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Can Rent the Runway Shop-in-Shops Help Keep Neiman Marcus Relevant?

The disruptive designer rental service and luxury department store just announced an interesting new partnership.
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A rendering of the Rent the Runway location inside Neiman Marcus San Francisco. Photo: courtesy

A rendering of the Rent the Runway location inside Neiman Marcus San Francisco. Photo: courtesy

We're nearing the end of 2016 (thank GOD), and for the fashion industry, this year was one in which a need for change and — to use a very trite buzzword — disruption, became extremely clear, especially for traditional retailers. Department stores, already faced with declining sales due to a rapidly changing retail landscape (E-commerce! Amazon! Millennials! Fast fashion!), are now scrambling to adapt, stay relevant and get humans into stores to buy things at full price when we have more accessible shopping options than ever.

Some have focused on differentiating their product offerings and/or incorporating nontraditional retail elements: Nordstrom bringing Topshop, J.Crew and Olivia Kim's Pop-Ins into its fold is a prime example. But that level of distinction doesn't work for every retailer. Take a decidedly high-end, luxury-focused store like Neiman Marcus, which lost $406.1 million in fiscal 2016. It, too, has been making updates to its sales floors, and on Wednesday it announced the biggest addition yet: Rent the Runway shop-in-shops, starting with a 3,000-square-foot space opening up Friday in Neiman Marcus's flagship in San Francisco, Rent the Runway's biggest market. It will feature a rotating selection of clothing and accessories available to rent from over 400 designers including Proenza Schouler, Diane von Furstenberg, Suno and more. Rent the Runway will set up inside additional Neiman Marcus locations in 2017.

"Partnering with Rent the Runway's innovative model combined with their affinity amongst millennials provides an exciting opportunity for us," said Karen Katz, President and CEO of Neiman Marcus Group in a statement. "Together we're helping the next generation of luxury consumers discover and fall in love with designer fashion."

It's an interesting (and probably smart) move on Neiman Marcus's part, as Rent the Runway brings with it a number of the elements department stores need to survive today. It's popular among millennials; it has a lower barrier to entry, price-wise, than much of what Neiman Marcus carries; and it has a robust desktop and mobile business, but has invested heavily into omni-channel capabilities, driving many shoppers into its small network of brick-and-mortar stores — shoppers that Neiman Marcus could definitely use. 

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Rent the Runway is also uniquely suited to the department store's luxury image, given that it stocks many of the same high-end designers. Ideally, Rent the Runway will be able to drive sales for Neiman Marcus, and vice versa. In terms of inventory, Rent the Runway Co-Founder and CEO Jennifer Hyman explains that there will be "cross-merchandising," so that "in the same physical location, you can rent and there are complementary products you can buy. Similarly, Neiman Marcus stylists will be trained to bring their customers into the Rent the Runway store to discover new things: If someone is fearful of making her first purchase of a $5,000 Prabal Gurung dress, they can rent it for the first time, fall in love with the brand and then transact with Neiman Marcus."

Hyman feels that the partnership represents the future of retail. "Together we're really piloting this idea that rent/buy is the new high/low," she says. "Our customers are still buying clothes, and with rental as an option, they tend to invest in clothing in a different way than they were before, so we view this as a perfect marriage of rental alongside all of those complementary products that you want to invest in: the great pair of shoes, the great coat." In March, the company officially launched its "Unlimited" service — granting users access to all of its inventory for any period of time with a limit of three items at once for a monthly fee — and with it, the idea of a never-ending "closet in the cloud" as the replacement for fast fashion.

Despite starting online, Rent the Runway has recently made significant investments in brick-and-mortar, and will operate seven stores by the end of the year in Chicago, Las Vegas, New York, San Francisco, Topanga and Washington, D.C. In addition to walk-ins, many customers pay to make appointments that have a 78 percent conversion rate, according to the company. Many customers also choose to pick up and return orders in stores rather than going through mail. Coinciding with the Neiman Marcus partnership is a mobile app update that leverages this convenience factor: Users will be able to geo-locate their nearest Rent the Runway store, browse that store's inventory, and even have an associate pull specific items for the user to try on as soon as she arrives at the store. Alternatively, she can pay for an item and get a street-level hand delivery.

All in all, it's one of the more intriguing retail shake-ups we've heard about this year, and — especially given its focus on customer service and merging the online and offline experiences — could bring a lot more shoppers into Neiman Marcus than a rose gold airplane will.

The real question is: Are we, as a society, really heading towards a "closet in the cloud?" Other startups have toyed with this idea, like VillageLuxe, which acts as an "Airbnb for fashion," allowing any member to rent out items from their own closets. That, and a concept like Rent the Runway (which has its own inventory), both have their limits. But with the negative environmental and social impact of disposable fast fashion, it doesn't sound like such a bad idea.

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