It’s no secret that technology has already upended established business models; few industries remain untouched by the way it has changed consumer spending and buying habits.
In particular, the rise of the rental economy has had a profound impact on some sectors. We see the effects of disruptors like Airbnb on hotels, Spotify on music, and Uber on taxis, but the rental model is gradually becoming more prevalent across all sectors. What changes can we expect to see over the coming years, and how can businesses prepare themselves for the next big consumer shift?
Rent through the ages
From the ancient Egyptians to the Romans, early patricians were accustomed to renting their property to plebeians. A few thousand years later, the English Magna Carta was signed in 1215 and laid the foundations of the rental marketplace we know today. For the first time since then, we are seeing a huge shift in how and why consumers rent.
Until now, rented items have been expensive goods that few can afford to purchase outright, such as real estate, vehicles, and heavy equipment. The change we’re seeing today is that almost everything can be rented, from power tools to Lego to shoes. Far from being the domain of big-ticket items, the rental economy now includes almost any everyday consumer product you can think of.
78% of Millennials prefer to spend money on experiences over items.
The prevalence of rental as a business model has given rise to distinct subcultures, such as the circular economy and the sharing economy. The former offers environmentally conscious consumers an opportunity to reduce, reuse and recycle the objects they use in everyday life, while also prioritizing the maintenance and refurbishment of items rather than disposal. The circular economy therefore often depends on a business’ supply chain and the practicality of replacing worn parts. The sharing economy, meanwhile, sees consumer-owned goods offered to other consumers, often through intermediaries such as Airbnb or Uber. It’s sometimes known as the ‘peer economy’ for this reason.
Examining the shift
Although the reasons behind the shift towards renting are many, the main cause for the change could be easily summed up as ‘the internet’. Enabling instant access between buyers and sellers so temporary needs can be met easily and quickly, the internet has been the essential ingredient in most short-term rental businesses.
There has also been a cultural movement away from ownership and toward experiences. Driven primarily by younger generations, more than 3 in 4 Millennials (78%) would prefer to spend money on an experience or an event over an item. The rise in AR/VR experiences, immersive pop-up events and interactive content shows that brands are beginning to appreciate how powerful the concept of crafting an experience around an existing business line can be.
Data shows that Millennials are poorer than the generations before them, and the rise of the gig economy means less economic stability than their ‘traditionally employed’ forebears. The continuing move away from brand names towards value-based products, such as the growth of supermarket-own brands, highlights Millennials’ utilitarian tendencies; this generation wants things that are useful, not just cool, and they are less willing than previous generations to spend more for the sake of a brand name. The impact of the Covid-19 crisis is likely to exacerbate these concerns in the coming few years, as well as highlighting the importance of liquid assets and easily cancelled subscriptions.
No less important, however, is the consumer trend towards sustainability: research shows that the EU alone is generating 3 billion tonnes of waste every year, of which 90 million tonnes is hazardous.
What consumers want
Indeed, many consumers are seizing the opportunity to go greener. A recent survey of 6,000 people in 11 countries across North America, Asia and Europe showed that 72% are buying more environmentally-friendly products than they were five years ago, and 81% said they expect to continue becoming more environmentally-conscious in their purchasing habits.
However, quality (89%) and price (84%) are still people’s main purchasing considerations, compared with just 37% of respondents who cited environmental impact as their primary concern. Another study also showed that most people are using rentals to test items before purchasing them (57%) – only 6% said that they rent because they don’t like to own things.
Getting ahead of the rental trend
Although projected to reach a value of $335 billion by 2025, the rental economy is currently being used most by those who want to ‘try before they buy.’ Businesses, therefore, still have time to consider and mitigate the effects that the switch towards renting may have for their organization.
A best-practice example of the opportunity the rental economy presents is US clothing rental brand Rent the Runway. Claiming to have pioneered the fashion rental concept back in 2009, the company is now valued at $1bn, and has a subscriber base of over 100,000 people. Another is LA-based startup Joymode, which offers rentals on everything from movie night bundles to cooking appliances and pool floats. Joymode’s vision is that for anything consumers use less than once a week, it can be hired for a fraction of the price. At the time of writing, they claim to have saved their members $27+ million in non-purchases, 750 US tons of landfill waste, and 71 km in storage space.
Some businesses, however, are visibly in the trial-and-error phase of adapting to the new model of renting. Car financers, for example, came under fire for a controversial ‘no pay, no play’ scheme, in which financed vehicles would remotely lock their drivers out if a payment was missed. The scheme put off potential consumers; they still have to get from A to B even if their primary mode of transport is disabled, therefore an owned car may be a more reliable solution (despite the average car being used just 4% of the time).
Understanding what a consumer values most about a product or service is key to tapping into the rental market: the example above suffered a backlash due to business’ priorities being considered before the customers’. Psychologically, temporary ownership is said to feel more like an investment in an experience, and so businesses should aim to encapsulate as much of this ethos as possible into a rental offering.
Disruption & growth
As well as establishing how to position themselves within the new rental economy, businesses will also have to meet consumers’ new expectations; the trends towards sustainability and away from materialism means organizations must reassess their place in consumers lives. The new business model emerging from the rental economy will require businesses to become more agile, more digital, and more customer centered.
Transforming workplaces is a key aspect of the service Mantu provides. Supporting businesses as they adapt, evolve, and expand, we partner with organizations from the beginning of the entrepreneurial cycle to the end.
As well as connecting high-potential startups with organizations where they can thrive, we’re also experts in Market Intelligence; our team of analysts stay on top of the trends shaping the world of commerce so your business is prepared and ahead of the curve, whatever direction market forces are blowing.
For organizations taking advantage of opportunities within the developing rental market, our dynamic approach to transaction services means risk is mitigated when acquiring or merging with rapid-growth startups already disrupting this promising market.
For now, however, ownership may still have the upper hand when it comes to pre-purchasing the right to use our item whenever and how ever we like. Will consumers give up these freedoms in favor of more sustainable alternatives? Ultimately, what we all most want is convenience. If companies find a way to make renting more accessible and easier than owning, there’s no telling where, or if, it might stop.