Clothing retailer Urban Outfitters gained its reputation through selling clothing. The company has now found particular success in the clothing rental market through its Nuuly brand. Launched in 2019, Nuuly is a clothing subscription rental business that allows customers to rent clothing through the company’s own brands as well as third party labels. Nuuly has become increasingly important to Urban Outfitters’ overall business, with subscription sales accounting for nearly 10% of total net sales in the most recent fiscal year.

Urban Outfitters was founded in 1970 in Philadelphia, Pennsylvania. The company’s brand portfolio includes Anthropologie, Free People, FP Movement, Nuuly, and Urban Outfitters. Urban Outfitters is a publicly traded company and its business is divided into three reportable segments: Retail, Subscription, and Wholesale.

Urban Outfitters touts its Nuuly brand as offering customers a more sustainable approach to fashion. It enables subscribers to try a wide variety of fashion styles for a low cost while also supporting sustainability.

The most interesting aspect of Nuuly is that the rentals do not detract from Urban Outfitters’ core business of selling clothing. To the contrary, the clothing rental business is actually highly complementary to its clothing sales. For around $100 per month, subscribers get 6-8 new apparel items per month.

The concept of renting clothing was first made mainstream by Rent the Runway. Even though Rent the Runway invented the clothing rental business, Nuuly is beating Rent the Runway at its own game. A significant component of Nuuly’s success is attributable to its seamless cancellation policy. Most subscription businesses take the opposite approach, making it difficult for customers to cancel.

While that sounds counterintuitive, making it easier for customers to cancel their monthly rental subscription has been a key ingredient to eventually getting those customers back onto the platform. The CEO of Urban Outfitters implemented a pause feature, enabling users to pause rather than cancel their Nuuly subscriptions. Data shows that users are significantly more likely to reactivate their subscriptions after pausing rather than cancelling a subscription plan.

“We’ve intentionally built Nuuly to let customers be very fluid and active,” stated David Hayne, the Chief Technology Officer of Urban Outfitters. “They can pause, skip a month or reactivate very easily, because it’s not high commitment. It’s easy to dip in and out, which makes it easier for customers to give it a try.”

Urban Outfitters has 31,000 employees globally, of which 8% work in the subscription segment. For the most recent fiscal year, the company’s subscription segment generated more than $500 million in net sales. Nuuly has approximately 420,000 active subscribers, reflecting 40% year-over-year growth. In contrast, Rent the Runway generated $265 million in subscription rental revenue in the most recent fiscal year and has approximately 150,000 active subscribers.

Overall, Urban Outfitters total sales increased by 11% to a record $6.17 billion. A lot of that success can be attributed to the momentum of its Nuuly brand. The success of Nuuly demonstrates the importance of focusing on consumer needs and psychology. It also shows that industry veterans can be beaten by newer players that apply innovative strategies to existing business models.