How Urban Outfitters' Nuuly Makes Money Renting Clothes
The resale brand is on track to hit half a billion dollars in revenue this year.
Rent the Runway pioneered online clothing rental in 2009, promising to revolutionize how young consumers think about fashion. But today, it's Urban Outfitters' newer rental service, Nuuly, that's actually making the business model work. While Rent the Runway struggles with falling revenue and mounting losses, Nuuly is on track to hit half a billion dollars in revenue this year and has already turned an operating profit. The contrast is stark: Rent the Runway's stock plummeted by nearly 50 percent this year, while Urban Outfitters shares surged 40 percent. What was supposed to be Rent the Runway's market to dominate has become a cautionary tale about the challenges of building a standalone rental business.
The clothing rental industry is brutally difficult to execute profitably. Companies must master trend forecasting and industrial-scale dry cleaning while moving inventory multiple times per item, a much harder task than traditional e-commerce. Nuuly succeeded where Rent the Runway struggled by leveraging its parent company's existing advantages. Urban Outfitters provided the upfront investment, supply chain expertise, and purchasing power that Nuuly needed to scale quickly. Nearly half of Nuuly's inventory comes from sister brands like Anthropologie and Free People, purchased at cost. This built-in advantage allowed Nuuly to offer six items monthly for $98, undercutting Rent the Runway's $129 price for five items.
The numbers tell a clear story about which approach works. Nuuly now generates almost 10% of Urban Outfitters' total sales and boasts over 380,000 active subscribers, up 53% year-over-year. Meanwhile, Rent the Runway's revenue fell 7% to just $70 million last quarter, and the company carries $341 million in debt due in 2026. Wall Street has essentially abandoned Rent the Runway. No analysts cover the stock anymore, compared to 10 just two years ago. The lesson is clear: while Rent the Runway proved demand exists for clothing rental, successfully executing the model requires the scale and resources of an established fashion retailer.
Questions:
What are some reasons why Nuuly is experiencing such success while Rent the Runway struggles?
Do you think startups like Rent the Runway can compete with established companies like Urban Outfitters in the long run? Why or why not?
