The rise of the rent economy
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Mumbai: About four months ago, Pragya Uniyal, 28, had a friend’s wedding to attend in Mumbai. She did not want to buy new traditional wear and decided to check for a way to avoid an expensive purchase.
A search on Google for traditional clothes on rent threw up a couple of options in Mumbai; Uniyal hired a designer lehenga from Pehnava from a fashion rentals portal thestyledoor.com.
“Rentals online is a new concept. It is about providing access and comfort to consumers,” says Uniyal, who feels that these services are as much about saving money as they are about convenience.
They give you access to designer wear at a fraction of the cost and also provide complimentary services such as pick-up and drop besides doing the necessary fittings and handing over a dry-cleaned garment.
Renting itself is not a new phenomenon. Car, bike, video, furniture and book rentals are quite commonplace. For instance, individuals who had jobs where they had to shift base every two years used to rent furniture even 25 years back.
However, the process of renting has been, for the most part, fragmented. The business is now not just taking a more structured form but also expanding to include everything from clothes and accessories to even sharing of financial resources and, in a rare case, pets.
This concept is now referred to as the shared economy. It includes peer-to-peer finance, online staffing, peer-to-peer accommodation, car sharing and music and video streaming. According to PricewaterhouseCoopers, the sharing economy will generate potential revenue of $335 billion by 2025 globally.
In India, just the market for rental of furniture is seen at around $800-850 million. Rentals of electronic appliances is a $500 million market and bikes $300 million, which adds up to a cumulative $1.5 billion market, says Prashanth Prakash, who started Accel Partners in India in 2006 and has invested in companies such as Bengaluru-based e-commerce market leader Flipkart, cab hailing service Ola, ticketing platform Bookmyshow and, most recently, Rentomojo.com, a furniture and utilities rental platform.
There is no specific number for the opportunity for fashion rentals. However, used clothing is $1 billion opportunity for start-ups, Mint reported in July.
For the young consumer, who wants everything now, irrespective of their income, rentals provide immediate access at a cheaper cost.
“Anything nice comes for minimum Rs.25,000, if you have to buy Indian traditional wear,” says Ankita Pant, 27, who recently rented a lehenga (formal Indian traditional wear) from thestyledoor.com for a tenth of the cost, to attend a friend’s wedding. Pant now believes that renting is a better option than buying.
“Today a 25-30-year-old is still not sure of what city they want to settle down in, yet they want to have access to everything even though it may not be in line with their income. They don’t want to wait for three years to buy it. This is why the demand for the access economy is growing,” says Prakash, while explaining why he is looking for more investment opportunities in this space.
In the last three years, close to 100 online rental service providers have come up that provide everything from bikes, car and, books to clothes, toys and even diamond jewellery on rent, according to data by Tracxn, a data analytics company.
Two-thirds of these firms have come up in 2015 alone. Their target user is someone who wants a good lifestyle with surplus disposable income.
“We are seeing a lot of demand. Times are changing and our customers don’t think of rental as a taboo anymore. They are not renting because they don’t have money. It’s just a smarter way to live,” says Sahyujyah Shrinivas, founder, LibeRent.com, a rentals website for western and ethnic wear for women launched in June. The average age of people renting at LibRent is 18 to 35 years, says Shrinivas, who is now expanding her business to more cities and adding new categories such as accessories as well.
Likewise, individuals who rent furniture and home appliances are in the age bracket of 22 to 35 years; have an income of more than Rs.5 lakh and mostly work in metros or tier-1 cities.
Almost 70% of the users are men and these are people who are on the move which means they don’t stay in one place for more than two years, says Ajith Mohan Karimpana, founder and chief executive officer Furlenco, a Bengaluru-based online furniture renting company which was launched in 2012.
Furlenco and Rentomojo have more than 2,000 active users. “This generation wants a fancy lifestyle and doesn’t believe in hoarding,” says Karimpana.
Traditionally, Indians have a preference for owning. Be it a house, a car, expensive jewellery or good clothes. This mindset is also changing now, albeit slowly.
“There are young professional who work in companies that demand them to move cities. Then there are those who are looking for different experiences and hence change jobs. The concept of working in the same organization for 25-30 years has long faded for the demography of 25-35 years olds,” says Shruti Ajmera-Reddy, co-founder, RentSetGo, a Mumbai-based online renting company for travel-related products such as bikes, photography equipment and camping equipments.
Some of the products that are given on rent comes at just 1-2% of the original cost of the product, making it accessible for many more.
Seeing the increased traction in renting businesses, investors have started to back start-ups in this segment.
In November, Rentomojo.com raised $2 million from IDG Ventures India and Accel Partners. In August, Humble Egg Technologies Pvt. Ltd, which owns a premium apparel rental start-up, raised an undisclosed amount from Sachin Bansal and Binny Bansal-backed TracxnLabs and angel investors. In March, Furlenco raised $6 million from Lightbox Ventures.
“It’s about a behaviour change where people use as per convenience and pay as per need and don’t feel the need to own,” says Venkatesh Peddi, executive director, IDG Ventures India Advisors, which invested in Rentomojo.
Indian fashion designer Nachiket Barve, who has worked with global US rental brands such as Rent the Runway sees rentals as an emerging market in India as well and is open to associate with fashion rental firms in India as well.
However, the market still has a long way to go.
“The shift to this economy is about mindset change and this will take longer for categories that are associated with status like expensive bags and clothes,” says Prakash of Accel Partners who is of the opinion that in the short term, utility and daily need items which don’t overlap with status will do well.
Are rentals economical?
As a consumer, are you wondering whether renting makes more sense than buying? For different products you need to factor in different parameters to calculate whether to rent or buy.
For instance, if you are looking at renting furniture the decision will mean weighing factors such as the frequency with which you move and whether you are purchasing the item on credit.
“If you put together all these parameters and are living at one place for over 45 months (that is close to 4 years), you should not rent furniture since any such purchase take roughly over 45 months to break even. Renting is most economical if you change you rented space every two years,” said Karimpana of Furlenco.
When it comes to outdoor equipment, if you are new to travelling or are going to use the products (for instance, a GoPro or a hiking tent) for only one or two trips, renting makes more sense than buying.
“If you look at the pricing, some products are rented at 10% of the cost of the product. For a one-time use, this would make sense instead of hoarding a product that you may not use again,” says Reddy of RentSetGo.
How do rentals work?
There are broadly three models that online rental companies use. One, the renting company owns the assets they rent out. For instance, Furlenco owns all the furniture displayed on its website for renting, which means the initial capital cost of launching the business was high.
“Though our initial costs are high, we want to ensure that all the products that the consumer rents, we know the quality of it. Also the product that a customer rents comes back after the tenor and is refurbished to make it look new for the next one because people don’t want to sleep in the bed that a stranger has slept in,” said Karimpana.
Some firms follow a different model and source assets directly from manufacturers based on an agreement or individuals who want to rent the products that they don’t use very often.
For instance, the bikes and camping equipments displayed on RentSetGo are owned by the vendors.
“Here we have a monetary sharing agreement with the vendors. We don’t own the assets so our business cost is low. However, right now the number of vendors from whom we can source products are very less since the shared economy business in India is in a nascent stage,” said Reddy.
The third kind is the marketplace model where anyone can list there products. For instance, Gorenty is an online marketplace where anyone can post a free listing. In the marketplace kind of set up, the online renting company doesn’t take any responsibility of the quality of the product.
“As a lender you can list products ranging from pets to kids stuff. And the borrower can directly contact the lender and fix the deal,” said Amit Kumar, founder, Gorenty.
For Kumar, the most surprising item was the demand to rent a pet.
“There were rabbits rented for a borrower’s kids for two days which was a surprise for me,” said Kumar.