By all accounts, the rental economy is on a tear. And it’s not only millennials who are eating it up.
By all accounts, the rental economy is on a tear. Companies like Uber and Airbnb popularized the idea of sharing expensive assets like homes and cars, while Rent the Runway entered the market with an inventory-based model for renting merchandise with lower price points. Now, everyone from Ikea to Vince—not to mention a host of startups—is getting into the act. And it’s not only millennials who are eating it up.
What makes rental work?
In our materialistic culture, a wide range of assets sit idle. Think of all the second homes and spare bedrooms sitting empty. Then think about ballgowns, chain saws, and camping gear. Wow. You can see how people come up with rental ideas.
But, when it comes to the potential of those idle assets for rental, not all categories are equal. Peer-to-peer rental works for high-value items, but low-value goods often struggle to attract enough demand to make renting worthwhile for the asset owner. As Techcrunch presciently pointed out in 2015, frequency of rental for, say, a chain saw is low; combine that with a low rental price point and delivery logistics and the model simply isn’t interesting for the chain saw owner.
How are companies solving this problem? By not doing peer-to-peer, for one thing. Instead, we are seeing the rise of inventory-based rental models that address the core issues by stocking goods and leveraging a shipping infrastructure honed by the rise of Amazon. What started with Rent the Runway has led to a host of rental apparel entrants, both legacy and new. Furniture is big, too, with companies like Mobley, Feather, and The Everset offering furnishings-as-a-service.
Rent the Runway did not invent the inventory-based rental model—after all, people have been renting party tents and tables for years—but RTR has arguably paved the way for scalable inventory-based rental models. Thanks to a massive dry-cleaning operation, it works on a national basis.
There is still a lot of business model fine-tuning going on, however. Rent the Runway shifted from individual dress rentals to a subscription model. Joymode started with item rentals, shifted to “experiences” of bundled goods, and is now ditching its warehouse to partner with brick-and-mortar stores as depots. Most new entrants in apparel, like Bloomingdale’s and Nuuly, are sticking to subscription.
Which rental models will make it? Subscription rental like Rent the Runway and Stitch Fix are off to a stable start; subscriptions allow them to amortize customer acquisition cost over multiple months or years. Companies like Black Tux, with less ability to lock in demand, are also thriving, but looking for ways to raise average sales tickets through bundling.
We think there is something to learn from subscription boxes: subscription box companies that survived the “box wars” were those that managed to monetize beyond the box. Birchbox, with its box-centric model, has been surpassed by competitor Ipsy, which generates revenue not just from product but from advertising and brands as well. Multiple forms of monetization increase complexity but can also support the core value proposition.
We are focused on optimizing rental business models because we’re working on one. Casey, our side hustle, is a luggage rental business we started as a way to explain the type of work we do at Spark. It has made a dandy case study about how we test new product concepts and brand positions with different audiences to find product-market fit—before we start building a thing.
We tested different Casey value proposition—no storage space, try-before-you-buy, and so on—with a range of discrete audiences. Interest level, measured through clicks and email signups, was high enough for us to move to the prototyping stage.
And so here we are, with an office full of luggage. If you have a trip coming up and want to rent the perfect bag, check out our selection here. And stay tuned: we will share more about our MVP journey in future Spark newsletters.