How Fashion-as-a-Service (FaaS) is Disrupting the Global Fashion Industry
Fashion-as-a-Service (FaaS) is transforming the global fashion retailing industry. Renting clothes and accessories on a subscription basis is catching on across the globe, primarily driven by the sustainability-conscious Gen Z customers that prefer renting to owning stuff. Technological advances in e-commerce, inventory management, and cloud-based logistics are powering this trend. Also, the emerging CaaS platforms that offer the technology and end-to-end services to large fashion brands are driving the growth of this new, industry-disrupting business model.
What is Fashion-as-a-Service (FaaS)?
Fashion-as-a-Service is the new business model of temporarily renting clothes and accessories on subscription payments.
Customers can subscribe to the service and receive a set of clothes they select online, and once they receive them, they can wear them and return them. If they like a few items and want to buy them, they can do that with a discount.
The driving forces for this new business model are the convenience of e-commerce and cloud-based logistics, the growing trend of subscription-based services, and the perceived sustainability benefits, especially among the younger millennials and Gen Z customers.
The rise of 'fast fashion' points to customers' constantly looking for something 'new' to wear. The business model of renting, in some ways, redefines 'what's new.' Also, buying new clothes and accessories and quickly discarding them proves an expensive proposition for customers. This practice also creates a lot of fashion waste. So, the ownership model doesn't work for a lot of customers. Urban, working women who always need to look trendy, don't have the budget and the time to shop and manage clothes and accessories.
What is the market for CaaS or FaaS?
According to the research firm, Research and Markets, the global online clothing rental market will likely grow at a compounded annual rate of 10.76% during the 2018–2023 period and will reach USD 1.96 Bn by 2023.
Who are the major players in this industry?
Based in the US, Rent the Runway offers formal wear on rent. The other players include Nuuly and Armoire. Switch, and Flont provide fashionable jewelry from well-known brands on rent. And Rainey's Closet offers clothes on rent for children.
Even the major fashion brands such as Bloomingdale's, Ann Taylor, Banana Republic, Levi's, and Express offer these services.
Gwyinnie Bee, a multi-brand rental company, offers the technology platform, CaasTle to other major fashion brands. CaasTle offers technology, logistics, and related managed services to brands.
Major drivers of FaaS
Growing e-commerce and smartphone penetration globally, particularly in developing countries, is a major driving force for the rental market.
Another driver of growth is the preference of the younger customers to rent than to own and the younger generations' environmental consciousness.
Fashion brands are under a lot of pressure to take the circular economy and sustainability seriously.
The spending power in new and emerging markets such as India and China in Asia, several countries in Africa and Brazil, and other countries in Latin America is on the rise, creating tremendous new demand for fashionable clothes and accessories.
How does it work?
The following are the typical stages in the rental business model.
Creating inventory and display
- Most rental companies are multi-brand retailers, and they obtain their supplies from established brands. But, unlike brick-and-mortar retail stores, e-commerce stores have the advantage of a lot of data, such as what items customers view precisely where the customer drops the shopping cart. They also get information on frequently rented items, what clothes customers rent together etc.
- Also, they get information on region, demography, and other variables that determine the choice of items rented and bought and so on. Using data analytics, companies can estimate demand with reasonable accuracy and manage their inventory. And this information, if shared with the brands, can be helpful for offline retail as well.
Order placement and payment
- Customers place orders from their mobile apps, and payment happens upfront. Companies offer a variety of subscription plans. Most companies provide the option of buying items that customers like at a substantial discount.
Delivery logistics
- Delivering clothes and accessories in time is a significant determinant of success in this model. But several logistics companies have sprung up, so the rental companies can easily outsource this process.
Also, the emerging blockchain technology can make a huge difference here. With a blockchain-based supply chain, customers can verify the authenticity of the items. And the companies can prevent pilferages and damage and cut overall logistics costs.
Product usage
- The rental companies offer a wide variety of subscription plans to customers. Some companies allow you to keep a fixed number of items for a given subscription plan. And most companies will enable you to buy the things you like for a substantial discount.
Product return and reverse logistics
- Customers have the option to buy the items that they like. If the customer loses the items, most companies will charge the customers for the items.
Most companies provide recyclable bags for returns. Providing suitable material is an opportunity to showcase the companies' sustainability credentials.
Reverse logistics is a critical part of the business model. Fortunately, specialist supply chain companies can take care of this.
Laundry, repair, and sanitization
- Cleaning clothes and getting them ready for reuse is crucial in the business model because it has sustainability implications. Companies repair the items for reuse. And they discard things that have substantial damage. Also, companies lay down norms for what level of damage is acceptable, and they can charge the customers for an unusual amount of product damage that customers have caused.
- The next step is cleaning and sanitizing the items for reuse. And companies have the opportunity to prove their sustainability credentials in this phase.
What does this mean for global fashion brands?
Brands need to look at the rental model as an additional source of revenue. But to profit from this new business model.
- Brands need to become service providers in addition to being retailers
- Be able to predict what the customers might want to rent
- Create and manage a separate inventory for rentals
- Invest in a facility for cleaning (laundry service) and repairing clothes and accessories
- Obtain reverse logistics capabilities for collecting the clothes after use
What are the benefits of FaaS?
FaaS converts your capital investment in expensive clothes, accessories, and jewelry into affordable, variable expenses. This factor means that you don't have to shell out a large sum upfront for currently in-fashion items. It also means that now you can 'afford' expensive, fashionable clothes and accessories.
And of course, it solves the "oh, I've got nothing to wear" problem. You can wear a different dress every day without having to repeat your outfit ever! It also takes away the pain of washing and repairing your outfit and accessories. Not to mention the storage space that you can save!
Also, you don't have to worry about how to dispose of the clothes you have stopped wearing.
To top it all, by renting, you are automatically participating in the environmentally friendly, circular fashion movement.
And, brands can use this model as a 'try-before-you-buy' kind of offer where customers may end up buying the products if they like them after using them. And a discount will help increase the probability of a purchase.
What are the potential downsides?
If you are the type that wants to own your clothes and cherish old t-shirts and the memories along with that, then renting is not for you! But you can always hold the staples of your wardrobe and still rent the trendy outfits and accessories and expensive jewelry for work and special occasions.
If you are constantly in the public eye, renting may work for you. But for others, renting, in the long run, may turn out to be quite expensive than owning.
Fashion brands will temporarily dip in revenue, but they can profit from this new trend by upgrading their technologies. Brands have already started doing this with help from technology platforms.
Another downside is that the moving back and forth of clothes between customers and the company results in a higher carbon footprint than a one-time purchase. Also, several companies still use harmful chemicals to clean and sanitize the clothes before the subsequent customer rents them.
What is the future of FaaS?
With the growth of the sharing economy that promotes renting rather than owning things, the market for FaaS is likely to skyrocket.
The rise of sustainability-conscious, Gen Z customers, who prefer to rent than own something and tend to buy everything online with their smartphones, is a massive plus for FaaS.
And the rising spending power in several developing countries is a favorable factor.
With the development of blockchain technology, customers will verify the provenance and authenticity of clothes and accessories.
With the emergence of innovative payment technologies such as Buy Now Pay Later, customers will rent and buy the pre-loved items that they like conveniently.
Also, the market seems to focus mainly on women and working women. But the demand for rentals for men and children is likely to grow. Increasingly, parents want to dress up their children for special occasions; renting makes a lot of sense since children grow quickly, and their size requirements are constantly in flux.
In sum, sustainability-conscious, variety-seeking, Gen Z customers, with the help of emerging payment and lending technologies, are likely to help grow the market for rentals exponentially.
