Photo by Michal Jarmoluk

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Renting clothes could be the future of fashion — or it could just be a fad.

A growing number of traditional retailers are now offering customers the option to rent clothes for a monthly fee instead of buying them.

Bloomingdale’s, Banana Republic and Urban Outfitters are the latest to offer the services. Even footwear chain Designer Brands said it’s considering launching a shoe rental service.

Now a booming $1 billion business, the clothing rental sector is expected to reach $2.5 billion by 2023, according to research firm GlobalData. When combined with resale, it will account for 13% of the total $360 billion U.S. clothing market within the decade, up from 7.3% today.

“You no longer have to buy into the myth of continuous consumption…There’s pride in wearing something as opposed to pride in owning something,” said Jennifer Hyman, CEO and co-founder of Rent the Runway, which in 2009 pioneered the business model that many retailers are now trying to replicate.

For clothing retailers, rentals offer a glimmer of hope at a time when they are dealing with mounds of unsold goods that often need to be deeply discounted. Several have already gotten into the second-hand business, led by companies like the Real Real and ThredUp.

J.C. Penney and Macy’s, for instance, have partnered with ThredUp to sell gently-worn clothes in a couple dozen locations. Nordstrom is testing resale at its women’s flagship store in Manhattan and online.

Better profit margins

Many in the industry consider these necessary steps as clothing retailers watch their fortunes erode. Last year, clothing retailers accounted for an outsized share of retail bankruptcies, according to a recent report by consulting firm AlixPartners.

“Clothing retailers are dealing with pressures on multiple fronts,” said Ken Perkins, president of Retail Metrics. “Heavy promotions, chronic traffic declines, e-commerce investment. And now they’ve got rental and resale services as well. The rental market is small, but it’s going to grow, and they have to invest in it.”

Christine Hunsicker, CEO and founder of CaaStle, a startup that manages inventory and shipping for retailers, said rental services have anywhere from a 20% to 25% operating profit, compared with only 5% for traditional retailers.

But unlike Rent the Runway, a dedicated rental service for high-end designer clothing, the economics for traditional retailers — from added expenses for marketing, dry cleaning and shipping — pose significant challenges.

Some experts wonder whether it even makes sense for lower-priced clothing chains to get into the rental business, since customers could just buy the clothes used or get them at a deep discount. Also, the clothes may not hold up well after multiple wears.

Elizabeth Kashin, 53, of Indianapolis, said she tried Urban Outfitters’ Nuuly rental service last month. She never received her package of six items but was charged anyway. After contacting customer service via social media, she got another package but said the clothes didn’t look clean.

“I can go to a second-hand store to get a better experience,” she said.

Urban Outfitters said that it is listening to feedback so that it can “make the experience even better for Nuuly’s subscribers.” It said it’s on pace to have 50,000 subscribers in the first 12 months of operation.

Returns can be a hassle

Retailers face the same challenges that still dog Rent the Runway. Consumers complain about spotty customer service and a slew of added fees.

For example, Rent the Runway charges $50 for every day that a customer is late returning an item, up to double the retail value of that item.

Although retailers should have return kiosks in their stores in key cities, right now most don’t have any. Shoppers must drop off their garment bags at a UPS or the post office.

Rent the Runway has had to adapt to increasingly demanding customers. It started out with special-occasion dresses but launched children’s wear last year, as well as pillows and home decor items through a partnership with West Elm.

Vara Pikor, a 26-year-old insurance broker from Manhattan who’s been using Rent the Runway for many of her clothing needs, said she is hooked.

“This could be my forever habit,” she said. “I have less stuff in my home.’’

—AP