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Luxury rentals, the future for departments stores? Neiman Marcus launches ‘Rent the Runway’

Neiman Marcus has opened its first Rent the Runway store within its San Francisco location. Rent the Runway customers—who are mostly women between the ages of 27 and 42—can visit the studio at Neiman Marcus to find luxury formal wear on loan, get consulting from stylists and perhaps pad out their rentals with department store purchases.

That’s what Neiman Marcus is hoping will happen, at least, as department store foot traffic has continued to decline, resulting in lackluster sales. In 2016, Neiman Marcus reported that comparable sales fell 3 percent, to $4.9 billion. Consumer behavior has changed, and legacy department retailers are struggling to keep up. For Neiman Marcus and its peers, injecting new experiences into stores and bending to the tastes of the younger consumer set has become the survival strategy du jour—anything to lure the youths in to engage in person, off their phones.

For Neiman Marcus, Rent the Runway holds the keys to a highly valuable demographic. The rental company’s six million (self-reported) users are aspirational luxury shoppers, so getting them into a department store can pave the way for future purchases—renting can cultivate brand loyalty. Neiman Marcus will also insert offerings, like style suggestions and shoes and clutches for purchase, into the Rent the Runway store.

At Rent the Runway’s seven brick-and-mortar locations, the company reports high foot traffic, as customers visit to try on dresses in person, as well as pick up and drop off rentals. It also offers one-on-one styling consultations and a concierge service in its app. In addition, it has access to customer data, including that around tastes and shopping habits, that Neiman Marcus doesn’t.

“We have a built-in experience that we offer that’s not a typical store experience,” said Maureen Sullivan, president of Rent the Runway. “It’s highly personalized, and it’s access at a fraction of the cost. And because the behavior of renting is new, we’re seeing people walk in wanting to learn more. It’s a new model.”

The company recognizes that some items will continue to be purchase items, like shoes and accessories and daily wear, but it believes that statement pieces should be rotated in and out of wardrobes. Sullivan said that its inventory is dynamic, meaning in-store collections can be tailored to customer needs and changed daily to stay fresh. That’s a flexibility a department store like Neiman Marcus doesn’t have because it’s investing in inventory and predicting trends months in advance before clearing out stock for the next season.

Sullivan said that the Neiman Marcus partnership will not substitute its investment in stand-alone store openings. She said that, as there’s very little overlap between Rent the Runway and Neiman Marcus customers, the company is hoping to use this as another point of growth and brand awareness.

Neiman Marcus, while the first department store partnership with Rent the Runway, does not have an exclusive deal with the company—so more rental shops popping up in department stores could be on the way. Following the launch of the San Francisco location, more Neiman Marcus stores-within-the-store are planned for 2017.

The approach to the revitalized department store has taken many forms. JCPenney has invested in in-store Sephora locations, aiming to bring in a younger customer with a modernized beauty department. Bergdorf Goodman is angling for streetwear fans with partnerships with cool brands like Kith. Nordstrom has acquired startups like Sole Society and Trunk Club to invigorate sales, with turbulent results.

Rent-the-Runway at Neiman Marcus, San Francisco

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