as Chanel, Valentino and Saint Laurent.

She said her company was in talks with several brands that were thinking of working with it including France’s Isabel Marant and luxury shoemaker Christian Louboutin. It recently started offering Cosmo Paris stilettos which come with disposable thin inner soles for hygiene purposes. Une Robe Un Soir is partly financed by the family office of former Carrefour CEO and Kingfisher Chairman Daniel Bernard.

Le Closet, which is another rental platform specialized in French fast-fashion brands, says it is not profitable now because it made huge investments in a logistics hub outside Paris two years ago but plans to be back in the black by 2025 on a full-year basis. “Before that investment, we proved that our business model was profitable,” explains the company’s co-founder and CEO Ralph Mansour. More than one quarter of sales come from selling rented second-hand items at prices as much as 70 percent below official retail prices, he said.

Le Closet plans to expand in Germany in September and multiply tenfold its revenue in five years. “We want to be the European reference for fashion rental,” Mansour told Miss Tweed. “We really believe in this new consumption model.” After Germany, the company wants to expand in other countries such as Switzerland, Austria and Nordic countries. However, industry critics say that Le Closet will need to move upmarket if it wants to succeed and offer clothes that have sharper, edgier designs than what it currently offers. Le Closet is backed by French private equity firm Invus which has also invested in the men’s cosmetics brand Horace.

BRANDS RENTING THEMSELVES

A few brands offer rental services internally. In response to people’s desire to consume less, some major fast-fashion brands such as H&M offer rental services just like the possibility of buying second-hand. In France, big labels such as Sandro, Maje, Petit Bateau and Bocage have started doing the same.

In the United States, there is Gwynnie Bee, which has made rental its core business. However, customers have been complaining on feedback websites such as Trustpilot about receiving smelly clothes, not being able to get the sizes they wanted and spending a lot of money on gas going to the post office to receive and ship back clothes.

For now, major luxury groups such as LVMH, Kering, Chanel and Richemont are not particularly keen on rental for the same reasons they are still not so keen on second-hand: they are concerned it will cannibalize revenues from selling new items. Their business model and growth strategy rests on stimulating people’s desire to buy new items. Renting used items, no matter how well it is marketed, is just not that glamorous for many brands and consumers.

Kering has been testing the concept internally and in 2021, it invested in Cocoon, a UK-based subscription platform for luxury handbags. “This minority investment made through Kering Ventures is part of our innovation strategy, to deepen our knowledge on this business model,” Kering told Miss Tweed “This investment has no implication for our brands which have no obligation whatsoever to collaborate with Cocoon.” Cocoon is not yet profitable and like many other fashion rental websites, it does not have a clear timeline in terms of profitability. “We’re not profitable yet; the business is operationally at break-even, and we’ll continue to invest to grow the business,” Cocoon co-founder and CEO Ceanne Fernandes-Wong told Miss Tweed.

Still, Kering’s investment is the latest sign of how rapidly changing consumer tastes are forcing even the biggest luxury groups constantly to confront unconventional business models in their quest to maintain their dominance at a time of unprecedented social and environmental change.