Why buy when you can rent?
Mr. K who lives in an officetel (efficiency apartment), wakes up in a bed which includes a monthly steam cleaning service, brews coffee from a coffee machine which was on a rental promotion from his coffee supplier and gets ready for work. K considers his clothes for the day from his air dresser which he agreed to borrow at an online platform he discovered and picks out the luxury fashion outfit he rented at the department store yesterday.
A major consumer trend is valuing experience more than possessions which is driving the rental services market. Now that everything can be rented, consumers can survive buying only purchasing food while renting everything else. Based on the report for KT Economic Management Research Institute, in 2003 the rental market was KRW 3 trillion which grew to KRW 25.9 trillion in 2017 and is expected to reach over KRW 40 trillion in 2020. Samsung Securities estimates of the 40 trillion KRW market, 17 trillion would be B2C and 23 trillion B2B.
Where did it all begin?
Looking back into history, the rental service system has been in Korea longer than we would generally believe. Book renting dates back to the Three Kingdoms of Korea era (prior to 966 AD) and is still an ongoing business.
However, rental services and the industry started to grow significantly after the 1988 Seoul Olympics. With the massive inflow of foreigners, entrepreneurs saw the potential of car rental services. Interestingly, in the early days of the industry, most users failed to return the products on time and incidents of fleeing with the vehicle happened quite often.
Along with the car rental service, home electronics were one of the first products to enter the rental business and the most well-known is the water purifier. Coway, a water purifier company, started its rental business in 1998. Coway changed the image of rental service providing a combination of products and also customer service for the products. The service was based on the CODY (Coway Lady) who were coordinators that visited to check the purifier, change filters and provide other needed services. With this attention to consumer care service, Coway has not only maintained the position of top purifier rental service domestically but also expanded overseas.
How did it grow?
With the growing trend of single households, cost efficiency and experience focused consumption, the need and possibility for the rental service industry expanded. As the market grew all types of companies started to enter the market and major conglomerates started to participate since 2015.
While the economy has been slowing down, companies still need to earn a profit. This is especially applicable to luxury products that are at risk for traditional sales in a slow economy. Rental service companies generate a steady income while consumers feel less pressure on purchasing products at the full price. Even though today the B2B market is larger than B2C, the growth rate is higher for B2C.
Technology is developing very rapidly. A new product today will become outdated sooner than expected. With the shorter lifespan of products, the desire to purchase or own a product is declining rapidly supporting the rental business.
Although the rental industry started with cars and home electronics, as the market grew, so did the demand for more rental service. Today, rentals are available for children's products, healthcare products and the trend is moving toward entertainment and leisure. Computers, golf clubs, bicycles, cameras and other products have poured into the market and with the development of the internet platforms and smartphone apps, the process is simpler than ever. At a recent ‘home table deco fair,’ there was a booth introducing a system for renting paintings. An artist provides a new piece of art every three months aligned with the style and design of the house.
The range of the rental services has further expanded with the introduction of a sharing rental system. Real estate sharing services such as Airbnb, which shares places to stay while they are vacant is a major sharing services. Most of these businesses are based on platforms and C2C transactions. The number of these sharing services is increasing. Sharing rental systems have expanded into the entertainment and leisure industry, such as the yacht rental industry. The number of Yachts in Korea is limited and the image of a Yacht is that it is beyond the budget of most consumers. However, with the sharing rental system, less well-to-do consumers can experience a luxury yacht at an affordable cost.
As the rental service industry has grown, some problems have emerged. Most rental service providers require a long-term agreement with a penalty for cancellation. This is contrary to the experience-focused value. Also, given a long-term contract, the total price paid is higher than the purchase price if the products are used to their expected lifespan. Also, given the ease of renting luxury products, some consumers spend more than they can afford to lead to excessive debt.
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