Banana Republic joins clothing rental craze

Service for women to be launched in September

By Nathaniel Meyersohn, CNN Business
Marcus Ingram/Getty Images for Banana Republic

(CNN) - Rent the Runway upended retail by offering women designer clothes to rent. Now, a wave of leading brands and department stores are following with their own online clothing rental subscriptions to reach younger shoppers who want to borrow their pants, shirts and dresses.

Banana Republic said Friday that it will launch an online rental service for women in September. The monthly subscription, "Style Passport," will cost $85 a month and women can rent three different pieces from the brand at a time. Customers will be able to choose from around 100 different styles a month and can opt to buy any of the items. Banana Republic says it plans to add a rental program for men in the future.

Banana Republic, owned by Gap, is trying to adapt to sweeping changes in retail and grow sales. The brand has closed stores in recent years and revenue has flatlined.

With foot traffic to malls and brick-and-mortar stores slowing, Banana Republic is searching for ways to evolve.

CEO Mark Breitbard believes a rental service will attract new customers, expand existing customers' spending and help Banana Republic remain relevant.

"This is a way to keep up with customers' ever-changing, moving lifestyle," he said. "It will just help us over the long term maintain health for a brand that has been in business for 40 years."

The rise of clothing rental subscriptions

Banana Republic's move into a rental subscription is part of a broader shift among traditional companies trying to capitalize on rapid growth in the niche market. The clothing rental market is estimated at around $1 billion today and will hit $2.5 billion by 2023, according to GlobalData Retail.

Last week, Bloomingdale's said it would debut "My List," its own rental offering. Urban Outfitters, Ann Taylor, American Eagle and Vince have recently launched rental services, while Nordstrom said it would offer returns from Rent the Runway at stores in Los Angeles.

"We needed to play in this game," Macy's CEO Jeff Gennette said on a call with industry analysts Wednesday. Macy's owns Bloomingdale's, and Gennette said the test may lead to Macy's offering a rental subscription.

Big retailers are responding to the popularity of Rent the Runway and Le Tote. Rent the Runway, launched in 2009, was valued at $1 billion earlier this year. Le Tote is reportedly in talks to buy Lord & Taylor, which has closed its New York flagship.

These startups signaled to legacy retailers that many younger shoppers are eager to wear new looks frequently and are not always keen on buying pricey outfits to wear just once or twice, said Alex Fitzgerald, manager in consulting firm A.T. Kearney's consumer and retail practice.

Rent the Runway also gave many women access to luxury dresses they otherwise would not have been able to afford. It then broadened its offering to everyday clothing. Its success with basic looks proved to companies like Banana Republic that consumers are interested in renting apparel beyond wedding gowns.

"Rent the Runway homed in on evolving consumer appetite for renting versus owning," Fitzgerald said. "They really institutionalized this model."

Concerns about environmental sustainability in fashion have also driven socially-conscious shoppers to rent, instead of own, clothes. In the last 15 years, clothing production around the world has doubled, even as the average number of times people wear their outfits has fallen, according to the conservation organization Ellen MacArthur Foundation.

"Fast fashion has a lot of waste," said Banana Republic CEO Breitbard. "This is a way to be able to have more styles without feeling like you need discard them, donate or give away."

And social media is driving the rise of clothing rentals, too. "They want to wear a style once or twice and not take another photo in the same dress," Breitbard said.

Risk of cannibalization

Banana Republic's $85 monthly rental rate is a similar deal to "Infinite Style," Ann Taylor's $95 monthly rate for three pieces. "Nuuly," Urban Outfitters' rental subscription, costs $88 for six items a month. Each of these are below Rent the Runway's core $159 monthly fee.

Operating a rental subscription service is complicated. Retailers need to track clothes, wash and dry clean them, and ship them out to customers.

Since Banana Republic doesn't have experience running this supply chain, it's partnering with CaaStle, a firm that offers technology and logistics to retailers that want to jump into rental, rather than building those capabilities in house. Ann Taylor and Bloomingdale's have also joined with CaaStle.

However, Banana Republic should enter the rental market cautiously, said Fitzgerald from A.T. Kearney. If current Banana Republic shoppers replace buying their clothes with the rental program, it will undercut the brand's goal to add new sales with the subscription.

Breitbard, however, brushed off concerns about the rental program cannibalizing Banana Republic's primary business.

"We feel that the value will be there for the customer," he said. "The financials will be strong for us as well."

--Correction: A previous version of this story misattributed quote on how Banana Republic should enter the market.

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