Nuuly’s Rental Business Drives Growth for Urban Outfitters

Call it third-wave fashion rental. 

First came the age-old tux rental. Then, a modern reframing of the business by Rent the Runway, which put rental on the map, but struggled along its own road to profitability. 

Now, Nuuly has arrived. 

Launched in 2019 within Urban Outfitters Inc., the rental service has gone from an interesting experiment to promising side hustle to growth driver for the retailer. 

“Somewhere along the way, we got real,” said Dave Hayne, who is chief technology officer at Urbn and has spearheaded Nuuly as president. 

The model is pretty straight forward, if operationally intense.

Subscribers pay $98 to rent six items for a month. Shipping, cleaning and repairs are all handled by Nuuly. 

About half of the styles on offer come from one of Urbn’s businesses — Urban Outfitters, Anthropologie or Free People — while the balance is filled out by goods bought at wholesale, including AG Jeans, Good American and Polo. 

It’s a model that builds on brands and assets Urbn already owns, but also fosters new connections with consumers and other fashion companies. 

And it’s a mix that’s working for Urbn.

The promise of rental has been in the air for some time, but profits and real scale have been elusive. 

Nuuly is getting there. 

In the second quarter, Nuuly’s operating income tallied $5.3 million — for a margin of 5.9 percent — and the business is on track to be profitable for the full year. 

Sales grew 62.6 percent to $90.7 million for the quarter while the number of active subscribers expanded by more than 25,000 to top 250,000. 

About half of the platform’s subscribers are still around after 12 months while 40 percent hang on for 24 months. Users can pause their subscriptions to match their needs. 

Nuuly represents a relatively small slice of Urbn’s total revenues, which grew 6.3 percent to $1.4 billion for the second quarter. But looked at another way, the rental platform accounted for 44 cents of every dollar of Urbn’s growth and more than offset the sales declines logged at the Urban Outfitters unit.  

While Nuuly gives Urbn an eco-friendly spin by virtue of being a rental business and cutting down on waste, in the planning stages, it was a bid to bring in shoppers at lower price points.  

“There’s pricing pressure, people’s dollars are being stretched, right?” said Hayne, who is the son of Dick Hayne, Urbn’s cofounder, chairman and chief executive officer. 

“There are some people that are offering products cheaper than our family of brands,” Dave Hayne said. “Is there a way that we can take advantage of providing our family of brands at a cheaper per wear cost? 

“We’re good at certain things,” he said. “We’re good at storytelling. We’re good at customer experience, we’re good at obviously building brands, we’re good at curating assortments. How do we take some of our strengths, the brands that we have under our roof, and how do we adapt them to this new potential consumption habit…rental?” 

It’s a novel take on going after more price=sensitive  consumers — a goal that has drawn many brands to launch subbrands or link up with mass merchants and ultimately hurt the primary business. 

And in the case of rental, going cheap isn’t cheap. 

Nuuly owns the inventory it rents and takes care of it too. 

Over the past year, Nuuly has repaired well over 1 million pieces of apparel. 

“It’s a pretty labor-intensive process, but the more that we can keep a unit in inventory, obviously that’s good for the earth and good for the world, but it’s also very good for our bottom line,” Hayne said. 

The company set up its own distribution and cleaning facilities — its second warehouse just opened in Kansas City. 

“We built a lot of the technology that is driving the operation,” Hayne said. “We built a lot of the operational infrastructure, the buildings themselves. By choosing that path, we are also able to modify a lot of that software and a lot of that operation where and when we think we need to make ourselves more efficient.” 

It’s a path that is more accessible to an established brand than a start-up. 

“Being a part of the Urbn family, we have cash to deploy,” Hayne said. “We have the luck and good position of being part of a company that’s profitable already. So there’s a willingness to invest in this business.”

As Nuuly grows, the calculus behind the business starts to work better. 

“We are making ourselves more efficient over time by investing more and more automation in the four walls,” Hayne said. 

In turn, that helps feed the rest of the business as renters who use Nuuly are exposed to more brands — from across the market, but especially from Urbn.

“Someone will rent…an Anthropologie pair of pants and then go to Anthropologie and buy another pair,” he said. “There are a lot of synergistic benefits to brands working with a platform like ours, getting follow on purchases.”

Nuuly also shares data with the brands it rents out — both inside and outside Urbn — to help home in on customer preferences and improve the product. 

Many of Nuuly’s new users find them through word of mouth and Hayne said that “well over half of our new subscribers have never rented before from any other platform.”

“This rental concept in general is still something that is very unsaturated in the consumer market,” he said. “We feel like we have a lot of runway ahead of us.”