Inside this warehouse on the
outskirts of Philadelphia. How are you? A never ending
supply of clothes. More than a million pieces
fills the 310,000 square Foot space. It might be obvious from
looking at this view, but We're pretty much at max
capacity right now. It's all part of Nuuly, an
apparel rental service Launched by Urbn or Urban
Outfitters, Inc. In May of 2019. For $98 per month, Nuuly users can pick and rent six Pieces valued at an average
of $800 per box. The burden of shipping,
cleaning and repairs are Placed on Nuuly. Between all its brands, the
company brought in $4.8 Billion in net sales in
2022. Analysts predict that
Nuuly will add at least $1 Billion in value to its
parent company over the next 3 to 5 years. 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. Walking around the floor
with the leadership team, There's been a lot of eyes
open about wow, this has Grown quite quickly, and a
little bit of amazement About how we've been able
to keep keep it, keep it Going. The rental industry is
expected to represent 3% of The total retail market by
2030. Recommerce or secondhand
sales will likely represent 12%. Some analysts forecast
the size of the global Apparel and footwear market
will reach 3.3 trillion USD By 2030. Gen Z and millennials are
driving support of circular
Business models. 15% say they're willing to
try rental and 48% are Willing to buy second hand. From August 2022 to August
2023, Nuuly's revenue almost Doubled. We didn't approach this like
a test. We built this giant
building and I think this Wasn't like a pet strategy
project. It was going all in on a
new business. While clothing rental is not
a new idea, it is an Emerging market that's seen
an uptick in recent years. Companies like Express,
Vince Camuto, and Banana Republic all launched
rental platforms in 2018 and 2019. Rent the Runway, the
biggest independent rental Platform, went public in
October 2021 at a $1.7 Billion valuation. It was named to the CNBC
disruptor list five times, The last time in 2019. Whenever there's kind of a
hot new topic or an idea, Everybody wants to test it. You name the vertical
brand, and they very likely Have some variation on a
rental service. With an increasingly climate
conscious population that Still cares about fashion,
rental could be the sharing Economy's new frontier. While data varies greatly
depending on several Factors, most agree that
the potential is great. One report predicts the
global clothing rental Market could hit $7.5
billion, nearly double where It stands in 2023. Another by McKinsey & Company, expects the Circular business model to
reach $2.1 billion by 2025. Millennial Gen Z, Gen Alpha
what do they want? They want everything of
their choosing at their
Doorstep. Those who are
kind of, you know, offering This rental avenue are
looking forward a decade. This very well could be the
beginning of that next big Genre of servicing the
customer. So in 2019, Dave and Kim
tossed their hat in the Ring. In the mid 20 tens, there
was a lot of interest in Sustainability and there
was a lot of interest in Circularity. We knew that
we had an opportunity to get Into that space. It was
just a matter of how and how To do it well and to do it
right. Dave is the son of Urbn
founder Richard Hayne, and Worked with the company for
18 years before founding Nuuly. The company wouldn't
disclose its initial Investment, but said the
total amount is well over $100 million. Leaders like Dave and Kim
decided the service Shouldn't follow the
existing blueprint for one, Building a business that
includes, but is not limited To Urbn brands Urban
Outfitters, Free People and Anthropologie. It was very obvious to us
quickly that that didn't Exactly make a lot of
sense, because the one thing People want to do when
they're renting is have a Broad variety of choice. Secondly, Nuuly featured day
to day options in contrast To competitor Rent the
Runway, who initially Focused on Occasionwear. From our beginning days, our
mission was to be there for Customers every day of the
week, from fancy to casual Work events, anything that
they have going on in their Lives. The service has already seen
massive growth, with Nuuly Now counting eight times
more subscribers in October
2023 than in its first
year. Some industry experts have
called Nuuly a case study of What happens when a company
goes all in on rental. We made a concerted
investment with this Business at the outset. We didn't kind of dabble
into the program. We didn't experiment into
it. We built the platform
ourselves. We specifically invested in
a unique team that was Focused entirely on success
of the business. Rent the Runway, established
ten years before Nuuly, had About 137,000 active
subscribers in the second Quarter of 2023, almost
50,000 less than Nuuly. Nuuly saw an 85% increase in
subscribers from July 2022 To July 2023. Rent the runways only grew
by 11% in the same time Period. Nuuly predicts it
will be profitable in 2023, Third or fourth quarter. I think the possibilities
are really endless, but we Just have so much market
left to address in the space That we're currently in. Nuuly is opening a $60
million distribution center In Kansas City, Missouri in
Q1 2024. We believe the growth is
there, and we're excited to Fill a second building. By the end of this year. It's arguable that there'll
be north of $200 million in Revenue, rivaling their own
in-house wholesale business, Which is about 5% of total
sales. And that wholesale business
has been around for well Over a decade. Mckinsey & Company found
that 63% of consumers factor In the way a brand promotes
sustainability when Considering a purchase.
It's important to us. Anywhere there's an Opportunity to do something
smartly, we try and do it Smartly. In 2019, research showed
that consumers, on average, Bought 60% more clothing
than they did 15 years ago, But only kept those items
for half as long. Fast fashion's increasing
contribution to the global Total of greenhouse
emissions is somewhere Between 2 and 8%, and has
been described as an Environmental and social
emergency. Analysts say rental
Recommerce repair and Refurbishment could help
the fashion industry cut About 143 million tonnes of
greenhouse gas emissions by 2030. But Newley's
commitment is not only good For the planet, it's also
good for business. The more an item can stay in
circulation for us, the the Better it is for our
economics and the financials Of the business. Recommerce can extend an
average product life by 1.7 Times, rental by 1.8 times,
repairs a little less by 1.35 times. In Nuuly's, warehouse
workers recycle laundry Chemicals, repair items,
and ship orders with Reusable boxes. They also get rid of a lot
of cardboard waste. So we don't have we're not
just dumping cardboard into Landfills. Nuuly also launched Nuuly
Thrift, a resale Marketplace, in October of
2021. It takes a 20% commission
on all sales. That latest offering sets
Urbn apart a sort of Trifecta of retail rental
and resale. The 2020 Covid 19 pandemic
permanently changed how and What consumers buy.
The casualization of the
workforce is tremendously Different than it was circa
2019 before this all Happened. It was almost
like I'll still have a Certain portion of my
entire wardrobe that's going To be generally casual. 10% of my life is more just
going to be that way, sort Of permanently. Nuuly took off less than a
year before the world shut Down and didn't walk away
unscathed. The pandemic was a weird
time. We had been growing nicely
up to that point. I think we had around 25 or
30,000 subscribers, right? As the pandemic kind of hit
in the next 3 or 4 weeks, we Lost a good half of our
subscriber base. Women just didn't need to
rent. Despite these losses, Nuuly
didn't fail, helped in part By the backing of its
multi-billion dollar parent Company, which continued to
invest rather than pull the Plug. We believed in the concept. Leadership across Urbn
believed in the concept, our Board believed in the
concept and we were able to Ride it out. Dave's father, Dick Hayne,
has been known to be more Risk averse, so the
company's decision to take a Risk with Newley is
notable. They don't spend foolishly. They don't make investments
sort of, that haven't been Studied on the return on
that invested capital. They never took down debt
during the period of the Pandemic when people needed
debt to just get through, But. Overall, the rental sector
struggled. Le tote filed for
bankruptcy in 2020, citing
Complications from the
pandemic, though it was Later acquired by Sadia
Group for $12 million. Loft's, Bloomingdales and
Diane von Furstenberg's Rental platforms all shut
down. Rent the Runway reported a
net loss of $171 million, And its active subscriber
count fell almost 60% to About 55,000in 2020, while
the company bounced back and Went public in October
2021. It backfired when Wall
Street quickly turned on it. We've been focused on
building a long term Business and we continue to
execute against that Strategy. One of the major
components of our path to Profitability is capital
light acquisition models for Our rental product, our
inventory. Rent the Runway's share
price has fallen by about 97% to $0.45 on November
2nd, 2023. In its second quarter 2023,
the company's reported Revenue was $75.7 million,
down 1% from the same Quarter the year prior. This as Newley's net sales
rose to $55.8 million in its Second quarter. At the
moment, the focus is on Supporting current clients,
keeping up with the enormous Product volume, and
constantly innovating new Features. We are surviving this fall
because we have this Carousel system in place. We launched this summer,
something called Closet List That we've been hearing
from customers for so long. They go on, they heart
their favorites, and it goes Into a closet. Sky Pollard was poached from
J.Crew in 2018. This brand is amazing. Since Nuuly's launch, she's
added more than 100 new Brands to the service that
Urbn had not previously
Worked with on the retail
side. A lot of it. Started with just making
connections with brands that Are sister brands already
worked with, had developed Relationships with, knew
how it was to work with Urbn. I think as. We bring new customers into
the urban family, which we Have seen, we are doing
through Nuuly, they're Getting exposure to our
family of brands and they Are actually more inclined
to go buy from our sister Brands, which is a good
thing. Unlike competitor Rent the
Runway, who built everything From scratch, Nuuly is
uniquely positioned, and That's mainly due to
Urban's existing Partnerships with hundreds
of brands and a global Network of over 700 stores. It's built its customer
base and brand loyalty over Decades. Competition will
undoubtedly continue to Trickle in, but experts say
there's plenty of room for More. I think that's harder for
people who don't have the Background of, say, you
know, an Urban Outfitters or Being in that sort of youth
culture. That's a lot of risk. Most retailers will not
take risk on 80% of what They buy. They like to play
it safe. There's a lot of advantages
that we have competitively If other people enter. I welcome competition. I actually do think it
could make us better. Nuuly has other challenges,
like being under a parent Company with a volatile
stock, a consequence of Being in fast fashion. Urban has to accurately
invest in the latest trends
While constantly fending
off competition. The company is also facing
a trade secret lawsuit by Rental company Le Tote. Le Tote alleges that urban
stole proprietary Information during
potential acquisition talks, And used that knowledge to
build Newley as a direct Competitor. Urban told CNBC
it was unable to comment on Ongoing litigation. And companies are doing well
and are on a certain glide Path of success. We often do see, you know,
infringement lawsuits or Things that sort of try to
slow down kind of the Success of what that
company is perhaps doing. Nuuly, like the rest of the
world, has been impacted by Inflation, which reached a
40 year high in 2021 and 2022, though dropped to an
annual rate of 4.9% in April 2023. Nuuly recently
increased its subscription Price to $98 from $88. Like everything else,
clothing itself has Significantly inflated. I mean, even from April of
2021, clothing in general Has inflated about 9%. It was not the only platform
to do so when Rent the Runway phased out its
unlimited rental option in 2021. The offer was
replaced with new membership Tiers with worse values
higher prices for less Inventory. While this may
have affected Rent the Runway, Newley says it's
price change hasn't Disrupted business. By and large, we have not
seen a disruption in our Subscriber growth and we've
actually seen new Subscribers coming in quite
the same rate, analysts say. Ultra fast fashion poses the
biggest threat to the rental Industry.
The mentality of buy it
today, throw it away Tomorrow. And this is the
Shein, the Temu sort of that Whole ilk, $300 divided by
the average price of 20, Right? That's a bunch of
stuff that I could get. I think that that is very
attractive to truly the Younger generation. But as consumers age, they
tend to look for higher Quality clothing. And since the younger
generation is more eco Conscious than the previous
one, the rental markets Appeal over fast fashion is
spreading as other players Continue to innovate and
refine their rental Services, Nuuly will too. Certainly, there are other
categories that we could Consider. You know, what
about kids clothes? What about menswear? I think because we built
everything from scratch, We're really able to kind
of flex into whatever that Next opportunity is. We want growth. We want to try new things. Some things might work,
some things might not. But I think that's the only
way you stay ahead. And I think that's that's
what allows us to be Successful.
