The car rented for the last touring vacation, the evening dress that allowed us to go to the super elegant ceremony without spending an astronomical amount of money, the very expensive equipment we needed to shoot our short film, the ergonomic chair we used the time we were stuck far from home because of the pandemic and we had to work remotely – and our back still thanks us.
These are just some of the possible use cases of the rental economy, which is still too often confused within the nebulous universe of the sharing economy. In this post, we will try to make order among the human and professional events that we all experience with increasing frequency – and we will try to define the boundaries of the market that revolves around the many aspects of rental. Let’s start with a few clarifications.
What is the rental economy?
Let’s start from the beginning: what distinguishes the rental economy from the sharing economy? To answer this question, it is first of all essential to recognize the two categories to which the digital platforms of the so-called sharing economy belong.
- On the one hand, there are forms of sharing of goods and services, real material, and immaterial exchanges that are essentially free of charge (the extreme case is that of the gift economy): there is no economic transaction but only a sharing of experiences or information that allows users to relate, participate in the same good, and optimize costs in a perspective of eco-sustainability
- On the other hand, there are commercial activities that offer a service in exchange for an economic consideration: the platforms are then configured as a place where services and products are offered to meet a specific need of the consumer, by users who behave like real entrepreneurs
And now back to the question of the title: yes, the rental economy represents the new frontier of the sharing economy because, in fact, what we call the sharing economy is often not based on free sharing at all, but on rental. For this reason a more suitable expression would perhaps be “pay as you go,” where the term “rent” (like that of cars) recalls the concept of payment for the services offered indicates that the supplier of this offer is not always and only a structured company, but also a single private individual.
Rental in the Italian context: constant growth
And in Italy? While it lags behind most foreign countries, the use of rental machines and equipment, capital goods, work systems, and even business units is now a recognized necessity in most sectors. In this sense, the contribution of technological innovations, economic contexts, current trends, and the evolution of the sociological context that has been pushing towards a culture of use rather than ownership at all costs, is fundamental.
However, the Italian market still lacks a system of specific rules that can legally frame the rental and the companies who are entitled to offer it professionally.
So far, we have described the context. Now, let’s shift the focus of the discussion to the public and look at the reasons that have allowed the rental economy to establish itself in recent years.
Secrets of success for the rental economy
In 2011, among the most influential trends that were changing business models and consumer behavior at that time, Mintel included different forms of “rental.” Consumers had begun to evaluate whether it was worth taking the risk of buying something – assuming all the responsibilities of ownership, accepting possible maintenance activities, and the commitment of an often considerable financial investment versus the alternative of renting the same product or service.
In general, there are different reasons behind the choice to rent, which are determined by the social and economic context, value system, and the concerns and preferences of different audiences. Let’s take a quick look..
The social and economic context: the need for perspective
According to Mintel, during the last recession (2007-2013), the adoption of non-traditional purchasing models other than those of traditional purchase accelerated. This was when the traditional objective of home ownership began to fall off the top of people’s list of priorities. In Great Britain, the so-called “renting generation” emerged in these years. In 2011, students and young professionals were facing daily housing problems, so much so that 86% of them were not planning to buy a house at all, as they could not afford it in the first place. Since then, in the UK, the situation seems to have radicalized: millennials are renting, even for very long periods of time.
The link between economic uncertainty and housing hardship is perhaps emblematic of the correlation between the effects of the sharing economy and austerity that Trebor Scholz discussed in his article, “Platform Cooperativism vs. the Sharing Economy.” In 2014, Scholz came to two conclusions:
- the shock waves of the policy of restricting consumption and eliminating waste (implemented following the 2008 economic and financial crisis) had deeply affected the sharing economy, helping to transform it into its current forms;
- the sharing economy had to be subjected to a more careful reflection before it could be considered as a way to ecologically sustainable capitalism (source: medium).
If we take a more critical point of view, there is a growing demand for putting the sharing economy into perspective (source: Putting the sharing economy into perspective, Koen Frenken, Juliet Schorb).
Cultural motivations: Rental as an eco-sustainable business model
Much weight has often been given to the central intention that would move both consumers and brands engaged in rental: the desire to act responsibly towards the planet. Car sharing platforms now have fleets of hybrid or electric cars in many cases, and clothing rental has enjoyed some success because it was perceived as a way to stem the environmental damage caused by the fashion industry and to return resources to the community.
At the base, therefore, there would be environmental reasons: renting would encourage the more efficient use of all types of capital goods, leading to a decrease in the use of natural resources and pollution in the production of these goods. This would allow consumers to recover their investment and increase their wealth, even partially, according to a mechanism typical of the rental circular economy. In addition, a sharing economy, and to a different extent also a rental economy, would stimulate social cohesion.
Products and services of the rental economy – use cases
At the dawn of the sharing economy, brands and institutions faced with a number of critical transportation issues, especially in an urban context, inaugurated rental and sharing solutions. New York City’s bike-rental service quickly grew to 10,000 bicycles, while in France there was a boom in car sharing (source: Mintel).
Although the current rental market is still in its early stages, the momentum in the sector over the past year is enough to threaten even the largest retailers, forcing them to rethink their business models. Among the products that consumers rent, in addition to cars and other means of transportation (bicycles, mopeds, scooters, etc.) we find gaming systems, clothes, tools and technology, and equipment and machinery.
Women are more likely to rent furniture, clothing, and jewelry, while men seem more interested in renting equipment and video game consoles. In any case, goods are mostly rented on an as-needed basis (source: World Economic Forum).
Lights and shadows of rental in the apparel sector
According to GlobalData, rental in the apparel sector will be worth £2.3 billion by 2029.
Clothing rental, popularized by companies such as Rent the Runway and celebrities such as Gwyneth Paltrow and Ralph Lauren, until recently was thought of as a sustainable alternative to fast fashion (an industry that, according to a World Economic Forum report, generates 5% of global emissions).
However, even if advertised as a possible solution to the environmental crisis of fashion, clothing rental presents several critical issues that are still not fully clarified. Many are asking for a more precise and articulated evaluation of the consequences of these processes.
According to Dana Thomas, author of Fashionopolis: The Price of Fast Fashion and the Future of Clothes: ““We should think of renting like second-hand shopping. [It’s] not something we do all the time, instead of buying our clothes and swapping out outfits nonstop, but on occasion, when the need arises, like proms [or] weddings.”” (source: Renting clothes is ‘less green than throwing them away, The Guardian).
Rental and furniture: the IKEA experiment
In 2019, Ikea began renting furniture as part of a broader effort to build an environmentally friendly business, testing rental within its green and social responsibility initiatives.
Starting with office furniture such as desks and chairs for corporate customers, IKEA also plans to rent entire kitchens. This strategy, which we could refer to as “leasing,” is part of an organic effort to promote services capable of extending the life of a product, with a view to designing and selling goods that can be repaired, reused, recycled, or resold. An innovative “circular model,” in the words of Torbjorn Lööf, CEO of Inter Ikea (source: Kitchen for rent? Ikea to trial leasing of furniture, The Guardian).
Digitization and rental: the tools for building a valuable relationship
If we have used the term “digital platform“ several times – in the sense of hardware or software infrastructure for the distribution, management and creation of digital content and services – it was no coincidence: the sharing economy, and therefore the rental economy, has become established, gradually acquiring an increasingly precise structure through the use of new technologies.
And if, thanks to the proliferation of apps on our smartphones, obtaining (or offering) what we want for short periods of time has never been so simple, it’s good to remember that the sharing economy, the gift economy, and the rental economy, which today exists in technically advanced manifestations in numerous programs and applications, actually has very ancient origins.
The turning point: the systematic and strategic use of digital technology
The turning point in the recent history of the sharing economy – within which the rental economy is developing – comes with the mass adoption of new technologies, which allows the rental economy to expand further.
Digitization makes a wide range of transactions simpler and cheaper. We experience this on a daily basis with rental, lending, and sharing platforms, which allow us to have a clear and concise overview, in real time, of the availability of various goods, and to make reservations and payments easily and immediately. This gives us access to a wide range of products and services without having to buy anything or being tied into long-term contracts.
One example out of all, repeatedly cited, is that of Airbnb, which in the rental sector exploits the possibility of simple, fast, and theoretically frictionless connectivity: travelers can rent a property or a room anywhere and anytime with just a few clicks.
The risk of depersonalization of the brand-client relationship
It can still happen today that some rental service players, in order to gain a competitive advantage, tend to focus predominantly on price leverage. But focusing almost exclusively on convenience, offering unlimited access or hourly rates, can lead to the temptation to delegate rental functions completely to digital tools. The risk here is to lose sight of what should be the main objective of any brand: building a valuable relationship with customers.
Being flexible – which is one of the key factors in succeeding in distinguishing oneself – must not refer exclusively to a nonchalant and in some ways irresponsible use of the new tools. It cannot be the only quality in which the rental company must invest. If digitization represents an extraordinary development opportunity for the entire sector, the revolution that followed digitization only partially deals with technology.
Digitization to enable a continuous dialog with the customer
In rental, the need for personalization cannot be ignored: the user-consumer must be carefully identified because rental is nourished by a constant dialog with the various subjects who oversee value throughout the supply chain and who guide the purchase choices of services by bringing together all the company components, customer side (source: rentalblog).
Digitization enables a continuous dialog with the customer, and in rental, this aspect is particularly significant: in its processes, at every stage, it is clear that the customer is the protagonist at play. It is the customer who validates (or not) the digital solution adopted, using it – with satisfaction or difficulty – to rent products or services. And it is always the customer who, through reviews and personal recommendations, has the power to influence, even to a considerable extent, the activities of the brand.
Technological innovation, which has irreversibly changed the cards at stake, has brought people back to the center of attention in organizations, imposing greater investment and consideration on the CX side. Users-consumers have become increasingly aware and capable of critical use of the technological solutions available to them. In their evolution, they have decisively shifted the balance of the human-machine relationship towards the human element.