H&M's flagship store at the Sergels Torg square in Stockholm is back in business after a monthslong refurbishment. But it's not exactly business as usual here.

In one corner of the store replete with plants and trees, H&M is offering some of its customers the possibility to rent rather than buy from its popular party and wedding collection — the latest bid by the budget fashion chain, which has already been collecting used clothes at its stores, to boost its environmental credentials.

The move comes as the fashion industry, especially fast-fashion companies such as H&M and Zara, faces growing criticism over its carbon footprint and energy use. The industry is one of the biggest emitters of greenhouse gases and producers of global wastewater.

"Today, we all can agree that fast fashion is not a sustainable business model. That's exactly why we want to take circularity to the next level," Pascal Brun, the head of sustainability at H&M, told DW. "The clothing rental fits perfectly with our goal. It is something we have been wanting to try for quite some time."

Concept stores

H&M's new service is limited to a selected collection of party dresses and skirts and is available only to customers who have signed up for its loyalty program. Customers can rent garments for around 350 Swedish kronor (€33, $37) a week.

The concept store also features clothing repair services, a coffee shop and a beauty bar, where customers can get their hair, nails, and makeup done.

H&M is setting up new concept stores as it seeks to boost profit amid slowing sales and growing inventories. An H&M boutique store in Berlin, which opened in October, offers yoga classes, a café and space for external brands.

"H&M is in 'test-and-learn' mode and will, in due course, look to scale one of its new concepts," RBC retail analyst Richard Chamberlain said in a note to clients.

Dresses available for rent on display at the H&M store in Stockholm

Business viability

The Swedish retailer plans to study the rental service over the next three months before taking it to other markets. Brun says the response so far has been "tremendous" with slots required to trial dresses for rent almost fully booked for December.

But there are some sceptics of H&M's plan, who question its business viability.

"I can't see that the kind of labor cost involved in a rental model at those price points really makes sense," Credit Suisse analyst Simon Irwin was quoted by Bloomberg as saying.

Brun says it's too early to make a call on the rental service's profitability prospects.

"We have done our business case before launching it and hopefully it will show that it's successful," Brun said and added that the company could eventually bring its rental business online.

Read more: Giving up my filthy fashion habit

Fear of missing out?

H&M's foray into clothing rentals comes at a time the retailer and other fast-fashion chains are being threatened by a mushrooming of platforms selling and renting secondhand clothes and accessories.

The secondhand apparel market, excluding clothing rentals, was valued at $24 billion in 2018 and is expected to grow to $64 billion by 2028, according to online fashion resale platform thredUP and retail analytics firm Global Data. By comparison, the fast-fashion market, which was worth $35 billion in 2018, is expected to only touch $44 billion.

H&M, which is yet to get on the resale bandwagon, owns a majority stake in a Swedish company, Sellpy, that offers a platform for people to buy and sell secondhand clothes and accessories. The Swedish retailer's US rivals, Banana Republic and Urban Outfitters, have already launched clothing rental services.

"It [the growth in secondhand fashion] comes at a point of time when customers in this part of the world are being responsible and want to be able to consume differently or are being offered to consume differently," Brun said. "We are just here answering to consumer demand."