Amazon is missing a giant opportunity and it leaves the door wide open for someone else to steal a chunk of the market (AMZN)

Daniel Zuchnik /Contributor for Getty Images

Increasingly, people don’t want to buy stuff. They want to rent it.
The segment is growing and retail rentals are projected to near $2 billion in sales worldwide by 2025.
Still, the largest online sellers, like Amazon, have not moved to cash in on the trend.
Experts say that’s because rental is hard to do right, and it’s expensive, so the margin potential is likely not yet worth the investment.
Visit Business Insider’s homepage for more stories.

Buying products is so 2010.

Increasingly, people would rather rent rather than own their belongings. Billion-dollar companies, like Rent the Runway, have been formed to take advantage of the trend. Clothing makers like Urban Outfitters, Express, and others have jumped in to compete.

And the trend will likely only continue as today’s youth age up.

Many of the 1,800 Generation Z members Business Insider recently surveyed indicated that they favored sustainability and uniqueness over commodity goods, which makes them strong candidates for rentals.

"Gen Z lives their life in the cloud — their content, entertainment, and music all exist in the cloud with unlimited choice," Rent the Runway CEO Jennifer Hyman told Business Insider’s Mary Hanbury. "We are offering them the exact same thing for their physical lives."

But it’s not just clothes. Everything from vacuums to camping equipment is now up for rental at a variety of outlets, from startups like Omni to old guards retailers like outdoor seller REI, which is heavily expanding rental offerings.

For some high-priced brands, rental offers a chance to allow young consumers access to their products at an easier entry point, and maybe even hook a customer for life.

"They don’t necessarily want to commit, but they have disposable income and they want nice brands and want nice furniture and they appreciate good design," Neela Montgomery, CEO of Crate & Barrel, said at a conference in March, according to the New York Times. "We want those customers to appreciate CB2 and Crate at the earliest age."

But Amazon, the largest online retailer in the US, is nowhere in the rental space. It offers rental textbooks for students, but that’s it.

It’s not hard to imagine some savvy entrepreneur creating the Amazon of Rentals while there’s an opening. Many are already trying.

The hold up may be that rentals are a hard, low-margin business and that demand isn’t meaningful enough yet to attract Amazon, from either an acquisition or an in-house standpoint.

"I don’t think it’s that big a market opportunity," Sucharita Kodali, a principal analyst at Forrester, said, referring to the retail rental market. "Amazon grew by $40 billion last year. No rental business is anywhere near that large."

It’s hard to put a number to the size of the market as a whole, due to its many sectors and players. The online clothing rental industry is projected to double from $1 billion in 2017 to $1.9 billion worldwide by 2023, according to a report by Allied Market Research.

Rental is also expensive. Startup costs for rental businesses require the retailer to foot the bill for designer dresses, furnishings, expensive electronics, or outdoor equipment without getting a real return until customers rent it a number of times.

It also requires the retailer to master the process of getting items back to them, cleaning them and preparing them to be sent back out again. Quality control and safety for some products are also an issue.

That really isn’t in Amazon’s current wheelhouse.

"They try really, really hard to just be operationally focused on how quickly they turn products through their buildings," said Jim Hull of JDA Software.

For Amazon, "it’s always about getting things, whether that’s digital content, physical goods, directly to the consumer in the fastest, easiest way possible," Tom McLeod, CEO and founder of rental company Omni, said. "And historically, their business hasn’t been around to the circular economy, and getting the things back."

Creating a reverse logistics pipeline that could handle the return part of the rental is something that Amazon does not have expertise in. And they can’t just conjure one out of thin air.

"Quite simply, rental requires a lot of work," Bob Phibbs, a retail consultant, said.

For high-ticket items — watches, cocktail dresses, handbags, jewelry — another way in which rental is labor-intensive is the process required to authenticate the returned goods to ensure they are not counterfeit. That process is both time-consuming and expensive.

It also "doesn’t really scale," Phibbs said.

Another issue is the management of inventory, where Amazon will have to keep, store, and warehouse seasonal items when they aren’t being rented, for example, camping equipment in the winter or wool suits in the summer. That runs counter to Amazon’s standard method of operating, which is to get inventory in and out as fast as humanly possible.

Getty/Beata Zawrzel

Retail rental has also not yet reached mass adoption. According to a survey of 1,000 customers performed by JDA Software, only 25% of customers said they have used a rental service. Of those who had, 75% said it was for renting apparel for a special occasion like a wedding.

That doesn’t mean Amazon isn’t considering the rental space.

Earlier this year, Amazon offerred rentals of musical instruments in addition to the textbook rental it still offers. The instrument option is not currently available.

Amazon did not respond to Business Insider’s request for comment.

"Right now, [the website is] only their textbooks, but the way they have worded it, and the way you get to it from some of the different links, implies that they built it to cover a whole lot more," Hull said.

There are also two job openings Amazon is hiring for a program called "Rentals by Amazon," which has a different name than the "Amazon Rentals" logo on Amazon.com/rentals page.

Amazon may be forced to reckon with rentals eventually, as customers — especially younger ones — turn their focus to sustainability and trying to lower the impact of consumerism on the planet.

"It would be myopic to assume that Amazon would never look in this direction because they look kind of in all directions," McLeod said.

"But do I think that they will be the incumbents’ first mover into the space? I very much do not think that."

NOW WATCH: A handbag expert explains why Hermès Birkin bags are so expensive

Source: Business Insider – dgreen@businessinsider.com (Dennis Green)