How one woman is going after a $17B opportunity

Susan Caminiti, special to CNBC.com

You never know what can trigger a breakthrough moment. Christine Hunsicker can attest to that.

The serial entrepreneur who has helped launch two high-tech start-ups — including RightMedia, a direct marketing advertising firm purchased for $850 million by Yahoo in 2007 — is now busy building her latest venture: an online subscription rental clothing service for women sizes 10 to 32. The idea for her company, called Gwynnie Bee, was spawned in part by her fond memories of sharing garments with her cousins as a child.

Christine Hunsicker
Source: Gwynnie Bee

The 38-year-old may be on to something big. A growing number of women who love fashion are deciding they don't necessarily need to own all the clothing hanging in their closet. Apparel rental and subscription services, such as Gwynnie Bee and rivals Rent the Runway, Le Tote and Borrow for Your Bump (maternity), are giving women the chance to rent rather than own an increasing part of their wardrobe.

But Hunsicker's decision to target the plus-size women's apparel market may give her an edge in an increasingly crowded field. "This is a huge business segment, but traditional retailers have never really capitalized on its potential," explained Laura Sossong, a senior consultant with Boston Retail Partners. According to NPD Group, it accounts for more than $17 billion in sales.

Love that cool print skirt or funky jacket? Rent it, wear it a few times, and then send it back in exchange for a few more items. Think Netflix for the little black dress.

This newest twist on the sharing economy — defined in large part by taxi service Uber and home-rental site Airbnb — has the potential to disrupt the roughly $120 billion U.S. women's apparel market, experts say, and forever change how and where women get their fashion fix.

We allow women to take more risk with their wardrobe, because they will rent and wear so many more things than they would ever buy.
Christine Hunsicker
founder of Gwynnie Bee

"The idea of accessing consumer goods rather than owning them just feels less strange these days," said Rachel Saunders, director of insights and partnerships at the Cassandra Report, an ongoing study of emerging trends and generational insights based in New York City. "We can rent a room in a house, and we download our movies, music and entertainment. Clothing has a place in this new way of thinking."

Gwynnie Bee's online subscription model is pretty straightforward. Shoppers sign up on the company's website and add items from nearly 200 brands and designers to their virtual closet. Subscriptions start at $49 a month for one item of clothing, although the company says the most popular option is $95 a month for three items. Select the garments you want from your virtual closet that month and Gwynnie Bee sends them to you, along with a prepaid envelope to return the items whenever you're done wearing them. There's no need to wash or dry-clean anything; Gwynnie Bee takes care of all that in its giant warehouse, near Columbus, Ohio.

Hunsicker started the company in 2013 after spending three years researching a number of different industries, including health care, advertising, travel and data, trying to decide what her next move would be. The one business that really caught her attention was apparel. "It's a basic necessity, and it really hasn't been disrupted by technology in any meaningful way," she said from Gwynnie Bee's loftlike headquarters in Long Island City, New York. "One of the things that's still difficult to buy online in a satisfactory way is clothing."

Rent The Runway store in New York.
Rent the Runway's designer closet tops $800 million

As Hunsicker dug deeper into the market, the demographic represented by women size 10 and above just came "shining through as a no-brainer," she said. Among its strengths, she found that it comprises 75 percent of the adult female population, with nearly two-thirds of those women size 14 and over. Perhaps most attractive of all, it's a segment that's been underserved by department and specialty stores for decades.

Hunsicker's next move was figuring out which business model could best serve this massive market. She certainly knew that Rent the Runway, the online rental service for designer dresses, gowns and accessories, had launched several years earlier in 2009 and was the biggest player in the space. But Hunsicker says she was more attracted to Netflix's approach of all access for one price rather than the transactional nature of Rent the Runway's business model.

"What was more compelling to me about the Netflix model is that you're creating this ongoing relationship with the consumer every month," she said. "When you do that, you're able to create engagement that unlocks data about that customer. We didn't think renting a dress for four days and then sending it back provided enough customer data to improve the experience of shopping for clothing online."

Apparel rental and subscription services have the potential to disrupt the roughly $120 billion U.S. women's apparel market, say experts.

Hunsicker's own childhood experience with clothing apparel was another spark for the business. Growing up in the little town of Berlinsville, Pennsylvania (midway between Allentown and the Poconos), Hunsicker's aunt made all her clothing. She and her cousins swapped garments, and no one wore anything more than once. "After that, it was sent to a consignment shop to get money for more material for more clothes," she said.

This idea of a rotating wardrobe shared with others was the beginning of Gwynnie Bee. (The name comes from a character that Hunsicker created for a children's book.) Basically, the business model asks customers to answer one question: Do I like the item enough to try it?

"We allow women to take more risk with their wardrobe, because they will rent and wear so many more things than they would ever buy," she said. "If you make a bad decision with a purchase, you have something you've spent money on and it's hanging in your closet taking up space. With us, you just send it back."

Hunsicker won't reveal how many subscribers Gwynnie Bee has but says the company has shipped out more than 3 million boxes since it started. According to CrunchBase, the privately held company has raised about $8 million in financing so far from venture capital firms, including Cava Capital and Grace Beauty Capital, and claims that sales are growing 15 percent month-over-month. (Hunsicker won't confirm its investors or how much money the company has raised.)

While the company hasn't yet posted a profit, Hunsicker remains optimistic. "We're getting there," she said.

Gwynnie Bee's ability to get into the black won't be for lack of opportunity, retail experts say. "I think the company is pretty brilliant to tap into the plus-size segment," said Sossong. "They've created this community on their site, where it's more than just a clothing rental service. There's a social support element to their model, where plus-sized customers feel welcome and accepted."

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One of the potential hurdles Gwynnie Bee needed to clear early on was the fact that its clothing would be worn by multiple women. "What we heard from shoppers during our market research was that as long as the clothing looks and feels brand new, and doesn't have any kind of odor, they were fine with it," she said. "They felt the economic value they were getting was great enough for that not to be an issue."

The company takes that pledge of cleanliness quite seriously. At its 250-person warehouse in Ohio, each garment is washed or dry cleaned after every return. It's then inspected for stains, damage, or odor by three different employees before it can be re-boxed and shipped out again to the next customer. When a garment no longer looks new, it's taken out of circulation.

Hunsicker claims that plus-sized brands, such as Karen Kane, City Chic and IGIGI, to name a few, love Gwynnie Bee because it's become the largest buyer in the market. "We can take more risk with inventory because we're renting it multiple times rather than trying to guess what's going to sell, so we'll often buy the majority of what a brand is offering," she said.

And because Gwynnie Bee is collecting so much data on each customer, such as what labels she likes, her size and the type of fashion she selects for her virtual closet, the company can develop a much closer and more valuable relationship with that shopper, and that in turn is attractive to these brands as well. "We can make recommendations on styles and sizing because we're talking to this customer all the time, not just once in a while," Hunsicker said.

By Susan Caminiti, special to CNBC.com