Cost Centers Become Revenue

Steph Smith discusses how Urban Outfitters' subsidiary Nuuly transformed clothing returns, a traditional cost center, into a profitable business model through clothing rental. This exemplifies how companies can innovate by reconceptualizing their operational challenges.

Key Points:

• Nuuly's Business Model:

  • Part of Urban Outfitters (owns Urban Outfitters, Anthropologie, Free People)
  • Monthly rental service: 6 items of customer's choice
  • Option to purchase at 15-60% discount after rental period
  • Includes both their own brands and others

• Traditional Clothing Return Problems:

  • 20% return rate in clothing industry
  • Returns cost up to 66% of item cost
  • Many stores letting customers keep items due to return costs
  • Returns are typically a drain on business

• Nuuly's Innovation:

  • Transforms returns from cost center to revenue stream
  • Customers pay for rental period
  • Popular adoption (mentioned widespread use in coworking spaces)
  • Leverages existing business infrastructure

• Broader Business Implications:

  • Similar to Amazon's AWS model of turning cost centers into profit centers
  • Creates more profitable model than traditional clothing business
  • Demonstrates potential for other businesses to transform operational challenges
  • Shows how existing businesses can add innovative revenue streams

• Industry Response:

  • Example of Rock Returns company mentioned
  • Specialized return processing becoming its own business
  • Other companies exploring ways to monetize returns
  • Return handling becoming specialized expertise