Will clothing rental companies survive the coronavirus pandemic?

Rent the Runway, Le Tote see surge in demand for athleisure wear

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Clothing rental companies may need to redesign their business models to fit into the new work from home normal, retail analysts say.

Fewer workers are relying on ready-to-wear staples like slacks, blazers and designer dresses as more companies allow employees to continue to work from home. Now, comfort is king for work wardrobesand consumers with income to spare are buying, or maybe willing to rent, comfortable clothing.

More than 50 percent of Rent the Runway's clothing rental sales have been casual and athleisure items between April and May. (Photo by Kelly Sullivan/Getty Images for Rent the Runway)

"You have more people working from home; that trend could likely be around for three to 12 months longer depending upon how the vaccine trials go in different states, but the high-end clothing rental market could really suffer as a result," Jerry Sheldon, a retail analyst at IHL Group, told FOX Business Wednesday.

The economic impact of COVID-19 has hurt many retailers throughout the country, including the likes of J. Crew and Neiman Marcus, which both filed for bankruptcy. And major events like proms and weddings have been canceled because of the virus, so clothing rental services have missed out on a major revenue stream from designer rental sales.

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Sarina Appel, a New York City-based entrepreneur who dines out practically for a living for her job in culinary and design public relations, says she canceled her Rent the Runway membership around the time the COVID-19 virus broke out in mid-March. She had been a member since January, but now since she's working remotely, she has no use for work clothes, so she put her membership, which costs $159 a month to rent four items at a time, on pause for two months, and plans to keep it on hold for another two.

"There's no place to go," she said. "I work remotely and [have] no events to host or people to meet out for tastings."

Companies have extended their work-from-home policies late into the year or into the next year. On Tuesday, Twitter announced that its employees could decide if they wanted to work from home indefinitely. Earlier this month, Amazon and Microsoft said workers with the ability to do their jobs remotely could continue to do so until the fall. And Facebook and Google have also made work from home optional for employees through next year.

Pants sales dropped 13 percent and jacket sales were down, 33 percent according to new data from Adobe. Meanwhile, Loungewear sales, including pajamas, surged 143 percent.

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Rent the Runway, which specializes in renting out designer dresses and workwear for women,  has been able to keep its warehouses open, but the company furloughed roughly 35 percent of its corporate employees in March, according to Business Insider. Le Tote, which bought struggling department store Lord & Taylor in hopes of expanding its clothing rental business, also announced layoffs for most of its employees last month at both companies.

It's not all bad news, however.

Clothing rental companies have seen a surge in athleisure wear rentals too.

More than 50 percent of Rent the Runway’s clothing rentals between April and May have been for casual and athleisure wear, a source told FOX Business Wednesday. The $1 billion startup rents out apparel like leggings, pullovers and jackets, which can sell for upwards of $100 from brands like Adidas, Tory Sport and Lululemon, for around $30 a piece.

Athleisure rentals at Le Tote, another women’s clothing rental service, have also increased nearly 120 percent in March, according to the most recent data. Legging rentals increased nearly 100 percent, and jogger rentals jumped 200 percent. The company has also been advertising activewear clothing on social media encouraging followers to "go for that walk" with images of T-shirts and yoga pants.

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Sheldon says that more consumers will likely buy than rent loungewear and activewear items in months to come.

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"I don't see a massive market for those types of products in the rental market," Sheldon, the retail analyst said. People ask, "'Why rent leggings when I could pay 40 percent more on something brand new?'"