HomeFEATURESUpdated: Lease, borrow or buy: The rise of the retail sharing economy

Updated: Lease, borrow or buy: The rise of the retail sharing economy

Stuck in traffic, many people toy with the idea of getting an electric bike. It’s a chance to get more exercise into your day via the daily commute while still managing to arrive at the office looking immaculate in your work clothes.

But with the cheapest e-bikes starting at around $2,000, the cost can seem prohibitive – particularly if you’re not completely convinced it’s something you will stick with. If only it was possible to lease an e-bike and give it a go.

Enter New Zealand’s first e-bike subscription service: Boltra, which started in Auckland last year.

Ella Keegan

Founder Ella Keegan says she built the business to solve her own commuting dilemma. She wanted to start using an electric bike but it wasn’t possible to try one out properly without forking out for one.

The company’s goal is to make e-bike usage affordable and speed up Aotearoa’s shift towards sustainable transport.

Subscriptions start from $180 a month for a 12-month membership with a $30 joining fee – less than the cost of an Auckland Transport monthly pass. A month-by-month subscription costs $220.

Boltra customers can visit its website, view and read about the bikes that are in stock, choose one that they like and select a subscription option that suits them, says Keegan.

“We deliver it to their door, teach the customer about their new bike and how to safely operate it. Included in the monthly subscription fee is unlimited maintenance and theft insurance so customers can ride worry free knowing that they’re all covered.”

The company hopes to be able to offer its services in other major centres “in the near future”, she adds.

Keegan  says her personal preference is to hire an asset rather than own it. “These days you can pretty much get a subscription for anything and consumers are accustomed to the flexibility and freedom that they offer with no switching costs and the ability to cancel anytime.

“It could be my age [27], but I am a big consumer of such services, and would often prefer to rent or lease or subscribe to something than own it. Particularly if it’s something that is particularly expensive, I haven’t used before or I am unsure of its upkeep.”

Thanks to disruptors such as Uber, CouchSurfing and Airbnb, consumers have readily embraced the idea of the sharing economy in sectors like hospitality and transportation.

In retail, the concept of the sharing economy has been redefined: it is on-demand, giving the consumer access to a product or asset when they need it.  Designer dresses, the latest electronics or e-cars may indeed be ‘shared’ but are available when you want them, and you pay to have them all to yourself.

The on-demand economy is set to change the future of ownership, says Erik Zydervelt, the chief executive and co-founder of Wellington electric car-sharing company Mevo.

Zydervelt identifies the key drivers in this area as “changing consumer preferences around ownership [which is] led by Millennials, tech advances and avoiding the capital costs of ownership”.

A 2017 Nielsen survey on Australian Millennials (those aged 18-34) found that the ‘Millennial effect’ is having a massive impact on changing our concept of ownership.

“Some would argue that so-called Millennials are less interested in possessions, they are less interested in buying things, and that both inspires and feeds into the sharing economy,” says Dr John Murray, senior lecturer in retail and marketing at Massey University.

Millennial consumers are also more interested in experiences than acquiring things, he adds.

“If you want to live [a particular lifestyle], on the one hand you sacrifice spend in certain categories, so you can live the life by spending in other categories.”

Rather than own something outright, Millennials would prefer to pay to access what they want, when they want it. The need to own a physical CD, for example, has given way to accessing thousands of songs on Spotify.

The same Nielsen research found that, because more Millennials live in urban areas, only 63 per cent own a car. By contrast 86 per cent of Australians and New Zealanders own a vehicle. Meanwhile almost one in four Millennials use car-sharing services regularly.

Mevo started in late 2016 with a trio of Audi A3 Sportback e-trons that customers could book using an app on their mobile phone and pick up and drop off at designated parking spots at Wellington Airport and the CBD.

In May the car-sharing service launched its free-floating ‘park anywhere’ service – an Australasian first, Zydervelt believes. Since then Mevo members have “doubled” the number of trips they were taking and the fleet has grown “significantly”.

He says that, with 11 dedicated parking and charging areas around the city, customers can now find a car five minutes walk away or less, from almost anywhere in the central city.

By the end of 2021 Mevo aims to expand into five cities – “Auckland is next, with Sydney on the radar” – and operate 2,000 vehicles.

Zydervelt describes Mevo as “like Netflix but for getting around town”. Hiring makes sense for many people, particularly urban dwellers, he says.

“If you’re living in the city and using a private car for short trips or longer leisure trips, chances are most of the time your car is sitting idly in a garage. Adopting car sharing means you can have the freedom to drive where you want, when you want, but you’re not going to be tied down by expensive payments like insurance and registration.”

There has been a rise in car-sharing schemes around the world and New Zealand is no exception: local examples include peer-to-peer leasing services such as Yourdrive and Roam, and companies like Mevo, Yoogo and CityHop.

Zydervelt says it is hard to give exact numbers for car hiring as currently, car-shares, ride-hailing providers, and EVs all contribute to overall purchase, hire and lease figures.

“Providers need to build up larger customer bases and fleet numbers before we’ll start to see a notable reduction in private sales on the national scale. It’s been an absolute cracker of a year for car sharing and EVs in New Zealand though, with both sectors seeing at least 100 per cent growth.”

The move by consumers from ownership of assets to leasing has been driven by “a confluence” of factors, says John Murray.

John Murray 

One reason is that the ‘squeezed middle’ – whether that’s middle-class families or Millennials whose income is under pressure – are feeling financial pressure. They still desire premium products, despite the fact pay packets are not increasing, he says.

“Consumers want everything but they don’t want to necessarily put their hands in their pockets. That’s probably the way it’s always been but I think that what’s interesting is how they are trying to live that life.”

Leasing (which specifically applies when the lessee has an option to buy the leased goods, or the lease is for 12 months or more) and renting products give these consumers a way to balance their consumer desires with budget constraints.

“They still want the healthy living thing, they want the ethical living thing as well and they also want things to be really personal and bespoke. So these are the kinds of trends that people approach when they make the types of financial commitments like leasing.”

Technology is another driver, Murray says. “Retailers can provide and present service solutions that they generally haven’t been able to do before.”

New subscription models and payment systems such as Amazon Prime, New Zealand’s My Food Bag and Netflix are “all examples of how we are getting quite used to some of these on-demand services that are central to our lives”.

Retailers that do well in the leasing and subscription space “get the basic things right, its not about price, it’s about value, it’s about convenience and increasingly it’s about experiences.”

According to the Commerce Commission, New Zealand retailers are doing a good job so far of meeting their legal responsibilities around leasing. A spokesperson confirmed it has not noticed any increasing problems with exploitative consumer leases here.

“We understand the issue is particularly significant in Australia where regulators are concerned traders are attempting to use consumer leases to avoid rules and protections contained in their credit legislation which regulate small amount credit contracts. New Zealand does not currently have separate rules that relate to ‘small amount’ or ‘High Cost Short Term’ credit contracts, so the same avoidance issues don’t arise here.”

Overseas, car-buyers are increasingly turning to leasing when it comes to getting a new vehicle. More than a third of all American new-car owners leased rather than bought in 2016, according to the Associated Press.

There is also “an increasing amount” of leasing and hire in the UK and Europe, says Murray.

But it is difficult to get exact figures when car finance and car retail is increasingly intertwined. Renault Finance and Volkswagen Bank, for example, are the financial arms of the car retailers, and provide hire purchase and leases.

VW car leasing deals typically sign customers up for three years, with the chance to upgrade to a new model – and another three-year contract – at the end of the term.

This is the norm among North American lease customers and it’s happening “a lot more” in Europe, says Murray. The alternative is to hand back the keys, losing the deposit (which can be up to 30 per cent of the full car price).

“They incentivise people to enter agreements and it’s generally a lot harder to exit those agreements: the three years are up and then you say look what do I do, I’ll go back into the agreement again, I’ll go with a new model Volkswagen… it is basically a loyalty-generating proposition.”

VW’s additional value-added offers like insurance, service costs and even fuel make it even more attractive to consumers. A regular, monthly charge that covers all those things becomes “so convenient, so easy, so user-friendly for consumers, [the car retailer is] actually blurring all the boundaries between the issues of price and value”.

Leasing in many sectors – be it cars or phones – has traditionally been aimed at the B2B market. Murray says that, in the States, retailers first encouraged consumers to get into car leasing in a difficult trading environment, post the global financial crisis.

In the mobile phone space, consumer leasing appears to be taking off in markets where revenue growth has plateaued, and mobile players are now targeting individuals.

Leasing has become commonplace in the US since telco giant Sprint introduced its ‘iPhone for Life’ promotion in 2015. Carriers in other markets, such as South Korea, Singapore and Australia, are also offering leasing plans.

Mobile phone leasing gives customers the latest phone for a similar cost “at or within 10 percent” of the average post-paid plan costing $40 a month, says Quantiful managing director Alan Gourdie.

Alan Gourdie

Many telcos offer add-ons such as insurance, cheaper repair costs, as well as a brand new replacement when phones are broken, lost or stolen. When one Australian carrier launched two years ago, he says, “a very large chunk, 40 to 50 per cent of all new contracts [were] leasing, because of those benefits”.

Quantiful, an Auckland-based precision marketing and data insight company, is working with Kingfisher Mobile, which provides leasing solutions for telcos around the world. Quantiful most recently worked with Kingfisher and a Phillippines telco Globe.

Quantiful is also an agent for Kingfisher Mobile in New Zealand, and has helped the company with market insight, including analysing consumer perception of leasing.

It also helps Kingfisher design and test propositions – for example, whether a lease deal should be price-based or value-add based (with an annual upgrade, insurance and so on).

Leasing is not currently available to New Zealand mobile phone customers but it’s close. Over the next 12 months, Gourdie says, “you’ll see at least two, if not three, of the major carriers considering leasing… it’s a very active space”.

NZ Retail understands that at least one major telco is on the verge of offering leasing deals to local customers.

Quantiful also provides forward projections for likely uptake. This allows the carrier, which has to buy the phones from Apple, Samsung and other manufacturers before transferring them to the leasing companies, an element of ‘demand control’.

“What of course happens when you introduce leasing is that you get a significant change in your mix. You get significantly more premium devices because suddenly it’s accessible for a much larger group of consumers to have a more premium device.

“We provide the planning and ongoing forecasting for that consumer behaviour leading into a sales forecast, which in turn is then used to optimise their supply chain planning.”

Could this have helped retailers when the iPhone X came out, and its unpopularity caught everyone by surprise? Many were left with a surplus of expensive stock units sitting on the shelf.

Gourdie is diplomatic: “That has been one of the more modest launches, it didn’t knock it out of the park [but] generally speaking it’s going to be easier for planning purposes as more and more of your customer base moves onto leasing.

“Their behaviour is likely to be more predictable if they’re getting an annual upgrade and it doesn’t cost them anything, all they have to do is hand their phone back, there is a degree of predictability.”

Leasing customers don’t have to upgrade, but most do, he says.

Another reason why the leasing model works well for retailers is the residual value on the phone. If an iPhone is handed back and sold on after one year, the lessor should make 60 per cent of the original purchase price back. These pre-owned devices are sold into markets like China, India and the Phillipines, refurbished and boxed up as new.

Back at Boltra, founder Ella Keegan, who is also strategic marketing manager at Xero, says that she is often asked whether the subscription model is “a viable strategy”.

The main concern, she says, is that it can take too long to develop revenue. “Depending on the offer and the business structure, this long-term revenue strategy might be a viable option for some but it is quite a change from a traditional retail store which most electric bike stores operate under.

“It suits us and our customers, and monthly cash flow allows us to grow and reinvest in the business.”

Because Boltra offers ‘cancel anytime’ subscriptions, its service “needs to be great – and that’s not even good enough”.

“We think about every touch point with our customers from visiting our website – to canceling and returning their bike.”

This article has been updated to reflect a change requested by interviewee Alan Gourdie, who initially referred to the US and Australia when speaking of the popularity of leasing contracts. He intended to refer to one Australian carrier only.

All The Dresses and Gurgl

Like leasing, short-term retail rentals are also growing in popularity. Clothing hire businesses, particularly for designer outfits, are taking off to such an extent that there’s even an Australian-owned aggregator website, All the Dresses, which started up in June 2017.

Two months later it launched a New Zealand site after founders Olivia and Basil Vlachou noticed significant numbers of customers were from across the Tasman.

Olivia Vlachou says she got the idea for the site as both a “shopaholic turned renter” and as an event manager and stylist through her branding and strategy company Olympia Creative. She was shooting campaigns for her clients, and scrolling through a plethora of online rental sites.

Basil Vlachou, who is an IT solutions consultant, then built a prototype website that brought all the rental brands together.

“It gives women the ability to browse the ranges from all these companies from the one place, with lightning-fast search and filtering,” Olivia Vlachou says.

The Australian version boasts more than 4,000 designer dresses and accessories from 21 of Australia’s online rental companies while 1,000 outfits from nine designers are available on the New Zealand version.

Over the last six months, Olivia Vlachou estimates, there have been 1,200 rentals in New Zealand driven via the All the Dresses site, and more than 6,000 in Australia. Australian customers tend to be between the ages of 16 and 40; interestingly, she says, her Kiwi customers seem to be “quite a bit younger as an average”.

Australasian women are “finally embracing” clothing hire, says Olivia Vlachou. “When it comes to special occasion wear, rental is now the go to! America embraced it long before it hit our shores [and] companies like Rent the Runway show how successful this model and concept is.”

She says the response has been “fantastic”. Customers are enjoying the user experience, she says, and the company tries to ensure that continues offline, too. “We want women to have the same feeling when they rent an item as they would when purchasing it. These companies deliver their items in beautiful packaging and with professional customer service.”

Clothing hire is no longer about saving money, she adds. “Sure that’s a bonus, and convenience comes in there too, but women are trying to declutter and ensure that their fashion consumption is more environmentally and socially conscious too.”

In Wellington, a new online subscription service, Gurgl, is targeting the parents of under-twos. Founders Beverley Walter and Jess Halley had noticed how quickly their friends’ babies were growing out of clothes, yet it was also difficult to get good second-hand pieces.

They were also inspired by the Danish subscription service Vigga, that rents out high-quality recycled designer children’s clothing, made from sustainable materials.

Customers pay a $49 monthly subscription cost – the equivalent of buying two coffees a week, says Walter – that includes New Zealand-wide shipping, cleaning and repacking of clothing.

She describes Gurgl, which is a non-profit organisation, as “clothing with a conscience”.

“Because we are re-loving clothing that might otherwise have gone to a charity shop, we are not burning through any additional resources to create more clothing.”

Gurgl’s website launched late last year after a crowd-funding campaign.

However a new site, with added functionality and options, is currently in development. The plan is to also offer a ‘pick your own’ option – such as a winter coat or special outfit – and, eventually, maternity clothing. Like toddlers, it seems, Gurgl is having a growth spurt of its own.

“We need a site that can grow with us,” says Walter. “I think a good website always evolves with the business, ours is constantly a work in progress.”

Rate This Article: