Urban Outfitters Inc., or URBN, has been quietly building a new segment near its headquarters in Philadelphia.
Launched in 2019, Nuuly is a clothing rental subscription service that features the company’s brands Urban Outfitters, Free People and Anthropologie, as well as more than 400 other brands and designers.
URBN leaders say Nuuly further expands the company’s flagship brands, rather than diluting its wholesale profitability among customers.
“They’re getting exposure to our family of brands, and they are actually more inclined to go buy from our sister brands,” said Nuuly President and URBN Chief Technology Officer Dave Hayne.
Nuuly is set to reach profitability in its third or fourth fiscal quarter of 2023. The service has seen substantial growth in its short existence. Its revenue almost doubled year over year in URBN’s second quarter, driven by an 85% increase in active subscribers.
“In 2019, they launched with $0 in revenue. This is going to be one of the fastest kind of concepts to get to break even profitability that we’ve ever seen,” said Adrienne Yih, a consumer discretionary analyst at Barclays.
The number of users is only growing. Nuuly boasted about 198,000 subscribers as of Nov. 3, just 2,000 shy of the goal its leaders set out to achieve by the end of the fiscal year.
“Most of the timeframes that we’ve set up until now, we’ve been running ahead of,” Hayne said.
Analysts project Nuuly will add $1 billion in value to URBN over the next three to five years.
Nuuly leaders hope the momentum continues. As the platform grows, the company is opening a new $60 million facility in the Kansas City, Missouri, region in January 2024, which it says will help support upward of 600,000 subscribers.
“The goal is to triple the overall business. And Kansas City is really what allows us to do that,” Hayne said.
Though Nuuly isn’t the first rental service on the market, analysts said there’s a lot of opportunity in the nascent space.
Consumers are increasingly curious about rental. The current millennial and Gen Z generations are interested in both sustainability and newness. Of this group, 15% say they’re willing to try clothing rental and 48% are willing to buy apparel secondhand, according to a McKinsey & Company report.
The report predicts the rental industry could represent 3% of the total retail market by 2030, while re-commerce, or secondhand sales, will likely represent 12%.
Analysts said Nuuly is well-positioned because of the backing of its parent company, which has invested more than $100 million in its development and essentially sped up development by “at least three years,” Yih said.
As Nuuly rises in the industry, another company is falling. Rent the Runway’s share price has dropped about 97% since it went public in late October 2021. In its second quarter this year, the company reported $75.5 million in revenue, down 1% from the same quarter the year prior.
An industry source said this was a reflection of Rent the Runway’s performance, rather than the rental market as a whole. Other companies such as Express, Vince Camuto and Banana Republic all launched rental platforms in 2018 and 2019, though unlike Nuuly, they only offer their own labels.
While data on the emerging segment varies greatly, experts agree the potential is huge. McKinsey & Company predicts it could reach $2.1 billion by 2025.
