Will a rental subscription program lift Banana Republic’s results?

Discussion
Photos: Banana Republic
Aug 19, 2019
George Anderson

Banana Republic, like sister divisions Gap and Old Navy, had a tough go of it in the first quarter with its same-store sales falling three percent, one year after posting a three percent gain. Now, days ahead of its second-quarter earnings announcement, the chain has gone public with its plans to launch a new clothing subscription rental service that management believes can help Banana Republic open a new revenue stream while generating incremental permanent sales as well. 

Next month, Banana Republic will debut Style Passport, a monthly service the company is counting on to appeal to younger female customers who want to continually switch up their wardrobes and reduce the associated environmental impact at the same time.

“We’re constantly evolving with our customer, meeting her where she is shopping,” said Mark Breitbard, CEO and president of Banana Republic, in a statement.

The new service, he added, will enable the chain to “gather valuable insights from a highly interactive customer base that can be used to design future product and experiences.”

The monthly fee for Style Passport will be $85 to rent up to three pieces at a time. The program comes with free priority shipping, complimentary laundering services, unlimited exchanges and returns. Customers can choose to purchase any of the garments they rent. Banana Republic is planning to roll out a similar program for its male customers in the future.

The chain has partnered with CaaStle, a rental technology platform, to roll out Style Passport. It also plans to begin offering its own buy online, pick up in-store option in the fall.

DISCUSSION QUESTIONS: What do you see as the pros and/or cons of Banana Republic’s launch of Style Passport? Which retailers demonstrate best practices in how to run similar rental subscription programs?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Style Passport could be a great way to add new lift to the Banana Republic brand."
"Too much. A double negative. Weighted down by unlimited exchanges and returns plus complimentary laundering services! A logistical and in-store nightmare."
"My guess is that Gap saw what Ann Taylor is doing and thought they could copy the approach and win over some new customers."

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19 Comments on "Will a rental subscription program lift Banana Republic’s results?"


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Mark Ryski
BrainTrust

While I understand the allure of a rental subscription service to management, I believe there are a number challenges with Banana Republic’s launch of Style Passport. The brand is struggling to get shoppers to want their products, and offering them as a rental subscription isn’t going to make the brand more desirable. Furthermore, the cost to implement a program like this, which includes delivery and laundry will likely prove to be seriously unprofitable. If the goal is to breathe a little new life into a tired brand, I don’t think Style Passport is the ticket.

Neil Saunders
BrainTrust

Bluntly, no I do not see this as a major step forward for Banana Republic. I see it as Banana Republic jumping on a passing bandwagon!

There is no doubt that rental is growing but it is only growing in certain parts of the apparel market. Expensive garments people would not usually buy, occasional wear such as very formal garments that don’t get much use, and premium and niche brands are all growth segments. Basic, everyday clothing is not a significant growth segment. And basic, everyday clothing is what Banana Republic sells.

What’s more, Banana Republic’s problem is that its styles are often mismatched with what consumers want. If people don’t want product then it doesn’t matter how you offer it to them. They won’t rent, buy or otherwise acquire it.

David Naumann
BrainTrust

Subscription models have proven to have strong consumer appeal. There is definitely more upside potential and risks to testing a rental subscription model for Banana Republic. Consumers like variety and options and this is another way to attract new customers or gain a greater share of wallet from existing customers.

Bethany Allee
BrainTrust

Style Passport could be a great way to add new lift to the Banana Republic brand. My concern is that based on research I’ve read and witnessed around the brand, I would have focused on a young male audience.

The idea has a lot of merit and I’m looking forward to seeing how it plays out.

Georganne Bender
BrainTrust

While my company has yet to do an official focus group on rental subscription programs, I can anecdotally say that I haven’t seen this trend embraced by any of my younger friends or family members. Many, however, do use Rent the Runway because, unlike chain store clothing, the designer items offered there are aspirational.

Banana Republic sells traditional, classic apparel, it’s not the place to go to hunt for trends. Visit a store and take a look at the shoppers – they are mostly Gen X and Baby Boomers. You might find younger Millennials who work in companies that require traditional dress, but you are unlikely to find anyone from Gen Z shopping there without a parent.

Almost every chain retailer now offers a rental subscription program, but there doesn’t seem to be a lot of data on how well the programs are working. I’ll be interested to hear if Style Passport attracts younger customers.

Ricardo Belmar
BrainTrust

Georgeanne, I think you’ve nailed a key point about subscription programs – the aspirational element. These programs work when consumers see value in obtaining merchandise they see as too expensive to outright buy but still want to use them. That’s the aspirational component that makes such a program desireable. It’s just not clear Banana Republic has such merchandise.

Georganne Bender
BrainTrust

A few weeks ago I bought a suit at Ann Taylor, where the associate assured me that suiting never goes on sale. Three days later it was half off.

Here’s the thing: so many chains run 40-50% sales every other day. Why would you spend $85 to receive three garments when you could likely buy them at a deep discount? Then, when you tire of them you can do what a lot of people — young and old — do and resell them on Poshmark. At least that way you have something to show for your purchase.

Ricardo Belmar
BrainTrust

I completely agree. Frankly, for Ann Taylor, or Banana Republic, we’re just not talking about high-end, exclusive, designer apparel that commands high prices (that aren’t regularly discounted) where a monthly fee that grants you temporary access to such items would make sense. Consumers are too well trained to shop for discounts in fashion. Where is the convenience factor in this subscription approach given the merchandise it applies to?

Ricardo Belmar
BrainTrust
This looks like Banana Republic is trying to latch onto a growing retail trend – subscription programs, but the problem is creating such programs doesn’t guarantee enough subscribers to make them profitable. The fact is, rental subscription programs work when the product you get is something you aspire to own, but can’t otherwise justify the cost of an outright purchase. You still want to use the product and see value in that, but you need a lower cost of entry to get it. Meal kits started out this way (and they have yet to prove themselves). Rent the Runway works because they have unique designer products that many people otherwise would not be willing to pay for, but can leverage the rental model to use those items for a brief period or special occasion. Banana Republic does not have such products – their fundamental sales issue is getting people to want their products. Consumers aren’t failing to buy them because they have expensive, desirable products. Shoppers just aren’t buying because they don’t want the products!… Read more »
Cynthia Holcomb
BrainTrust

So very sad. BR has not changed with the times. The category of career apparel no longer exists in the traditional sense. While tailored jackets mixed with casual counterparts are a current trend, BR jackets are, as always, strictly tailored in the traditional sense. A huge disconnect! Plus $85 per month! Too much. A double negative. Weighted down by unlimited exchanges and returns plus complimentary laundering services! A logistical and in-store nightmare. Truly misguided.

Brandon Rael
BrainTrust

While it’s commendable that Banana Republic and other retailers have recognized the potential of a subscription rental program as another revenue stream, it’s not clear that this will resonate or attract new Millennial and Gen Z customers to the brand. I just don’t see this as a significant win for the Gap and Banana Republic team. The company has faced challenging times in establishing what the Banana Republic brand is all about. Are they now an aspirational affordable luxury brand, or stuck in the dreaded grey area known as the middle?

The Rent the Runway team has emerged with the value proposition of wearing luxury/aspirational luxury apparel for a subscription fee. Their success has led to new platforms such as Caastle, to establish new revenue streams for retailers. However, while this will create some temporary buzz for Banana Republic, there are more fundamental merchandising, pricing and customer experience issues to address first.

Heidi Sax
BrainTrust

Although more and more retailers are jumping on the rental bandwagon, I’m skeptical that Banana Republic is a good fit. $85/month is pricey. And, as fellow brains have pointed out, BR’s product and prices aren’t aspirational. BR’s customer base also isn’t particularly trend-driven — their aesthetic is classic. RTR works because shoppers can take advantage of fleeting trends and walk away. I’ll be more interested in seeing how Urban Outfitters’ and Bloomingdale’s subscription services perform over time.

Phil Rubin
BrainTrust
1 month 28 days ago

The pros include this being a new thing in retail (lbeit not pioneered by BR) and the flexibility it provides.

The list of cons is more significant, starting with the BR brand and its currently lagging performance. Walking through a mall over the weekend it was hard not to see the markdowns offered at BR as well as other Gap brands. The price point of $85/month is probably too high for many, at least in terms of perception.

If customers don’t want to buy goods from BR, even with deep discounts, why are they going to pay a reasonably high subscription fee to rent them?

This is, sadly, more retailers grasping at straws looking for silver bullets.

Lee Peterson
BrainTrust

I guess you can call me old school, but really? Having said that, I think any test is a good test at this point in the history of modern retail. It’s such a totally different business, I’d hate to be a store associate and be given this task… From collection to damages to restocking, wow, it’s a brand new business model. But again, at least they’ll know — good or bad.

Jasmine Glasheen
BrainTrust

In theory, I’m all in on clothing subscription services. But for $85, customers can BUY three clothing items a month from Banana Republic. Last time I checked, their price-points weren’t high enough to merit this kind of fee.

In addition, customers who use subscription services to experiment with new styles aren’t going to do so at Banana Republic, where lately all of the clothing looks the same. I was at Banana Republic and J.Crew in L.A. over the weekend and I couldn’t believe how boring the clothing was. Both retailers have essentially turned into Ann Taylor … and Ann Taylor customers aren’t using subscription services.

Banana Republic needs new designers and company leaders who can make rational conclusions based on available data – such as, “Nobody in our customer demographic uses subscription services” or “all five mannequins in our display windows are wearing the same sweater” – not updated shipping options.

Georganne Bender
BrainTrust

Excellent points, Jasmine!

Both Ann Taylor and Loft recently announced subscription services. Hey, if all the cool kids are doing it, right? But when your inventory is consistently at 50% off, what’s the point?

Retailers like Ann Taylor, Banana Republic and J.Crew still insist that their customers aren’t Baby Boomers. I suggest their buyers and designers spend some quality time on their sales floors to see who is really shopping there.

Patricia Vekich Waldron
Staff

I don’t think this is a smart niche — all the Millennials I know use Rent the Runway for special occasions and other (cross brand) services like Le Tote for work and casual. Basics — Banana’s core offerings — are the few pieces of apparel they actually buy!

Craig Sundstrom
Guest

When I was growing up long, long ago, the only time one rented clothing was for either your Senior Ball or your wedding (and in both cases it was usually only men who rented). Things have probably changed a bit since then, but I’m still having a hard time picturing clothing from Banana Republic being the kind that would make a rental list. BR was always the “upscale” component of GAP, but it was still inexpensive enough, and (its fashions) timeless enough, that there seemed to be no barrier to just buying something.

But even if not much comes from this, I don’t think they have anything to lose either.

Oliver Guy
BrainTrust

This is great to see. Access models are becoming more and more relevant. Launching themselves differentiates but also offers some protection against a new entrant doing something similar.

The difficulty with subscription models is that the systems and processes don’t exist out of the box to support it. Retailers that I speak to express concern that they want to do innovative things like this but they are restricted because their merchandising system does not support it. Being able to orchestrate logic and data across multiple systems becomes necessary to support such innovations.

wpDiscuz
Braintrust
"Style Passport could be a great way to add new lift to the Banana Republic brand."
"Too much. A double negative. Weighted down by unlimited exchanges and returns plus complimentary laundering services! A logistical and in-store nightmare."
"My guess is that Gap saw what Ann Taylor is doing and thought they could copy the approach and win over some new customers."

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