Can't afford the leather jacket you were salivating over at New York Fashion Week? Le Tote, a subscription fashion rental site based in San Francisco, wants to put it within reach.
Founded in 2012 to make designer duds more affordable, Le Tote operates as a hybrid between two popular online fashion sites. Similar to Stitch Fix, a subscription styling service, Le Tote charges customers a monthly fee (starting at $39), and uses a style quiz and member feedback to recommend items. Like Rent the Runway, it allows shoppers to experiment with designer brands by renting them at a lower cost.
Le Tote has raised $27.5 million in three rounds of funding, according to Crunchbase. Its revenue and customer base have grown between 300 percent and 350 percent over the past two years, and it's on track to keep up that pace over the next 12 months. With that scale, Le Tote plans to be profitable at the end of the year, co-founder Rakesh Tondon told CNBC.
But in an increasingly crowded marketplace for these types of businesses, it isn't just pairing aspiring fashionistas with designer goods that makes Le Tote stand out, Tondon said.
By culling information from customer profiles and product reviews, the e-tailer can nail down exactly why a certain sweater isn't performing well, and give that feedback to a designer for changes. Three-quarters of the items on Le Tote's site get rated.
"We took a very data driven approach," Tondon told CNBC. "Traditionally, retail hasn't been that data driven because they didn't have that level of granularity. Even e-commerce companies, they know that the product was purchased, but they don't exactly know why. And they don't know why it was returned."
In one instance, a brand had no idea why a certain dress it designed kept getting returned. But when Le Tote's customers reviewed the item, they said they loved the color and length of the dress — it was just too tight in the bust. Based off that feedback, the brand reconfigured the garment for the next season. In the meantime, Le Tote recommended the existing dress to renters who said in their style surveys that they had a smaller bust.
"We were able to optimize use of that inventory, versus a traditional retailer that would just essentially have to write that down," Tondon said. The company also uses customer feedback to create its own private-level products, which make up roughly a third of its styles, he said.
Still, there are challenges with these types of fashion rental models. From an operational standpoint, some of the biggest issues are the costs associated with shipping as well as managing wear and tear, Brendan Witcher, a principal analyst at Forrester Research, told CNBC.
"If I'm paying $60 a month [for example] to 'rent' a shirt, I won't wear it once — I'll look to get some real mileage out of that," Witcher said. "This means the rental company needs to get that item back to new."
There are also drawbacks on the customer side.
"Most people that care that deeply about fashion actually want to own the brand. They want to build a wardrobe of fashion that they can call their own," Witcher said.
Despite these challenges, fashion rental models should continue to grow in popularity, Vincent Quan, an associate professor at New York's Fashion Institute of Technology, told CNBC. It's become less passe to rent apparel and accessories, especially as millennials aspire to own fewer things.
"It allows you to have the look without making the initial investment," Quan said. "At a certain price point, folks can't afford it… So what do you do? You rent it."