[Image of: RetailWire Logo and Tagline (for print)]

BUSINESS TIPS

ChannelAdvisor:
Online Selling Strategies
Offerpop:
Social Marketing Campaigns
RR Donnelley:
In-Store Marketing
LoyaltyOne:
Enriching Customer Relationships
 
[14 comments]

Is Renting a Threat to Shopping?

December 16, 2013

According to a new survey, 27 percent of consumers have rented a product instead of purchasing it in the past year and 56 percent would be open to it in 2014.

But those numbers promise to rise in the future with Millennials more open to renting, according to the 2014 Future of Retail Study from Walker Sands, a public relations and digital agency.

Of consumers between the age of 18 and 25, 37 percent have already participated in renting an item this year instead of buying, with 63 percent open to renting instead of buying in the next year. The 18-25 year-olds were 90 percent more likely to have participated in renting instead of buying compared to those over the age of 60.

The study found that renting opportunities are being driven by increased crowdsourcing options and the arrival of rental subscription services across many categories. While most generations have rented in the past year instead of buying because they didn't have a use for the item afterwards, Millennials report renting specifically to save money and because they wanted to try a new service. The study also suggested frustration with the return process may also drive rentals at higher rates in the next few years.

Among categories, Millennials are most likely to have rented books (25 percent have done so) and consumer electronics (12 percent have done so). Comparatively, only 9 percent of those over the age of 60 have rented books and only 6 percent have rented consumer electronics.

The study also found that rental of luxury, sporting goods and tools is likely to grow exponentially in the next year. The luxury opportunity is supported by services such as Rent the Runway, which enables women to rent designer evening gowns, as well as subscription services such as Le Tote for apparel and accessories and Eleven James for watches. Pleygo rents Lego sets for a monthly fee.

"Just as we've seen e-commerce growth vary across industries, we're starting to see the same trend with product rental," said Tory Patrick, account director and lead of the retail technology practice at Walker Sands in a statement.

Discussion Questions:

Do you see renting increasingly replacing purchases at retail in the years ahead? What would support or inhibit the renting trend? Should stores be more open to providing rental options?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What is the likelihood that renting will become more widespread over the next three to five years?

Comments:

I still see these sites as niches. The bloom is off the rose for Groupon and this is another way for consumers - young ones - to feel smart and boast to their friends how much they've saved. I don't see "luxury opportunity" in renting LEGO sets by the month. There have always been cheap consumers...the challenge this time is that retailers are hiring them to sell their first-run, un-sat in goods - that's where the ultimate disconnect will happen in retail - on your sales floor.

[Image of: View Braintrust Panelist button]
Bob Phibbs, President/CEO, The Retail Doctor

Ownership and payment models are continuing to evolve, and technology is enabling new financial models that would not have been practical in the past.

How many of our grandparents would have ever considered leasing a vehicle? Yet leasing is now 27.6% of new vehicle purchases. Essentially consumers are paying for their utilization of a vehicle rather than ownership of the vehicle. And early adopters are even participating in carshares (ZipCar, Cars2Go, etc..) rather than owning a car at all.

Digital distribution has changed how we pay/own/buy software and entertainment. Such as Adobe's shift from selling a perpetual license for it's software to selling subscriptions to its marketing cloud.

Perhaps the most disruptive change to how we own and purchase products, are resale of previously owned products. If a larger percentage of the market is interested in selling their used goods and/or buying previously owned goods, then retailers who are only optimized to sell new goods run the risk losing marketshare.

Think of the early adopter who always wants the newest iPhone for example. She may well be thinking about the true cost of her new iPhone being the the sell price of the new phone minus the resale value of her old phone. She's essentially paying for her utilization of the iPhone rather than as asset that depreciates to zero. If some retailers cater to her ownership model by buying back her previous phone, or even promising to buy back her new phone at a future date, those retailers will be at a significant advantage to retailers who are only willing to sell new goods.

Best Buy, Walmart, Sears, eBay, and Amazon all essentially already embrace this model via their marketplace. Vendors like Gazelle already enable this model in certain product categories.

Retailers have always had to adapt to new purchase models (accepting checks, credit cards, leasing, PayPal, open box stock, etc.), and retailers will need to continue to adapt (probably at a faster pace) as consumers ship to new ownership models.

[Image of: View Braintrust Panelist button]
Jason Goldberg, VP Commerce Strategy, Razorfish

In a society that does not encourage permanence and an economy that makes owning impractical, rentals offer a solution. Why spend a lot when you can spend a little to experience the benefits of a product? The recession has taught us that we don't need so much stuff. Baby boomers are downsizing to get rid of stuff. Millennials love to buy vintage goods or rent new products rather than acquire more stuff.

If retailers can make enough money to justify the real estate, rentals are an attractive option. This will require a different mind-set, along with the infrastructure to handle rentals and refurbishment, and it may hurt some sales, but the concept of renting is not new. I look for it to grow in multiple categories.

[Image of: View Braintrust Panelist button]
Max Goldberg, President, Max Goldberg & Associates

Not surprisingly, Millennials are leading the way in this endeavor. This generation is very sustainable oriented and renting for use and return versus purchase and disposal is increasingly preferred alternative.

Europe is ahead of the States in this regard. The leading organization promoting sustainability is the Ellen MacAthur Foundation, whose mantra is "rethinking the future." The focus of the foundation is the notion of a circular versus a linear economy (buy-use-dispose). It represents a basic shift from sustainability as "doing less harm," and focusing on "me and consumerism" to one of "doing good" and "systems and citizenship."

The circular economy prefers rental to ownership. This assumes retailers can return the rented product to manufacturers who can re-manufacture the product and return to the system versus disposal via a landfill.

[Image of: View Braintrust Panelist button]
Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

I would set aside the sites that are mentioned as examples (luxury dress rentals and the like) and focus more on the concepts that Jason outlines. As people become more sensitive about (or are forced to pay for) the disposal of products that really shouldn't go into landfills because of the harmful chemicals or components in them, I think we'll see a future where companies - whether brands directly or retailers - offer something built around total cost of ownership.

In the end, that's probably leasing - if you buy, say, a refrigerator, but included in that cost is 7 years of product life, maintenance, and returning of the product at the end of 7 years, what difference does it make if you "owned" that refrigerator or just leased it? Semantics, for a consumer.

What I think will really push it over the edge is the whole maintenance side of things. When your refrigerator can request preventive maintenance from you via email, it won't be long before someone will want to provide the service to get that email on your behalf and fix the fridge for you - for a monthly fee, or for a fee rolled into the price of the fridge. Manufacturers - and retailers, for that matter - can't be product companies anymore. They need to be service companies. Done right, this can be a really lucrative service business.

[Image of: View Braintrust Panelist button]
Nikki Baird, Managing Partner, RSR Research

While there is a growing market for rentals, consumers are well served by retailers already in the market, particularly with things like furniture, appliances and large consumer electronics. For these lines, traditional retailers would do well to continue concentrating on selling. For burgeoning rental product lines like fashion, sporting goods and jewelry, there is an opportunity, but care must be taken with entry by traditional retailers as there is a definite risk of alienation and cannibalization.

[Image of: View Braintrust Panelist button]
Ron Margulis, Managing Director, RAM Communications

While blockbuster and others rented movies for a long time, it was Netflix and Redbox that totally changed the movie purchase scenario at retail. Consumers simply found it easier and cheaper to rent.

Netflix has disrupted retail by making movie access easy and inexpensive. Digital streaming rental/subscription eliminated the hassle of requiring a trip to get a physical copy of the movie and return it.

Annual software subscriptions versus selling hard copies with a perpetual license are being highly promoted by companies like Adobe and Microsoft. While there can be great value for the consumer and the software company, retailers have been very slow in figuring out how to retain consumers and monetize the relationship on an ongoing basis.

There are some retail examples with an evolving hybrid model. Home Depot is a great example of a retailer both selling tools and renting specialized equipment to both consumers and contractors.

By and large, today's retailers have been set up to sell products. It's in their DNA. In areas where consumers can see value in renting, with ease of access, retailers will experience declining sales.

The bottom line for retailers is that to be successful in renting, they need CRM systems to manage and optimize the relationship after the "sale."

[Image of: View Braintrust Panelist button]
Chris Petersen, PhD, President, Integrated Marketing Solutions

This is part of the "circular economics" movement among the Millennials and is not going away.

When Redbox kiosks were installed at Walmart, the impact was not only disruptive to Blockbuster but to the new release DVD section inside Walmart! Why buy a new movie at $16 when you can rent for $1/day?

Lowe's and Home Depot now rent trucks to help their customer deliver heavy goods. This is an example of using rental to help customers in their purchase decision and provide supporting services. Zip car and Lyft are also gaining momentum as an alternative to car ownership. What used to be just formal wear rental is now expanding to other apparel and accessories.

The main driver behind circular economics is technology such as mobile and RFID to track assets and cloud-based management software. VCs are excited about this model and will be pushing this trend.

Retailers should look at renting as a way to help gain and serve customers. Renting an apparel item for a day is a win-win try-and-buy concept for both parties. Providing rental as a service such as providing rental trucks or tools is also win-win for customer service and gaining loyalty.

Ed Dunn, Founder, (Stealth Operation)

This type of rental is another way of expanding the menu of choices to shoppers. It will not replace buying in the future, just complement the core activity - however, you will find some product categories more amenable than others to the concept. Additionally, retailers could increase a shopper's appetite to try new products and styles (e.g., Le Tote) in a "drama free closet" through their exchange program. These retailers are creating new and exciting experiences for their customers without long term commitments.

Looked at differently and as others have already mentioned, there is also a sustainability angle to this as well in what Professor George calls "the circular economy" and reinforced by Nikki Baird. It'll be interesting to see how companies will extend the model from products to products and service model.

The key here is that the model suggested in this write-up is a new trend with regards to consumer motivation and is very different from the traditional "rent-to-buy" model that tends to take advantage of an economically vulnerable portion of consumers with low weekly or monthly payments, but an ownership cost that is 2-3 times higher than an outright cash purchase.

[Image of: View Braintrust Panelist button]
Mohamed Amer, Vice President, Global Integrated Retail Unit, SAP

Rental is not a business it is a very large industry that has enjoyed success for decades. The vast majority of this market is business to business. Consumers are slow to learn the benefits this opportunity brings to their short and/or sudden needs. Perhaps this is due to the fact that in our society, owning more than you can use is a sign of wealth and therefor a good thing.

Rental and leasing bring many practicalities and insurances into the equation that make a venture into product and materials very safe and secure. For a good look into what is available and how rental works, look at the America Rental Association and Special Events Magazines. These are good starting places for a very big world that not very many know much about.

'gjarnoldjr'

Not replacing, but possibly becoming more popular. And renting opens up the possibility of potentially generating more revenue (e.g. sell a book 1x for $19.95 vs. renting it 6x at $4.99/rental).

Retail is undergoing a significant transformation as a result of the Internet. Adopting new business models is just one of those.

[Image of: View Braintrust Panelist button]
Bill Davis, Director, MB&G Consulting

Renting replacing purchasing in retail is a phenomena of the growing collaborative economy and the popularity of rent based and subscription based business models, and yes, I believe retailers should be more open to providing rental options.

Two interesting findings in the Walker Sands study are that "Millennials report renting specifically to save money and because they wanted to try a new service."

In my opinion, a collaborative economy is not a trend, but will become a standard way of conducting business, due in part to the influence of Millennials who represent 25% of the U.S. population and also to the migration to cloud based subscription models by more and more businesses.

[Image of: View Braintrust Panelist button]
Karen S. Herman, Founder & Design Director, Gustie Creative LLC

In many ways, U.S. retailers are in the early stages of viewing rental options as an important component of their overall strategy.

Millennials will push for broader adoption of the rental model among virtually every type of retail brand, from wireless to automotive.

In looking at the emerging trends of sharing economy models and those concepts focused on consumers generating income from their idle assets (everything from driveways and parking spots to spare bedrooms), it will likely be a pronounced shift to a sharing economy outlook that forces retailers to more aggressively offer rental options.

[Image of: View Braintrust Panelist button]
Jeff Hall, President, Second To None

Renting will certainly become more commonplace, especially for higher-priced or more infrequently-used items.

But I *don't* think that the expansion of the rental market will be driven by traditional retailers. Rather, the complexities and challenges of running an efficient rental business will be easier to master for new entrants with different cost structures and technology-enabled utilization optimization.

[Image of: View Braintrust Panelist button]
Ben Sprecher, Business Development, Google

Search RetailWire
Follow Us...
[Image of:  Twitter Icon] [Image of:  Facebook Icon] [Image of:  LinkedIn Icon] [Image of:  RSS Icon]

RetailWire's
Getting Started video!

View this quick tutorial and learn all the essentials...

RetailWire Newsletters