Analyst Insight: In the 2019 Gartner CEO Survey, 89% of retail CEOs said they expect to have a “somewhat” or “very” different business model by 2021. Recommerce and rental subscriptions are two popular examples that are emerging to challenge incumbent retailers’ and branded goods manufacturers’ traditional ways of selling in areas such as apparel, electronics, homewares and luxury goods.
Retail has traditionally been structured around a linear approach to ownership, which transfers a new product from a business to an individual consumer, who then uses the product and disposes of it once it’s no longer useful to them. Exceptions to this approach do exist, largely operating in relatively narrow areas such as:
Recommerce,the buying and selling of previously owned new or used goods. Many associate this category with consumer-to-consumer sales via the likes of eBay, Taobao or even a yard sale. Retail businesses also have a history in this space, albeit a limited one, in formats that have ranged from used car dealerships to used book or charity-owned thrift stores where products have been donated by consumers.
Short-term rental or leasing of individual items. Historically, these have been products with a high upfront cost, coupled with relatively infrequent use by consumers. For example, The Home Depot, Lowe’s and other home-improvement retailers have well-established rental offerings for trucks, vans and equipment. Similarly, recreational outdoor retailer REI offers a range of rental products, from camping and hiking equipment to ski gear.
Retailers are increasingly exploring new ways of selling, led by companies such as Spotify, which has shifted the music industry from consumer ownership to a subscription-based rental model over the last decade. Retail “unicorns” (startup businesses with a market valuation of more than $1 billion) such as The RealReal and Rent the Runway are additional early leaders in their respective recommerce and rental subscription approaches.
There’s growing consumer demand for these alternative ways of selling, with 89% of surveyed retail CEOs expecting to have a different business model by 2021. So it should come as little surprise that many organizations are investigating or developing their own recommerce and rental offerings. Supply chains must therefore prepare for change by examining how to support these and other new forms of selling.
Global recommerce sales are estimated to have reached $5 billion in 2018, while rental subscription sales surpassed $1.1 billion. An analysis of retailers investing in these offerings finds the majority focused on the apparel, electronics and luxury segments. Many traditional retailers are investing in alternative ways of selling, such as Amazon’s and Best Buy’s electronics-focused recommerce offerings, and Urban Outfitters’ and Bloomingdale’s fashion-focused rental subscriptions. Homewares is another emerging area of emphasis for subscription-based rental offerings. IKEA, for example, has announced plans to test furniture leasing in 30 markets during 2020. Tests are already underway in countries such as the Netherlands, Sweden, Switzerland and Poland, and include an initiative to offer furniture rental packages for students. The company is also testing recommerce offerings in markets such as Australia and Japan.
Outlook:
Retailers should complete a risk and opportunity analysis, assessing where consumers are embracing recommerce, rental or similar business models. In addition, they should identify direct or adjacent categories where demand for existing products might be impacted, and incorporate this into relevant demand forecasts and future network requirements. It’s crucial to collaborate with internal stakeholders to identify the organization’s desire for developing a recommerce or rental subscription offering, including the targeting of high-potential markets to test these new ways of selling.
