Renting fashion with strategic customers in the sharing economy

A growing number of customers who purchased fashion products, but now start to rent them. Fashion rental business is competing with fashion retailers, but also reduces fashion retailers’ product returns -fashion goods are “illegally” rented by customers, which was one of the most headache issues for the retailer. In this paper, we investigate the illegal renting behavior. We not only examine the impacts of consumer behavior on fashion retailing, but also the tradeoffs between product rental and purchase in the presence of rental services. We find that when the customer valuation is sufficiently low, customers would not purchase anything; when the customer valuation is increasing, customers will change the behavior from renting the product to illegally rent; when the customer valuation is sufficiently large, customers would purchase the product. Moreover, our analytical results show that customers are not willing to return the products if the cost of product returns is sufficiently high, and also are not willing to rent if the rental fee is too expensive. To decrease the illegal renting behavior, the firm can increase the cost of product returns. Last but not least, we identify that the retailer, the renter and the entire retail system could perform better when the renter and retailer are integrated into one group. This result provides important managerial insights on the giant luxury fashion groups such as PPR and LVMH who should merge the rental firms such as fashion renter (e.g. Rent the Runway) or the fashion retailer Ann Taylor releases a new channel to offer rental service, so that improve the entire fashion retail ecosystem.