Niche clothing rental companies more likely to succeed

A new study from Chalmers University of Technology, Sweden, has found that clothing rental businesses can reduce the fashion industry's environmental impact, but most are struggling to establish economically viable models.

The ‘Exploring renting models for clothing items – resource interaction for value creation’ study examined various clothing rental business approaches in Sweden, revealing that companies focusing on niche segments with specific usage patterns are more likely to succeed than those attempting broad fashion rental offerings.

The research identified several operational challenges that hindered profitability, including the labour-intensive processes required to inspect, clean, and maintain garments between users, high logistics and warehousing costs, and difficulties securing adequate venture capital during initial business development phases.

"What struck us was that it seemed so difficult for them to make their business profitable. Several had had to end their investments for various reasons," said Professor Frida Lind from the Department of Technology Management and Economics at Chalmers University of Technology.

The study, which was published in the Journal of Business & Industrial Marketing, analysed nine Swedish clothing rental companies that either closed down or are continuing to operate. From this analysis, researchers identified three main business models for renting clothes:

• Membership model: customers become members and can then borrow clothes for a certain period of time, similar to a library
• Subscription model: customers pay a monthly fee to rent a certain number of garments
• Individual rental model: the company would provide specific types of clothing to rent out, often in combination with other equipment

Market segmentation proves critical for success

The research found that companies focusing on specific market segments, particularly outdoor clothing rental services, demonstrated greater business sustainability than those offering general fashion rental. These specialised rental businesses often succeeded by establishing themselves near outdoor recreational areas.

"They seem to have found their niche and seen that there is a specific need that the customer is willing to pay for each time they need to use that type of clothing," explained Professor Lind.

A key differentiator for successful rental businesses was their ability to solve specific problems for customers, such as providing expensive, infrequently used items like ski clothing or specialised outdoor gear. These services delivered clear value by eliminating the need for customers to purchase, store, and transport bulky seasonal items.

The researchers also discovered that certain strategic collaborations significantly enhanced rental business viability. Professor Lind explained: “Rental companies that worked closely with clothing manufacturers and suppliers, such as designers with a sustainability profile, benefited greatly from this as they were able to quickly get feedback on which types of clothing were most popular. They also gained valuable information about the quality of the garments, for example if there was something that often broke.”

Recommendations for sustainable rental businesses

Based on the findings, the researchers offer several recommendations for companies considering clothing rental business models:

• Focus on niche markets where customer needs and product types are clearly defined
• Develop partnerships with suppliers to improve products based on rental usage data
• Design logistics and transport systems for scalability from the beginning

The researchers emphasised that new rental business models require time and a long-term perspective to establish themselves successfully in the market. This was contrasted to how such businesses are often evaluated by investors, who may expect quick returns typical of technology startups rather than the slower growth trajectory needed for sustainable business innovations.

While the research focused primarily on business viability rather than environmental impact metrics, the potential sustainability benefits of increasing clothing utilisation through rental systems remain significant.

Previous research from Chalmers University has shown that clothing production accounts for approximately 70 per cent of the climate impact of Swedes’ clothes throughout their lifecycle. In the European Union, consumption of textiles has gone up from 17 kg to 19 kg in 2022, according to research from the European Environment Agency.

The study emphasised the considerable environmental benefit potential in reducing clothing purchases and extending the use of existing garments, particularly if rental services can operate without generating additional transportation emissions.

Many people have clothes hanging in the closet that are rarely or never used. Renting clothes can extend the use of each garment and thus contribute to more sustainable consumption," said Professor Lind.