The internet, smartphones and always-on connectivity are changing how Brits shop for fashion. And this goes far beyond the much-documented growth in e-commerce and m-commerce, and the ease with which consumers can now compare prices online. Total shopper connectivity is spurring the creation of new business models, such as apparel rental services, and new practices, such as buying new-season styles straight from the catwalk. While a number of these trends are currently niche, in aggregate they threaten to chip away at spending directed to conventional retailers. As a result, they are compounding the already-substantial pressures that mass-market forces, including the growth of Internet pure plays such as ASOS and fast-fashion retailers such as Zara, are exerting on legacy retailers.
At Fung Global Retail & Technology, we cover apparel retailing in-depth and frequently. Here, we distill some of our recent research on three emerging segments in fashion retailing: online rental services, online resale marketplaces and the purchase of designer fashions direct from the catwalk.
Online choice fuels demand for newness
Consumers now enjoy a profusion of choice and information, and so are more demanding than ever before. In particular, we perceive younger consumers, who have grown up alongside this boom in choice, as wanting more newness—but not wanting to compromise on genuine value for money. Online apparel rental and resale services cater to these demands. These segments are effectively subsets of e-commerce: connectivity facilitates these businesses and models, which could not easily be replicated in brick-and-mortar formats.
Fashion rental and resale services provide newness and affordability
More and more consumers are turning to online sites that allow them to rent fashions—often from high-end labels—for just a few days. The flag-bearer for the apparel rental market, Rent the Runway, has attracted six million customers in the US. In the UK, Chic by Choice ships fashions from 40 designer names to 15 countries, while Girl Meets Dress offers customers styles from more than 150 designers.
Apparel rental appears to be resonating with younger consumers in particular, and we see two key reasons behind this. First, social media is exerting an “Instagram effect,” a desire for an ever-changing, on-trend wardrobe that is showcased in photos on social media platforms. Bearing out this demand for newness, Rent the Runway says fully 95% of those who rent apparel are trying a new brand for the first time. Second, young consumers tend to have more limited budgets and, according to Chic by Choice, only one-third of millennials are willing to purchase apparel at full price.
The rental model is a near-perfect answer to consumer demand for premium fashions at affordable prices. Rental services are not the only option for frugal shoppers looking for premium labels. Fashion resale marketplaces have similarly attracted millions of members looking for wardrobe options that combine desirable or high-end brands with affordability. Peer-to-peer marketplaces such as eBay have long been a part of the e-commerce ecosystem, but more specialized sites that allow users to buy and sell clothing, footwear and accessories have flourished recently.
Major US apparel resale firms include The RealReal and Tradesy, which each say they have five million members. The two companies have raised almost $200 million in combined funding to date. Major European firms include Vestiaire Collective, which claims 6 million customers and has raised $130 million in funding. Another major resale player, ThredUP, has estimated that the US apparel resale market was worth $14 billion in 2015 and that it will grow by 79%, to $25 billion, in 2025.
With premium and luxury goods covered by the major resale names mentioned above, we are now seeing the emergence of resale players targeting new segments, including younger consumers and niche styles. These include the UK’s Depop, which combines resale with a social media–type interface to cater to teens and young adults, and New York’s Stadium Goods, which focuses on streetwear, including sneakers. Given that younger consumers are likely to be looking for on-trend fashions and desirable brands at affordable prices, we see big opportunities for resale firms that resonate with consumers in their teens and twenties.
See now, buy now
A third notable trend is the option to buy fashions straight from the runway, also known as “see now, buy now.” Growth in e-commerce and social-media shopping is forcing high-end fashion brands to offer runway styles for purchase immediately after fashion shows instead of six months later. This is a major break from the traditional industry model in which designer brands and luxury houses present two seasonal collections per year and the showcased items appear in stores a half-year later. The see-now, buy-now trend is being adopted by more and more premium and designer names, from Alexander Wang to Burberry to Tom Ford, Ralph Lauren and Tommy Hilfiger.
Ecommerce is not a prerequisite for this trend, because collections can be sold through brick-and-mortar boutiques. However, in practice, a number of designers are focused on selling their ranges online immediately after their shows. For instance, UK menswear designer Oliver Spencer allowed customers to order items via an app following his London Fashion Week Autumn/Winter 2016 show. We see the demand for choice and immediacy that always-on connectivity engenders as a principal driver of this trend.
Demand for in-season, on-trend product is a trend that is here to stay. Many fashion names, whether positioned in the mass market or at the high end, will need to reshape their supply chains to cater to shoppers’ desire for immediacy.
Do not overlook niche trends
To mass-market retailers whose revenues are measured in the billions of pounds, each of the shifts noted above may look like a drop in the ocean. And it is entirely possible that segments such as fashion resale will remain minor even over the long term. However, we caution retailers to take them seriously, for two reasons. First, trends such as these often have a trickle-down effect, whereby niche preferences and behaviors are gradually adopted more widely by consumers. So, fashion rental, for instance, may become more common among mass-market shoppers. Second, the significance of these trends is amplified when we consider them in total and alongside other shifts in the apparel market, such as the growth of online-only retailers.
We think mass-market retailers should therefore seek to leverage such trends wherever possible—for instance, by offering rentals and then encouraging shoppers to trade up to purchasing the same item or a complementary product. Major high-street names should recognise that leading-edge trends can move swiftly from being just peripheral changes to outright disruptive forces.
John Mercer is lead UK analyst at Fung Global Retail & Technology