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Resale, Rentals and Subscriptions Have Tommy Hilfiger, Michael Kors Spooked

The resale economy is steadily “sneaking up” on fashion, one of several new business models disrupting an industry that struggled to “connect the dots” when technology arrived on the scene, according to one Michael Kors executive.

Successful luxury resale businesses like The RealReal—which operates online and in stores and raised a $115 million Series G round last summer—are changing the game for brands and retailers, said Robert Rizzolo, the VP of global merchandising for accessible luxury label Michael Kors. Speaking on Edited’s panel about the global consumer, Rizzolo said what’s “a little scary” about the rise of resale is its link with yet another important movement: sustainability.

“I see these two things emerging and right now they’re in siloes,” he explained. “You don’t feel that when you’re buying a used Chanel bag you’re saving the environment. But eventually, the consumer—especially the younger consumer—is going to start to make that [connection]. It’s going to increase the power of resale.”

Pivoting toward a resale model requires a different way of thinking about product quality and how much or how little fashion will rely on newness in the years ahead, Rizzolo noted, adding that “the future is going to be resale.”

“We have to figure out how we can create a profit from a resale model,” said Rizzolo, who admitted he’s “obsessed with resale” because he knows so little about it. “We used to talk about digitally native brands. Now we talk about rental native brands.”

As the stigma associated with used, pre-owned and second-hand disappears, fashion brands will have to crack the code on playing in a world where the sharing economy is the new normal and products no longer end their life with the end consumers but back with the brand or brand partner. Though Michael Kors CEO John D. Idol has invested in The RealReal and “sees the potential in the market,” Rizzolo said, “we don’t know how to leverage that gap.”

If there’s an upside to the rise of resale to counterbalance the downside of consumers buying less new, it’s that it re-centers the product conversation around quality and plus luxury back into the spotlight. Today, much of retail delivers up poorly made clothing and footwear that people deem good enough—as long as they’re cheap and on trend. “You have to think about developing and delivering superior quality goods to consumers,” Rizzolo explained, noting the “intrinsic benefits” to operating in resale. “In that world you won’t survive; if your product doesn’t last, then your brand won’t last.”

Because the new resale model is still in early days, many brands like Chanel are running scared from this perceived threat to their business but “they’re never going to win that right” against The RealReal and their ilk, claimed Rizzolo, who expects this “backlash” to subside once luxury players realize its okay for their operational model to evolve.

“They’re going to be the winners because they have the equity of the brand,” said Rizzolo, who compared owning a Chanel handbag to “owning a painting.”

Randy Cousin, VP of brand merchandising for Tommy Hilfiger, wonders how clothing rental services like Rent the Runway (RTR) play into sustainability—and if there’s a version coming for male shoppers. He sees rentals as “another version of the wholesale model” and an opportunity for consumers to experiment with a brand before investing 100 percent in a purchase. Plus, companies like RTR buck the “here today, gone tomorrow” paradigm, offering product longer than they’d be available at a retailer like Barney’s, Cousin added.

RTR’s real “secret sauce,” Rizzolo observed, is the subscription model that “creates consumer behavior and dictates future consumer behavior.” Subscription plans give brands a tool to “suck the consumer in” and create loyalty even if that wasn’t the shopper’s original intent, he added.

“She doesn’t ever want to buy anything because she has unlimited access to five outfits always,” Rizzolo said, crediting Amazon and Netflix as leaders in helping to mainstream the subscription and rental models.

The other thing that’s changing in retail? The brands best using technology to their advantage. Now that data and artificial intelligence play a larger role in elevating standout brands, there are new faces in the winners circle, according to Rizzolo. “We look at Warby Parker as aspirational,” he explained, noting the eyewear startup’s new augmented reality product try-on. “We used to look at Apple and now we’re looking at a different vortex of brands.”

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