You lease your car. You rent your apartment. You subscribe monthly to Netflix and you rent your clothes from Rent the Runway. But would you rent your furniture? There’s a slew of startups that are betting you will. Companies like Fernish, Feather, Oliver Space and CasaOne are a few that allow customers to rent their furniture and return when they no longer need. The concept isn’t new; legacy players such as Rent-a-Center ($RCII) and Aaron’s ($AAN) have been doing this for years. The difference now is that there hasn’t been an updated brand narrative. Rental furniture has historically been aimed at middle America, subprime borrowers as an alternative to those who weren’t candidates for financing. The loans were borderline usurious or prices were marked up to cover the credit risk.
Today, there is less stigma about renting as consumers get accustomed to being billed monthly for an increasing number of purchases.
Here are a few of the ways the furniture rental 2.0 companies are different from their predecessors:
- Sustainability: They’ve focused primarily on urban millennials with an environmental narrative around keeping furniture out of landfills
- Merchandising: They’ve elevated the merchandising experience by forming brand partnerships with retailers like West Elm and Crate and Barrel – two retailers who previously were considered an expensive choice for a cash strapped millennial.
- Flexibility: Millennials and Gen Z are moving a lot before they settle down. Furthermore, many in this cohort are self employed and have contingent housing needs. Having the ability to rent furniture and return on their terms gives them the ultimate flexibility.
That said, there is still a tremendous amount of work to be done to educate consumers on this alternative business model. My bet is many of these 2.0 rental companies are still trying to find product market fit in an increasingly competitive landscape. If you’re a customer today in the market for furniture you have many options:
- You could buy ‘fast’ furniture from Wayfair or any of the big box stores – Ikea, Walmart, Target,etc (attractive price points, convenience, and modern designs)
- You could purchase from hundreds of retailers who are increasingly offering attractive 0% financing options through fintech players like Affirm, Klarna, AfterPay and Splitit.
- You could buy pre-owned furniture from Craigslist, AptDeco, Ebay, etc.
- You could rent from retailers who are rolling out their own service in this area (Ikea, West Elm, Muji)
Adding more complexity to the buying process further increases your need to educate customers. And education takes marketing money – lots of it. Not only are furniture 2.0 companies having to explain their business model, but they also have to differentiate their brand. 3rd party partnerships, which they started with were enticing, but I don’t get the move to private label. Many of these startups have rolled out private label offerings which effectively makes them similar to retailers. I find the idea of getting a Crate and Barrel product on rental more intriguing than a private labeled sofa with a slightly different name and the inability to go test it out in person. This playbook is not new; it’s clearly a way to goose margins but do you risk becoming another furniture retailer with an enormous assortment of sku’s. The only moat I can see is in best in class reverse logistics capabilities and this is not cheap. Furniture rental is a capital intensive business as can be seen from Aaron’s 10q and 10k. Not only do you need last mile solutions but you need significant warehousing capacity and an ecosystem setup to offload end of life inventory.
If I were starting a furniture rental company today, I wouldn’t bother with the complexity of the current models that are out there. Instead, I’d build a software based B2B2C business and put all my financial resources into sales and reverse logistics capabilities (in-house or outsourced). Think about how Affirm and Klarna are B2B2C models; it just makes sense. Retailers don’t want to build the capability to rent their products, but they see a lost share opportunity so they’ve gotten into the game. Even the incumbents see this. Aaron’s fastest growing segment of their business is B2B2C whereby they place their services in traditional brick and mortar retailers. This is the future of furniture rental.