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London-based By Rotation is bringing its peer-to-peer rental platform to the US. But the sheer size of the country has made it hostile territory for past companies looking to launch similar startups — will this time be different?
Founder and CEO Eshita Kabra-Davies is up to the challenge. “The vision with By Rotation was always to make it very global,” she says. “The peer-to-peer space is a huge gap in the [US] market. Given that there’s an imminent recession, and there’s been a cost of living crisis, people are talking more about side hustles. [Peer-to-peer] is a very attractive proposition.”
The app first launched in the UK in 2019, where it now counts 330,000 registered users and 68,000 listings. It went live stateside at the end of May, after closing a $2.9 million seed round in March led by Redrice Ventures to help fund its international expansion. Focus has been on accruing inventory and drawing in users, and By Rotation US now counts 2,000 garments available to rent across 20 states, up from 1,800 items in 15 states at launch. More than 10,000 users have downloaded the app.
The peer-to-peer rental model is more established in the UK, where By Rotation competes with the likes of Hurr and My Wardrobe HQ. It works by enabling consumers to rent items from other consumers. Lenders list their items on their profiles, with a price and minimum lend period, and renters select the garment they want and for how long. It’s up to the lender to send the item directly to the renter, and vice versa on return.
Aaron Cheris, head of the Americas retail practice for consultancy Bain, attributes the model’s popularity in the UK to a number of factors: sustainability being a bigger driver of consumer behaviour; logistical ease (higher population density, smaller shipping distances and higher click-and-collect penetration); and the UK having, on average, lower disposable incomes, driving consumers to seek cheaper alternatives.
Globally, online rental fashion is currently valued at $2.279.9 million and is expected to grow 10.6 per cent to $6.24 billion by 2033, according to a report by research firm Future Market Insights, with the US being the biggest consumer of clothing rentals. It’s why By Rotation expanded here first, and lessens the burden of education. “You could say we have second-mover advantage, because rental is already so well-known,” says Kabra-Davies.
However, peer-to-peer is a harder sell. Early player Closet Collective, founded in 2013 in New York, shuttered in 2019. Fashion rental company Wardrobe abandoned peer-to-peer last year in what CEO Adarsh Alphons describes as a “hard pivot”. It’s staying in fashion, but next steps are yet to be announced. The most prominent US-based peer-to-peer player is Tulerie, founded in 2018 by Violet Gross and Merri Smith.
Whereas incumbent rental players like Rent the Runway operate on a membership model, and rent out more everyday items, peer-to-peer services tend to lean more towards one-off, luxury offerings for special occasions, Alphons says. This means people want items quickly — and requires planning that people don’t always account for. American consumers in particular want convenience, Gross observes, noting that orders skyrocketed when Tulerie recently added a three- to four-day delivery option (down from its usual seven). Speedy delivery times are harder to achieve in a country approximately 40 times the size of the UK. Peer-to-peer also requires a shift in thinking. “When Airbnb came out, it was so different, it was a little frightening to stay in somebody’s bedroom,” Gross says. “People are having that same thing right now where wearing somebody else’s dress feels weird.”
With limited existing offerings, By Rotation has the opportunity to capitalise on the market’s white space. Will consumers opt-in?
Peer-to-peer: A tough nut to crack
Tulerie’s Gross is surprised — and disappointed — by how long peer-to-peer is taking to catch on. “Frankly, I expected it to grow faster,” she says. “When you look at what’s happening overseas, in the UK and Australia, they are leaps and bounds ahead of what we’re doing [in the US].”
For second-time founder Alphons (whose first company, ProjectArt, is an art education programme for underserved youth), the primary problem with peer-to-peer rental isn’t that it’s not a good idea, nor that people don’t want it. “It comes down to basic economics.” Between the multiple shipment costs, cleanings cost, and (potential) repair costs, there’s minimal money to be made on any single rental. This spells trouble for profitability, Alphons says. “I would be very, very surprised if someone made this work. The capital efficiency just isn’t there.”
By Rotation is not profitable, but says it expects to be by 2025 — which, the founder says, is a conservative estimate, given the expected growth across the US (a market eight times larger than the UK, where the app will continue to scale). The company does not share revenue figures. Kabra-Davies is confident in By Rotation’s ability to crack the code — via a hands-off approach. On By Rotation, the renter pays both shipment fees. The company advises next day and tracked — if items are late, the lender pays a late fee. By Rotation also offers in-person meet-up options for those in the same city. The company takes 20 per cent on each end (renter and lender), resulting in higher profit margins.
“There’s no point doing everything seamlessly for the customer, because that’s a service level you will not be able to commit to as you scale up,” Kabra-Davies says. “We’ve been very, very careful to ensure that our customers understand this is completely peer-to-peer.”
A social network
Kabra-Davies identifies several differentiators that position By Rotation for stateside success. Its “pure” peer-to-peer business model is an asset, she says. Bain’s Cheris agrees, identifying a lack of inventory risk as the main benefit. It also has brand recognition that its predecessors lacked, meaning more items and transactions. That said, By Rotation’s biggest draw, according to its founder, is that it operates as a gamified social network. Where other platforms have an associated website, By Rotation is app-only.
“The app is what’s carried us forward,” Kabra-Davies says. “We’ve developed it like a social network. Everything else in the fashion rental space feels very e-commerce.” By Rotation also doesn t require a subscription like other rental platforms.
With the capital it’s raised, By Rotation has focused on perfecting the US app and hasn’t yet spent any money on local advertising. It has, however, reached out to individuals that Kabra-Davies calls “key tastemakers” about listing their clothes on the app, replicating its UK strategy where the likes of actor Helen Mirren and model Amelia Windsor rent their wardrobes for charity. Creator and writer Chrissy Rutherford, who splits her time between New York and London, has pieces listed in both regions, and US players such as Sierra Mayhew, fashion editor of digital fashion publication Who What Wear, are on board.
If it’s the tastemakers that recruit users, it’s the gamification that keeps them there, Kabra-Davies says. Renters need a certain amount of ratings and reviews to access higher-value items. Lenders get access to resale once they have a green tick, which relies on the same metrics. These make it desirable to interact and spend more time.
A larger playing field
The US’s size and competing city centres make it a logistically challenging country for a peer-to-peer model to succeed — but also means there’s more space to grow. By Rotation’s UK business is centred around London, where users often drop off to one another in-person, upping the speed and convenience of By Rotation’s service. The view is to expand this setup to the US, once any one state has enough users.
However, this will take time to build. For the time being, sending items across the country is a larger — and slower — feat. It’s one Tulerie is familiar with. “So much of our inventory travels across the country. That isn’t as [quick and] convenient,” Gross says. That can deter users. If items won’t make it cross-country the same day, where is the motivation for enough users to get on-board that in-state and in-city networks will build up?
By Rotation is banking on building community to get around this. Because of the social network element, Kabra-Davies expects renters and lenders to be keen to engage with one another and spend more time with each rental.
Tulerie’s Gross also flags the complexity of marketing ‘to the US’. “We’re not just marketing to London; we’re not just marketing to New York. We’re spread in a lot more directions — it’s like a web. The amount of places and types of people we’re trying to reach is huge. There isn’t one core user.”
To this end, By Rotation has tapped not only fashion editors, but a range of notable individuals including climate activists and fitness instructors, in a bid to appeal to a broader audience. “We’ve got a range of women on the app that aren’t just ‘fashion people’, but women that you look up to and aspire to be,” Kabra-Davies says. Local news coverage has also helped expand the platform’s reach outside of the key coastal cities like New York and Los Angeles. After being picked up by CNBC, it made its way to CBS San Diego and Fox News in three states. “We’ve seen people in states that we weren’t even thinking about yet, like Indiana, listing their items because we got picked up by local news.”
Kabra-Davies believes this larger playing field will be an asset, not an inhibitor, to By Rotation’s growth. “The US is going to be the biggest market for us,” she says. “It’s really our area of focus.”
Clarification: A quote from By Rotation was edited for clarity.
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