When you consider their business models, it may seem like Rent The Runway and Neiman Marcus should be bitter competitors. Rent the Runway lets customers borrow designer gowns and cocktail attire — potentially negating the need for anyone to plunk down $800 to purchase such dresses at the luxury department store.
And yet the start-up and the old-school retailer are now joining forces.
The retailers announced Wednesday that they will be adding Rent the Runway store-within-a-store concepts at some Neiman Marcus locations, starting with a San Francisco outpost that opens Friday. More such locations are slated to open in 2017. Customers will be able to rent garments from the likes of Diane von Furstenberg, Jason Wu and Marni from a roughly 3,000-square-foot space that will also feature shoes, handbags, and undergarments that are available for purchase from Neiman Marcus.
The partnership is a gamble by both companies that they can benefit from cross-pollinating their customer bases. And it’s also one big consumer-psychology experiment: If a shopper falls in love with the Derek Lam dress she rents, will it help convince her to buy clothes from that line at Neiman in the future? If an older shopper never rented before because she didn’t like online shopping, will the physical store experience and the Neiman imprimatur make her a convert?
Jennifer Hyman, the co-founder and chief executive of Rent the Runway, said the average age of a Rent the Runway shopper is 29. And that’s where Karen Katz, the chief executive of Neiman Marcus, sees big opportunity.
“They have done a great job with their business model attracting millennial young women who have a real interest in fashion,” Katz said in an interview. “We were very interested in trying to start to get to know that kind of a young woman.”
It’s not hard to see why Neiman Marcus would be thinking that way. Comparable sales — a measure of online sales and sales at stores open more than a year — declined 4.1 percent last year at the Neiman Marcus Group, a company that includes the eponymous department stores as well as Bergdorf Goodman and other brands. Executives have chalked up the disappointing results to a variety of factors, including a social media environment in which customers see runway outfits months before they’re able to buy them, meaning they’re often bored of the pieces by the time they hit shelves. Broadening Neiman’s audience could help offset some challenges.
Meanwhile, Rent the Runway, which started in 2009 as an online-only brand, sees value in beefing up its brick-and-mortar presence. It has already opened seven standalone locations, and it has found it rings up a 20 percent higher average order value in stores than it does on the Web. Shoppers, it seems, spend more when they can try on the garments and have a stylist standing beside them offering advice.
Rent the Runway and Neiman Marcus have some key things in common. For one, Hyman said the Rent the Runway merchandise assortment has more overlap with Neiman Marcus than with any other U.S. retailer. And both pride themselves on being high-touch, service-oriented brands. The new shop-in-shops, for example, will include counters called the “RTR Bar,” which they’re thinking of as a version of the Apple Genius Bar. It will offer styling advice and help with existing orders. There will also be in-app concierge services that allows users to chat with stylists. The idea is that customers can have the stylist stock the dressing room with certain items before they arrive at the store, or have the stylist meet them out on the street to hand off a dress they’ve already committed to renting.
Still, there’s some risk for both companies: They could cannibalize each other’s business. And so this partnership will end up serving as a crucial test of one of Hyman’s philosophical tenets about the apparel rental business.
“What people rent is inherently different from what they buy,” Hyman said in an interview. “They’re buying things that make sense for multiple uses throughout their lifetime.”
In other words, they’re buying classic items such as trench coats and basics like black trousers. Rental, she believes, is for a different use case. Hyman says Rent The Runway categorizes all of its inventory into 10 different styles: Bohemian, preppy, minimalist and so on. The retailer finds that subscribers to its Unlimited service tend to constantly bounce around among those aesthetics, which suggests they are using these pieces to experiment with new styles.
Because of this, Hyman says, “We actually believe that our biggest competitor is not traditional designer fashion, but is actually fast fashion.”
In Rent The Runway’s early days, Hyman said, “I got the door slammed in my face quite a few times” by apparel designers who thought the ability to rent their garments could be a serious drag on sales. As the business now gets embraced by the likes of Neiman Marcus, it perhaps suggests that in some corners of the luxury retail world, executives have come to think of Rent the Runway as part of their ecosystem, not a threat to it.