A look at how recommerce and rental models are growing in popularity in the fashion industry, what it means for the environment, the industry and what the key challenges and considerations are for retailers looking to offer these services in the future.

A circular fashion economy? How brands are closing the loop with recommerce and rental models

In the second instalment of our series exploring retail trends for next year, we’re exploring the latest development in fashion retail sustainability. The industry has been aiming to reduce its environmental impact in recent years – read our article on a general overview of sustainability in fashion retail. A growing trend is the concept of a circular economy, particularly recommerce and rental. By 2023 it is estimated the resale market will be worth 51 billion dollars and the newer rental market close to 2 billion. Read on to find out how and why these new services are here to stay.

What is the circular economy?

A circular economy is one that reduces waste and pollution, keeps products and materials in use, and benefits the environment. In other words, a circular economy is a model that is sustainable to the core. For fashion retail, this means sustainable materials and re-using and recycling products and materials. This is a stark contrast to the fast fashion model that is pervasive in the industry, but consumer preferences are changing, and retailers are changing as a result. According to the McKinsey apparel CPO survey, there has been a 500% increase in the number of sustainable fashion products launched over the past two years.

But more sustainable products are just one part of the puzzle, achieving a circular fashion economy requires new models altogether. Since retailers still need to see a profit these initiatives need to be sustainable on three levels, they need to work for the customer, the environment, and the retailer’s bottom line.

So what initiatives are retailers exploring to build towards a more circular fashion economy?

Is recommerce set to take over fast fashion in the future?

Recommerce as a concept is nothing new, also known as resale commerce, it covers reselling pre-owned or second-hand items. Famous examples of this include eBay, and more recently in the fashion space the quickly-growing Depop, where consumers sell to one another directly. A different example of resale in fashion is vintage or thrift stores and e-tailers like ThredUP, which rather than being a platform for resales are an actual retailer dealing exclusively in recommence.

The newest trend in this space is particularly interesting, as traditional retailers are getting involved in reselling their second-hand products directly. These brands incentivise customers to return their pre-loved clothes through store credit, and either sell them again or recycle the material. We have seen several examples of retailers exploring recommerce models in recent months, and this will no doubt continue in 2021.

Detego customer, Levi’s, announced in October the launch of ‘Levi’s SecondHand’. The resale program allows shoppers to buy second-hand Levi’s products for a lower price as well as earn gift cards towards future purchases by selling their pre-loved pieces back to the retailer.

“Repurposing and repairing clothes require minimal additional energy input, no water and no dyes to make more jeans,” Levi’s CMO Jennifer Sey said, in a statement. “Buying a used pair of Levi’s through SecondHand saves approximately 80% of the CO2 emissions and 700 grams of waste compared to buying a new pair of Levi’s.”

This trend is set to continue to grow in the next few years. According to an annual resale report from ThredUp, recomerce is projected to grow 24 billion dollars to 51 billion dollars in the next five years. Additionally, by 2028 resale will be 1.5 times bigger than fast fashion with second-hand items accounting for an average of 13% of people’s wardrobes.

Will fashion rental services become the new normal?

Another approach to a more circular fashion economy includes clothing rental services. These have grown in popularity over recent years, as consumers can enjoy changing their wardrobe without the environmental harm of typical fast fashion. One of the most famous rental companies is Rent the Runway, who recently took an extra step in closing the loop by teaming up with reseller ThredUp to sell pre-rented clothing.

Much like recommerce, the rental model was first popularised by independent innovators and is now being explored by larger retail brands. In the US, Urban outfitters have built their own rental service, Nuuly, from scratch. To use another example of suitability leaders Levi’s, the brand has collaborated with popular Danish brand Ganni by creating an exclusive product range for their incoming rental service Ganni Repeat. Through the service, users can rent pieces for up to three weeks. Each piece is professionally cleaned between rentals and stored for 72 hours before being shipped to the next customer.

What are the challenges for rental and recommerce services?

Preventing return fraud 

For rental services, and retailers ‘buying’ back pre-owned items, fraud is a big concern. Much like with regular retail returns, scammers can abuse the system by returning the wrong item (a similar or counterfeit item of clothing for example) and keeping the more expensive original. So how can you prevent this type of fraud-theft? When dealing with unique, high-cost products the best option is digitally labelling items with individual non-forgeable ID’s. These allow you to scan the code, like an RFID tag, and the identity of the product. So, through supporting software like the Detego platform, you can confirm each item received is original and ship with confidence to your customers.

 

Item-level inventories

Retailers offering pre-owned products or rentals will need to re-think the way they look at their inventory. Since second-hand and rental collections consist largely of unique individual products rather than large quantities of the same stock, working with stock-keeping units (SKUs) will not be sufficient in managing inventories and keeping track of stock online and in-store.

Managing these types of inventories will require a different level of accuracy. We regularly advocate the benefits of raising item-level stock accuracy from 70-80% to 99% but for these operations, missing 20% will be crucial. This is because unlike fast fashion, this would mean a fifth of all items are under or overstocked, as you are not carrying multiples of the same SKU so the potential for missed sales or opportunities is massive. Only with complete accuracy can you eliminate disappointing customers and offer them stock information on rentals or second-hand products online, so they can find the perfect product.

 

Reverse logistics

The final big challenge for both recommerce and rental services is handling the two-way flow of merchandise between the retailer and end-customer. An end customer may order a rental online, have it shipped from store, and then return It at a different location, where it will then need to be sent back to the DC for the next customer. Without even mentioning cleaning or repairs, this is a big logistical challenge. With the unique nature of rentals, in particular, retailers will need to ensure returning items are processed and ready-to-rent again as fast as possible. Achieving this requires a single real-time view of stock across all channels. This means that every item coming in, out or moving between channels need to be tracked, with the real-time view of items shared between all channels and customers.

Why RFID is invaluable for recommerce and rental models

As fashion retailers build towards a more circular economy by exploring and expanding their use of new sustainable business models like recommerce and rentals, they will need to invest in the right technologies to offer these services at scale. Radiofrequency identification is already well-positioned in the apparel industry, with more and more retailers utilising the technology to gain accurate stock visibility and offer omnichannel services. For rental and recommerce models, particularly on a large scale, RFID may prove to be non-negotiable. The unique item-level ID’s will be invaluable for both rental returns and recommerce goods and will allow customers and retailer to ensure the legitimacy of all items. On an operational level, RFID delivers 99% accuracy across channels and is an ideal tool for reverse logistics as it delivers a real-time view of stock movement.

Want to see how RFID can transform your business? Book a demo today

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