EXPRESS: Apparel Retail and Rental Business Models and their Sustainability Implications

What the paper says

In this paper, we explore the question of whether an apparel manufacturer should incorporate a renting channel into its existing business model, which currently only includes a retailing channel. We also examine how such a change would affect product quality and sustainability. We develop several game-theoretical models where an apparel manufacturer, currently selling apparel products directly to consumers, may choose to rent them out either directly or indirectly through a third-party online platform. When both retailing and renting channels are available, the manufacturer will only sell the product if rental utility or brand quality is low. Otherwise, it will sell and rent out the product simultaneously. Our findings suggest that adding a renting option to a retailing-only business model could increase the manufacturer's profit and product quality, despite potential demand cannibalization. However, the environmental impact of rental versus pure retail depends on the level of rental utility. The increase in profit and quality from incorporating renting is more significant when brand quality is higher. Additionally, this change could enhance consumer surplus and social welfare. We also analyze the effects of three common public policies on sustainability when a renting channel is added, finding that two of the policies can promote product quality. We extend our model by considering consumer heterogeneity in preferences for green consumption or discounted utility from renting, and find that our results remain robust. When examining demand cannibalization over time, we observe that product quality decisions may be influenced by the extent of cannibalization over time, while the environmental impact could worsen.