Jennifer Hyman, Rent the Runway

Scott Mlyn | CNBC

Rent the Runway announced on Wednesday that it is expanding into resale, a major development for the fashion rental platform.

In addition to renting, customers will soon be able to buy used designer clothes in the store. No membership is required as Rent the Runway aims to expand its reach and provide buyers with more viable entry points. Previously, only paying members could buy used Rebecca Minkoff dresses, Tory Burch tops, and even Lululemon leggings at a discount at Rent the Runway.

The launch comes as Rent the Runway retreats from the effects of the Covid pandemic. When Americans were forced to stay home for months, they quickly cut back on spending on outfits for the office, vacation, wedding, and other special occasion. Rent the Runway was forced to cut costs, close all retail stores, and lay off employees. Last September, the company revised its subscription plans in another shift, discontinuing its unlimited option and switching to simplified plans with four, eight and 16 elements.

The company said entering the resale market “provides another engine for growth and a broader delivery of our value proposition.” It added that, compared to 15 months ago, it has found twice as many customers who report themselves come to Rent the Runway for sustainable fashion solutions.

With the introduction, Rent the Runway positions itself as a closer competitor to already established resale marketplaces such as Poshmark, ThredUp, The RealReal and StockX. The latter, known for landing coveted sneakers, is expected to go public this year. The e-commerce marketplace Etsy announced on Wednesday that it would buy the second-hand fashion app Depop for $ 1.62 billion.

The total U.S. resale market will be worth more than $ 33 billion by the end of this year and is well on its way to surpass $ 64 billion by 2024, according to GlobalData.

Analysts say frugality on clothing, accessories, and housewares could be an even more compelling value proposition out of the health crisis, especially as Americans try to clean up their closets to make room for new styles, possibly in new sizes.

“We believe we can get more people to do thrift shopping,” said Chief Executive Officer Jenn Hyman in an interview. “And from there, once they have the experience of buying something from us and seeing the quality, a lot of those people end up being converted into rent.”

While Rent The Runway has closed its retail stores due to the pandemic, it still has a network of drop-off points in major cities, including New York.

Shannon Stapleton | Reuters

After a rocky year, Rent the Runway said customers are returning to their app, showing signs that they want to dress up again for brunches, birthday dinners, baby showers and hen weekends.

In particular, people want to show a little skin when they leave the house. Rent the Runway said the demand for crop tops this year was four times as high as it was all of 2019. And not just from younger customers. The demand for tight tops by women over 35 years of age is three times as high as in 2019.

In the US, searches for items with clippings increased 44%. And deliveries of short mini dresses have doubled over two years, the company said.

Rent the Runway is also seeing what is known as unprecedented membership growth in second and third tier markets – including Nashville, Tennessee; Charleston, South Carolina and Charlotte, North Carolina. Even smaller cities – including Chapel Hill, North Carolina – membership growth is 50% faster than large subways.

In the New York metropolitan area, Rent the Runway said the average number of new subscribers each day in May was four and a half times higher than it was in February. And traditional pillars for the company in the south – including Texas, Florida and Georgia – have almost returned to pre-pandemic membership, it said.

“People wear their optimism on their bodies,” said Hyman. “They are showing the world that they are happy … and they are ready to celebrate. Everyone expresses their joy through their clothes. And that’s really exciting for our business, but it’s also very exciting for the fashion industry. “

Nuuly, a fashion subscription platform that launched Urban Outfitters in 2019, sees similar promising trends across its business.

Website traffic and rentals were up 25% in April versus March, Nuuly said, with dresses accounting for 32% of items rented, up from 18% in April last year.

“The vaccine is coming, spring has started and I think consumers are generally very optimistic right now,” said Dave Hayne, President of Nuuly. “It shows in our business.”

Now more and more retail brands are experimenting in this area. Ralph Lauren started his own rental service called The Lauren Look in March. Lululemon has also started piloting a resale program with the help of technology start-up Trove.

“Online reselling is a small but rapidly growing market,” Jefferies analyst Janine Stichter said in a customer note.

Retailers should find a way to get into reselling if they haven’t already, either through partnerships or by launching their own platforms. The top three reasons for this are: Growing consumer awareness of sustainability and garment waste, their growing importance to investors, and the opportunity for profitability, according to Stichter.

“Both consumers and investors are increasingly focusing on the enormous environmental impact of clothing waste, and resale is a solution for companies and consumers who want to reduce the environmental impact of clothing,” said Stichter.

Last fall, Rent the Runway raised another round of funding valued at $ 750 million, losing the multi-billion dollar unicorn status it cemented in 2019. The company has raised approximately $ 400 million to date. Last week she appointed actress and Goop founder Gwyneth Paltrow to her board of directors.

Details on the start of the resale of Rent the Runway can be found here.

Rent the Runway is a five-time CNBC Disruptor 50 company that was last ranked number 5 on the 2019 list. SIGN UP for our weekly original newsletter that goes beyond the list and offers a closer look at CNBC Disruptor 50’s companies and the founders who continue to innovate in all areas of the economy.