E-Commerce Startups Open Door to Endless Virtual Closet

Xconomy National — 

The sharing economy is moving into our bedroom closets.

We already apply this idea to transportation (Uber vs. taxi) and vacation accommodations (Airbnb vs. hotel). Now, thanks to a growing number of e-commerce companies, the ability to share goods and services is being applied to our wardrobes through programs that offer clothing rentals for a monthly fee.

It’s the kind of clothes swapping that women have been doing offline since, likely, as long as there have been garments, says Emily Fox, director of marketing communications at LeTote, a San Francisco e-commerce startup. “Women are tired of what’s in their closets; they want some variety,” she says. “So, we created access to this unlimited closet at their fingertips.”

LeTote, which was founded in 2012 and was part of Y Combinator’s accelerator program, offers shoppers a selection of clothing and accessories from $59 to $79 a month. LeTote also has a program for maternity wear and it recently expanded into China. So far, the startup has raised $62 million from such investors as Andreessen Horowitz, Google Ventures, Azure Capital Partners, and others.

Rental clothing has customarily been associated with tuxedos for proms or other one-off events where a person doesn’t want to own the garment. But that began to change in 2009 when New York-based Rent the Runway debuted its service to rent special-occasion wear and accessories for women. Two years ago, the company decided to expand its business to include all clothing, through three services costing $30 per item or $89 and $159 a month, depending on frequency of new shipments. Shoppers can choose from more than 500 brands, including upscale labels like Proenza Schouler, Red Valentino, Cushnie et Ochs and Peter Pilotto.

In an interview with Fortune in 2016, Jennifer Hyman, Rent the Runway’s co-founder, likened the service to Netflix’s DVD rentals: get a number of movies and use as long as you like (depending on your subscription plan); send them back to get more. “Given that Netflix is a $60 billion company—and we don’t have to watch TV or movies every day, but we do all have to get dressed—the potential for Rent the Runway was 10 times bigger than I ever thought,” she said.

(Of course, at between $8 and $14 a month, a Netflix subscription runs far below that of Rent the Runway.)

In February, Rent the Runway received $21 million from Blue Pool Capital, which is run by Alibaba founders Jack Ma and Joe Tsai, bringing the company’s total venture funding to just under $200 million, according to Crunchbase.

Despite having full closets, Americans experience “wardrobe panic” 36 times a year, according to a March study by personal styling service Trunk Club. Nearly 30 percent of the items in the average person’s closet have never been worn or have gone untouched in more than a year, the study said. That could be the pair of skinny jeans that still don’t look right or the cutout shoulder top that you think might look dated now.

So, the thinking goes, why actually buy everything you want to wear when you can rent it? “We can provide that variety for you,” says LeTote’s Fox.

LeTote comped a month’s subscription fee so I could try out the service. I created an account and completed a style profile, an online quiz that asked my preferences on types of outfits or garments you would like to wear. I clicked on some outfits that resembled something I’d wear—a dress and heels that could go from work to a dinner out, for one, and indicated that I didn’t want to be offered any shorts. I chose my body type (they offer hourglass, pear, straight, and others from which to choose). Then, I added in my waist, inseam, and hip measurements, as well as bra size.

The algorithm got to work with recommendations and LeTote texted me that my first tote—four garments and three jewelry items—was ready for review. The first batch was a bit wonky. First of all, one of the skirts was an XL; I wear XS. LeTote allows you to swap items, and I did, asking for an XS in that skirt and choosing other items. I was still underwhelmed by my package but was hopeful about a printed cardigan and that skirt, sized properly.

The end result is I did wear the cardigan once, and I considered buying it. (I live in Houston and we’re already hitting 80-degree highs so I’m not currently in a sweater-buying mood.) The skirt, unfortunately, was sent to me in a size XXL, and the fabric of a drape-front cardigan looked pilled. I mailed my tote back in a prepaid shipping bag.

Shoppers can get multiple totes a month. So, once the U.S. Post Office scanned the return the next day, I received a text from Le Tote that my second tote was ready for me to review. I liked this one much better but still swapped a few of the garments. I’m considering buying a few items from this package. LeTote says its prices are less than retail but I had difficulty confirming that through online searches. (Fox says that LeTote offers some brands that are exclusive to them.)

The verdict? I’m getting too many athletic wear options and I’m not sure why LeTote says sweaters are “trending in Houston now”—remember, we’re well into warm weather here. I think I would reduce the number of accessories I’m offered. At my current subscription price of $79 a month, the service isn’t cheap, but I’m intrigued to see if the algorithm gets more precise in its suggestions. There’s something fun about having an online stylist send you new clothes to check out, so I will likely give it another month.

That sort of personal service is also attractive for groups that might not have as much choice available in traditional stores. Gwynnie Bee, which was founded in 2011, offers a subscription service for women’s clothing in plus sizes (10-32), a growing but generally underserved market. (In January, the company began providing some clothing in sizes 0 to 8.) Gwynnie Bee has raised about $100 million, according to TechCrunch.

What’s also interesting about Gwynnie Bee is that it has packaged its e-commerce software and began licensing a white-label version to traditional retailers. Publicly unveiled last month as CaaStle (Clothing-as-a-Service), the software has been used over the last year by Ann Taylor for its Infinite Style program and New York & Co’s NY&C Closet—which are both rental clothing subscription programs.

“They use our logistics infrastructure; we’re the fulfillment end,” says Christine Hunsicker, Gwynnie Bee’s founder and CEO. She adds that standardizing such processes can help traditional retailers connect with more potential customers.

In addition to providing technical expertise, Hunsicker says she also ends up serving as a bit of a coach for traditional retailers taking the plunge in this niche of e-commerce. “The biggest issue for retailers is: will this cannibalize existing business” and take money out of in-store shopping? “We have data now that that is not the case, that we are increasing the share of wallet that goes to retail,” she adds.

The other benefit for retailers, whether in store or online, is that renting clothing could cut back on returns, which decrease revenues and are expensive to process.

More than 40 percent of retailers reported an increase in “intentional returns”—buying the same item in different sizes or styles to see what fits best and then sending back the rest, according to a study by Brightpearl, which surveyed 200 retailers and 4,000 shoppers in the U.S. and the United Kingdom. Brightpearl, which has offices in Austin and London and makes back-office software for retailers and wholesalers, says since customers expect free returns when shopping online, they tend to order on average five extra items each month.

But that cost U.S. retailers $351 million in lost sales in 2017, about 10 percent of total retail sales, according to consultancy Appriss Retail.

“You can test out trends and wear it, without having to buy,” says Fox at LeTote.