Neiman Marcus turns to rental startup to lure younger shoppers

A Neiman Marcus store in San Francisco on July 2, 2013.  Bloomberg photo by David Paul Morris.

Neiman Marcus, facing an industrywide slowdown in department-store traffic, is taking a new approach to getting customers in the door: devoting part of its floor space to e-commerce startup Rent the Runway.

The first in-store boutique will open in Neiman Marcus’s San Francisco branch Friday, with a few more to follow in 2017, the Dallas-based luxury retailer said in a statement Wednesday. The 3,000-square-foot space will showcase a rotating selection of clothes and accessories that shoppers can rent, along with items from Neiman Marcus that customers can buy to complete their looks.

“One of our primary goals is to attract new customers to Neiman Marcus, and I think that because Rent the Runway has developed relationships with these young women who love fashion, we’re going to learn a lot,” Neiman Marcus Chief Executive Officer Karen Katz said in an interview.

Neiman Marcus isn’t the first department store chain to look to e-commerce competitors for a boost. Rival luxury purveyors Nordstrom Inc. and Saks Fifth Avenue have combined online flash-sale websites with their brick-and-mortar off-price chains to bridge the gap between digital and physical.

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Rent the Runway has raised $126 million in venture capital since it was founded by in 2009 by two Harvard Business School graduates, Jennifer Hyman and Jennifer Fleiss. It began as an online-only clothing rental service, then moved into physical space. By the end of the year, the company will have seven brick-and-mortar stores where shoppers can try on dresses and get styling help. The stores attract thousands of walk-in visitors each per week, the company said.

Neiman Marcus, which lost $407.2 million in its most recent quarter, is looking to drive more sales as mall traffic remains sluggish and consumer preferences change. The closely held company says today’s shopper wants to buy styles she sees on runways immediately, not several months later when the clothes typically appear in stores. Consumers also are buying apparel appropriate for the current season, rather than months earlier.

To cope with those changes, Neiman Marcus, whose average customer is 51 years old, wants to connect with younger consumers. The partnership with Rent the Runway exposes the retailers to the startup’s 6 million members, whose average age is 29. Rent the Runway says that when women rent fashionable apparel, it often leads to a later purchase.

“We’ve learned that rental promotes and markets and helps women discover these designer brands,” Hyman said in an interview. “We know that rental, for her, is not a replacement of purchase.”

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Rent the Runway’s San Francisco shop within a shop is about six times as big as other branded stores inside Neiman Marcus, Hyman said. Historically, Hyman has had to soothe retailers’ fears that her model may cut into sales of full-price merchandise. About 98 percent of Rent the Runway members bring home a brand they’ve never worn before, the company says.

“This was a really controversial concept for the industry to get behind,” Hyman said. “It’s a really bold move on the part of Neiman Marcus to incorporate something that people thought would be cannibalistic into the heart and soul of what they’re doing.”

Katz said the partnership with Rent the Runway is an acknowledgment that the consumer world is changing rapidly.

“We’re in some ways running toward the shared economy instead of running away, because clearly the shared economy is here to stay,” Katz said. “Whether it’s Rent the Runway or Uber, any of the ways people are participating in the shared economy, it’s part of our world today.”