Millennials are ecommerce’s favorite target. Depending on who you ask, they’re responsible for the changes driving the ecommerce landscape, or the downfall of society.
But, you won’t make any sales if you’re too busy judging millennial buying habits. Instead learn from the innovative ways they are consuming—renting and subscribing.
Take lessons from the growing trend of renting products like furniture, clothing and cars to understand why customers are choosing rental over ownership, and start thinking of how industry disruptors can influence your customer experience model.
Rental market heavyweights
“How did we get here?” is a common question when facing a new trend that has grown beyond wildest expectations. Here are a few examples of ecommerce businesses that are defining the new rental retail landscape:
Rent the Runway is all over the ecommerce news wire. They recently announced a $125 million investment co-led by Franklin Templeton Investments and Bain Capital Ventures. Their valuation has skyrocketed due to a slam-dunk business idea: provide access to designer clothes through a subscription rental service with a monthly fee. Shoppers no longer have to invest hundreds or thousands of dollars into a single garment, plus Rent the Runway takes care of dry cleaning. Customers get all the fun of wearing new and exciting looks without the baggage of crowded closets and cleaning bills.
Feather operates the same way, except they offer furniture rentals. A subscription’s monthly cost ensures the customer can hold onto the furniture they choose, with free delivery and assembly. Customers can renew their furniture rental, swap out old pieces for new or return furniture when they no longer want or need it—much like a library book. Feather offers entire room packages starting at under $100 per month to rent, with options to customize furniture choices.
Rent the Runway and Feather owe a lot to Bag Borrow or Steal, a Netflix-for-purses-type rental service that debuted in 2004. Go back even further to Rent-A-Center, which launched in 1973, to see where the appeal of rentals started. The new world order of today’s rental subscription services is an upcycled version of the Rent-a-Center model, with one key difference—deprioritizing ownership.
Millennials want it all—rentals have them covered
Over a decade into this new type of rental model, it’s easy to see why reusable items like clothing, accessories and furniture fit right into this disruption. The easiest way to sell a subscription rental service is a promise of the lifestyle you want, without the upfront costs.
There’s an ugly truth underneath it all—millennials are broke. Diminished purchasing power means less access to everything. Housing is at the top of the list for this demographic. According to an Urban.org report, the homeownership rate of millennials between the ages of 25 and 34 was 37 percent in 2015, approximately 8 percentage points lower than the homeownership rate of Gen Xers and baby boomers at the same age.
Many people in your target demographic live in smaller, less permanent living spaces, like apartments and rented rooms. This means there’s less need for permanent things in their homes, whether it’s an issue of cost, space or portability from needing to move often (or all three). The rental market appeals to millennials who can’t drop $800 on a couch or who need a nice dress for a job interview, but can’t accommodate these items due to the price or their available space. Now, they have another option.
Monthly payments are easier to manage than pulling together a large amount of money for a single purchase—even if the total amount paid over time exceeds the one-time payment amount.
Millennials are also thinking of their impact on the environment. Inc.com reports that 73 percent of millennials are willing to pay more for sustainable goods, outpacing 66 percent of global consumers. Sustainability is a big part of Rent the Runway’s marketing. Less emphasis on ownership also enables the user to shift disposal responsibility to the rental service provider—think fewer broken down couches left out on the curb and less debris from broken bed frames in landfills.
The future of the rental economy
This new sector isn’t slowing down anytime soon. The model can be applied to almost any reusable product. For example, car companies like Turo and Zipcar fill the need for wheels in a society that relies heavily on driving and provides access regardless of ability to pay for the high cost of car ownership: the car itself, auto insurance, maintenance, etc.
The home furnishings rental market is heating up, with Rent the Runway and West Elm’s new partnership to launch a home goods rental service beginning this summer, and IKEA’s plans to roll out a subscription-based furniture rental service coming this year.
Rent the Runway is also leading the omnichannel parade in this industry. They opened five brick-and-mortar stores in New York, Los Angeles, San Francisco, Chicago and Washington, D.C., to capture the essential customer experience of interacting with the product in person before committing to buy or rent.
Learn from the success (and failure) of the juggernauts
We’ve talked up Rent the Runway quite a bit here. It’s true that they’ve earned their spot as the darling of the industry. However, it’s not a perfect company. Mandy Velez, a Rent the Runway end user, penned an article about her experience in The Daily Beast, specifically calling out policies that can result in hundreds or thousands of dollars in charges for unreturned clothing—with few exceptions, even when packages get lost in the mail during returns.
Avoid bad reviews and keep your company name out of scathing exposés by making sure your billing and return policies are crystal clear and in plain sight on your website. Carefully consider the policies that could damage your customer experience—even if they’re designed to cover the cost of doing business. Designer fashion is expensive to acquire and restock, but think of how much you stand to lose when your company prioritizes a lost dress over a lost customer.
Retail is an unpredictable game these days, even for established brands. Keep your growth scalable and remain open to pivots when business gets rocky, to avoid becoming another victim of the leveraged buyout headlines.
Rent-a-Center grew to be the dominant player in the rent-to-own market through the 1980s and beyond, but it’s struggling in today’s omnichannel retail world. In July 2018 Retail Dive reported on the company closing stores and facing a possible buyout.
Store closings are another reminder that retail in general is evolving and Rent-a-Center’s woes demonstrates that verticals within retail are also undergoing change.
Consider a growing subset of the rental retail trend—the subscription model, which is being enthusiastically embraced by consumers. According to Forbes, women account for 60 percent of subscriptions, and men are more likely to have three or more active subscriptions. Fifty-five percent of all subscriptions are curation-based, making this category the most dominant in the subscription economy.
Subscriptions, of course, introduce their own set of considerations for retail success. The convenience of subscription-based retail can put customers in a “set it and forget it” mindset. Even after months or years of reliable deliveries with no issues, your customer may look at the box on their doorstep and ask, “why did I order this?” Or worse—they may look at their credit card bill and see a charge they don’t recognize. It’s a prime chargeback scenario.
Maintain a dialogue with your customers that keeps your name top of mind. That way, you can send friendly reminders of their upcoming subscription package and subsequent charges. This decreases the odds that the customer will see their next payment as coming out of the blue.
Provide an easy-to-use payment adjustment or cancellation center. The rental industry was built to recognize that economic situations change quickly—show your customers that you truly understand with options to pause payment while keeping their account active, adjust payments by moving to a different service tier (if applicable), change payment methods (like from a credit card to a bank account), or cancel payments if none of the other options work for them.
As the retail business shifts to incorporate the rental market, service will gain importance over product. You can prepare your business for the upcoming changes with a solid customer experience strategy rooted in service. The same customer experience principles that apply across retail are every bit as important in the retail rental business.
photo by Unsplash