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4 Stocks to Gain from Online Apparel Rental Market Boom

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The global online apparel rental market is poised to witness a compound annual growth rate (CAGR) of 9.4% in the forecast period of 2018-2026. The industry could reach $3,299.6 million by 2026, according to a report by Coherent Market Insights.

While the global online apparel rental market operates through various business models such as standalone, peer-to-peer and hybrid, peer-to-peer could dominate the overall online clothing rental market and attain a remarkable CAGR by 2023, a Reuters report cited.

North America, which comprises the United States, Mexico and Canada, is leading the overall online clothing rental market and could attain a year-over-year growth rate of 3.7% in 2023. The online clothing rental market in Asia-Pacific is also expected to witness a CAGR of 3.1% in the 2015-2023 period. Emerging economies such as India and China are further boosting the expansion of the online clothing rental market in the region.

Factors Fueling the Online Clothing Rental Industry

The increasing penetration of Internet and rapidly shifting consumer inclination toward online retail channels from brick-and-mortar stores are boosting the growth of this new market. More consumers are now switching to online retail portals, fueled by the advancement in telecommunications and mobile Internet technologies. This trend could boost the online apparel rental market in the next 5-6 years. 

As Internet connections are faster in developing countries, demand for online apparel rental services will rise rapidly due to a deeper market reach of these businesses. In fact, the total number of Internet users has grown to 4,157 million in 2017 from 3,079 million in 2014.

The easy availability of designer and premium brand clothes for rent at a much lesser price has increased the popularity of online clothing rentals immensely. The rapid growth in fashion trends and the urge to not repeat outfits on social media are also major driving factors that are boosting the online apparel rental market.

In addition, ongoing improvement, research and development in the online clothing rental market are also helping the market to expand. Apparel as a form of service rather than commodity is what clothing rentals are banking on, which readily fits growing consumer demand for lower-priced, good-quality clothes.

The circular business model of the overall clothing rental industry could also boost the online clothing rental market since it helps companies generate long-term revenue along with short-term ones.

4 Stocks to Benefit

Given the growing demand for the online rental apparel in the approximately $120 billion American women's clothing market, one could track a few companies that are either key industry players or are heavily investing in this segment.

Domestic online apparel rental companies such as Rent the Runway, RTW Retailwinds (RTW - Free Report) , UniFirst (UNF - Free Report) , Lending Luxury, Le Tote and Gwynnie Bee etc are tapping into this new market with lucrative offers to entice mainstream shoppers into renting full-time. Girls Meet Dress and Chic by Choice in the United Kingdom and Glam Corner in Australia are also reinventing the way customers treat apparel.

In fact, online retail giants such as Alibaba (BABA - Free Report) are investing in the industry as well. The Chinese e-commerce giant’s CEO Jack Ma and Joe Tsai invested $20 million in New York-based Rent the Runway last year. According to PitchBook data, Rent the Runway was valued at $770 million as of 2018.

Alibaba currently carries a Zacks Rank #3 (Hold). Its Zacks Consensus Estimate for current-year earnings has risen 3.8% in the past 60 days. The company’s expected earnings growth rate for the current year is 3.4%. In addition, the stock has gained 33.5% compared with the S&P 500’s gain of 11.1% on a year-to-date basis.

RTW Retailwinds, formerly known as New York & Co., had launched its clothing subscription service in 2017. According to MarketWatch, the company had total assets worth of $303 million as of 2018. RTW Retailwinds currently carries a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 80%. In addition, the stock has gained 7.4% on a year-to-date basis.

UniFirst is a leading rental company for work-wear, uniforms, protective apparel etc. The stock currently carries a Zacks Rank #3 and has gained 0.5% on a year-to-date basis. In addition, the company’s expected earnings growth rate for next year is 6.3%.

Recently, American Eagle Outfitters (AEO - Free Report) also started testing an apparel rental service called Style Drop, which allows customers to subscribe for its services at a monthly fee of $49.95. The stock currently carries a Zacks Rank #3. The company has an expected earnings growth rate of 26.7% for the current year. In addition, the stock has gained 5.5% on a year-to-date basis.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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