Armarium - Case Study PDF

Preview

Summary

Case Study...

Description

Armarium Case Study Analysis

Market Trends Analysis The sharing economy is on the rise, especially within the rental fashion market. Financial forecasts predict an compounded annual growth rate of 8.7% between 2020 and 2025. (Businesswire, 2020) This

would see the clothing rental industry reach a market value of US$ 2.08 Billion in 2025, up from US$ 1.3 Billion where it currently stands. Changing marketing environment factors are responsible for the thriving industry. Consumer culture amongst today’s society has outlawed the right to wear fashion items on a repeat basis, a fact highly attributable to social media. This trend has left consumers looking for alternatives to ownership and the high prices that are associated with it. Consumer perceptions that once viewed rental fashion as taboo are dissolving as rental becomes more acceptable, even for the upper class. The clothing rental industry is no longer restricted to wedding dress or tuxedo rentals. The expanding industry is penetrating an increasing number of market segments, reaching consumers who want day-today wear as well as consumers on the opposite end of the spectrum. Those being individuals who want

day wear as well as consumers on the opposite end of the spectrum. Those being individuals who want designer-brand, exclusive runway-level luxury for exquisite events. Companies such as Rent the Runway and Le Tote as well as other rental fashion brands are revolutionizing the fashion industry and consumer base. These companies are amongst the most disruptive companies in the world, across all industry. (Business Insider 2018) With the positive growth that is forecast for the industry, the clothing rental industry has great potential for profits. This is evidenced by Rent the Runway, which has achieved an annual revenue of US$ 100 million and has been valued at near US$ 1 billion. Customer Analysis & Sociocultural Trends Effecting Consumer Behaviour Armarium’s consumer base is made up largely of two major segments. These include the High Net Worth (HNW) segment and the High Earners but Not Rich Yet (HENRY). Both segments overlap in the fact that they are made up of highly professional affluent females with incomes well into six figures; or $250,000+ and $150,000+ respectively. This income disparity was reflected in average spending at Armarium, were HENRY customers spent only half that per transaction of HNW customers. (Avery et al. 2019). On average, the HNW segment were of 35 years of age or more, whilst the HENRY segment were younger and between 25-34. Armarium had recognized sociocultural factors in the HENRY segment that would be favourable in selling to the consumer. HENRY consumers were comparatively tech-savvy and highly conscious in terms of social identity. They were likely to be involved in social media and showing off their fashion-wear, which meant Armarium’s unique, high-end and exclusive product offerings were a distinct market advantage.

Competitive Analysis

Armarium was ultimately a latecomer to the clothing rental industry. Industry giants such as Rent the Runway had a 6-year head start and had secured considerable market share and scale. Armarium’s entry coincided with an influx of competitors such as Le Tote, Rent Frock Repeat and Lending Luxury. These competitors were positioned at a much lower price point than Armarium. At Rent the Runway for example, the average rental price was $90, whereas at Armarium, rental prices were closer to $400 and above. (Avery et al. 2019). On one hand this gave Armarium a point of differentiation and potential to create new market space but on the other hand restricted Armarium’s appeal to the majority of the rental industry market who could not afford these ultra-luxury price points. Competitors had also developed a greater range of distribution, supply and marketing channels. Rent the Runway had partnered with department store Neiman Marcus, increasing its market coverage. Rent the Runway’s dominance was reflected by its scale. Its seven brick and mortar stores stocked up to 50,000 unique items, offering its 6 million members an unmatchable product range. (Avery et al. 2019). Not only did Armarium have to fend off competition from inside the rental industry but also from other facets of the clothing industry. Changing consumer perceptions around secondhand clothing sparked rise to used-clothing marketplaces such as RealReal, Bag Borrow or Steal and Rebagg. Consumers now had a new form of access to luxury clothing at low price points and undermined Armariums product offering. Alongside this, Luxury fashion was now available at discounted prices from online and physical outlets – namely TJ Maxx and Gilt.

Market Opportunities The marketing environment of the rental fashion industry is currently in a period of growth and prosperity. As a result, the market has produced several opportunities for Armarium to capitalize on and

enhance its position within the industry. Armarium’s greatest opportunity is the rise of the sharing economy across the globe and across industries, as is seen in carsharing such as Uber, in accommodation sharing such as Airbnb, and of course rental fashion. Consumers are looking for new platforms and models to tap into the rental fashion economy. With such promising growth on the horizon, companies have the chance to secure capital and expand the scale of business and operations. In the case of Armarium, it has the opportunity to grow from a small startup into a multimillion-dollar corporation as has been seen with various other rental fashion companies.

Changes in sociocultural trends have also benefitted the rental fashion industry, specifically the effect that social media has had on the life cycle of fashion items as well as the way consumers purchase these items. Consumers no longer wish to be seen wearing the same article of clothing on multiple occasions on social media. In a strange turn, clothing has become a disposable which has led some consumers to ask the question whether ownership is really required, especially concerning valuable clothing. Conveniently, as mentioned before, the sharing economy is becoming more accepted, especially amongst younger segments. The fashion industry is volatile, seasonal and trends are always changing, it can be expensive for consumers to keep up to date. Fashion companies are now disrupting the market by offering various rental schemes to keep consumers on the forefront of fashion for themselves and their social media feed. Fashion rental companies are now looking to innovate new distribution channels and diversify offerings to secure competitive advantage over one another. Companies have built online channels as brick and mortar channels become less favoured. Tech-savvy segments have showed great affinity for online channels which have now become an industry standard amongst many clothing companies. Rental companies have formed partnerships with department stores as new methods of distribution in what is called the shop-in-shop concept. Companies in competition with Armarium have found success using a subscription model for rental alongside a wide variety of rental periods, whether it be a day or a few months.

Core Problems of Armarium Armarium has a series of core issues that are limiting its ability to capitalize on forementioned market opportunities – market opportunities that competitors have not had such issue in securing and utilizing for a competitive advantage. Firstly, Armarium’s target market philosophy has inherent problems on several levels. Part of Armarium’s target market, the ‘High Net Worth’ (HNW) segment, are reluctant and unfamiliar with the sharing economy. This segment has annual incomes of $250,000 or more, so regarding a $5,000 dress for example, they are in a much better position to buy the dress outright in comparison to other segments. In reality, Armarium are targeting the segment who is least likely to have financial concerns over purchasing the clothing items at full price. Contrary to Armarium’s business model, it would be lower income segments that would look to rent instead of buy. Targeting and developing a product range for this segment is highly specialized and confines Armarium to a niche market, as the vast majority of the rental

clothing consumer base is alienated by the high prices. The statistics in the case study state there are 3.75 million households in the US that qualify to be part of this segment, but only 40% of them are luxury buyers or ~1.5 million consumers. Compare this to Rent the Runway who have over 6 million actual customers and focus on lower income segments. Armarium’s entire potential target population is less than 25% of this. It is likely that these issues were the reasoning behind Armarium’s inability to upscale and expand as a business. Secondly, Armarium has a distinct issue with its ability to retain customers. Data given in the case study states that only 40% of customers were repeat business and that there was high customer churn, particularly in the HENRY segment. The high customer acquisition costs of $425, given the average...