Rent the Runway

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Rent the Runway (RTR) distinguishes itself as the ‘Netflix of luxury fashion. The dress-rental company represents a key aspect of the sharing economy because it democratizes luxury. The company gives people access to designers they can’t afford to own.

Rent the Runway is founded by two Harvard business school friends, Jennifer Hyman and Jennifer Fleiss in 2009. Both women were looking for an alternative pay to get party dresses without breaking the bank. RTR lets customers rent fancy outfits, accessories, such as earrings, sunglasses, bags or jewelry.

RTR has served approximately 3 million total lifetime customers. As of January 2023, RTR had 171,998 total subscribers, of which 126,712 were active subscribers. Total revenue in FY2022 (year ending January 2023) was $296.4 million, a 46% increase over $203.3 million in FY2021. Net loss in FY2022 was $138.7 million compared to $211.8 million in FY2021.

The majority of RTR’s revenue (86% in FY2022) comes from subscription plans that allow recurring rentals. Customers can select a monthly plan and customize with add-ons. RTR also offers one-time rentals through its Reserve platform and a Resale option to purchase used products.

RTR sources products directly from designer brands through three approaches:

Wholesale – RTR purchases items at a discount to wholesale prices
Share by RTR – RTR acquires items on consignment and pays brands based on rental performance
Exclusive Designs – RTR has brands design custom lower cost items exclusively for them

In FY2022, the unit split was 42% Wholesale, 27% Share by RTR, and 31% Exclusive Designs. RTR is focused on shifting more volume to Share by RTR and Exclusive Designs to increase capital efficiency.

RTR manages both forward logistics to ship items to customers as well as reverse logistics to get items returned, cleaned, and back in circulation. This is enabled by RTR’s proprietary operating system and logistics capabilities. RTR utilizes two warehouse locations to support its rental operations and subscription shipment volume.

Financial Performance.

Rent the Runway has undergone major changes to its business model during the COVID-19 pandemic. With the closure of its brick-and-mortar retail locations, Rent the Runway overhauled its subscription plans, discontinuing an unlimited rental option. The company also entered the resale market, opening up shopping on its website to non-members. RTR

In addition to 46% total revenue growth in FY2022, RTR improved gross margin from 34% to 41% driven by higher revenue per subscriber, lower rental product depreciation as a percentage of revenue, and more capital efficient product sourcing.RTR significantly reduced its net loss from $211.8 million in FY2021 to $138.7 million in FY2022. Adjusted EBITDA improved from $(19.2) million to $6.7 million over the same period. The improved profitability reflects higher revenue scale and increased operating leverage. RTR has been focused on initiatives to optimize costs and drive operational efficiencies.

Competitors on the horizon

Since the successful launch of RTR, many competitors launched worldwide.

Le Tote is a service that caters to professional women. Users create a wish list of items to rent dubbed “My Closet.” It costs $59 per month for every “tote” consisting of three clothing items and two accessories or four garments only. (Prices do vary dependent upon subscription option chosen.) A key advantage is that shoppers can pre-approve what’s in the tote before it’s sent. Le Tote has an image as a service for handbags and accessories but it also has an ample supply of clothing items as well and can serve the needs of women looking for complete outfit ideas. The company has grown in size six times over the last three years according to Glossy.com. It just launched is the first designer collaboration with model Olivia Culpo that is available to anyone to shop instead of just members which is typically the case.
Gwynnie Bee caters to plus-size women, carrying sizes 10-32. Its collection includes 4,000 looks from 190 brands. Pricing is tiered and can range from $49-95 per month after a 30 day free trial depending on how many items are chosen to be received at a time. Gwynnie Bee is particularly good for dresses but does not offer shoes or accessories.
The Ms. Collection caters to trendy and price-conscious Millennials. The prices range from $49-$113/month depending on the number of items desired in each shipment and type of subscription. Customers do not get to choose their preferred items in advance, but they can keep the items as long as they want. They just can’t get a new shipment until returning the old one.
Armarium is one of the only non-subscription services, catering to women size 0-10 who are seeking designer and vintage items. The high-end company charges 10-20% of the retail price of the chosen items plus $50 shipping and damage fees if applicable. Customers can rent items for four days but have the option to extend the rental

These businesses are all competing for market share in the newly created subscription rental clothing marketplace.RTR also has a lot of competition from online luxury consignment stores such as the Realreal, The Vestiare collective, and Poshmark. Also discount luxury retailers such as Nordstrom Rack, the Runway at TJ MAXX, Neiman Marcus Last Call and Yoox show strong consistent growth. According to Moody’s operating income among off-price retailers will grow 6.9% this year and 5.4% next, compared to 9.6% last year. The popularity of subscription clothing sales is also increasing. Stitch Fix and Trunk Club show strong potential growth rates. ( Thomas, 2017. Amazon, Stitch fix already rank among the top online apparel sellers. Retrieved from: https://www.cnbc.com/2017/07/31/amazon-stitch-fix-already-rank-among-the-top-online-apparel-sellers.html)

According to Mintel, There is a significant lack of understanding in the market about subscription services and how they work, what their value is, what the options are, etc. Many women are not even aware of them at all. Subscription services must conduct more awareness-building marketing in order to reach a wider swath of interested triers and buyers. There are also perception barriers related to the cost of these services – many women queried on the topic thought such services would be expensive and thus, out of their price range. Many subscription services actually allow users to choose the price range they want to stay within, but if this isn’t known, the cost will remain a barrier. ( Smith, 2017. Women’s clothing in the US. Mintel Academic. )

The increasing popularity of the Stitch Fix, Trunk Club, and Fabletics will lead to more familiarity with the subscription services business model. This could lead to more willingness to try out related services.

Creating a great customer experience is costly.

Imagine purchasing a high-end fashion dress which retails for 5000, and RTR can purchase it for 2000. The cost of having that dress in the inventory for all sizes is approximately 10000 dollars. This is just one item in the 250.000 pieces collection of RTR. Having an extensive inventory of designer clothes is a substantial investment. Moreover, the fashion industry fluctuates and what was trendy today, is not trendy tomorrow anymore. Even if the staff of RTR is on top of trends, there is still uncertainty of whether or not an item will have substantial appeal, and will get rented out enough to turn a profit. Learning from customer preferences, and integrating key data from digital platforms, as well as brick and mortar stores is the key to succeeding in the fast world of fashion.

The cost to dry clean, fix, ship and store high-end fashion is also substantial. On top of that RTR increased it’s brick and mortar presence in urban areas, which translates into high rental prices, and investments in technology to create a good customer experience. Demand for unique pieces and dresses is seasonal, and certain products will be in high demand and if they are not available to their subscribers at the time they want the value will be diminished. Users will want an outfit or accessory for a particular event, not something you can say that they can have it next week instead.

Should you Rent the Runway or just Run Away?

RTR definitely knows how to score on social media. Their strategy is built around organic interaction with shoppers who are encouraged to upload photos of themselves to the site, along with reviews of dresses and experiences with the company. The company founders, Jennifer Fleiss and Jennifer Hyman, both young entrepreneurs, understand their social media impact and engage in live chats with Twitter followers to provide advice and tips.

At the core of their digital marketing approach, the company believes that a brand endorsement from a friend is going to be more powerful than that of a stranger or direct email. Platforms like Facebook and Pinterest allow for users to see the community of users and visuals that enhance the brand’s image. Their reach is massive, but their digital marketing efforts are commendably organic.

Despite a notable social media presence and excellent press reports, Rent the Runway does have a fair share of criticism. In 2015 the company lost its chief operating officer, chief financial officer, chief marketing officer, chief creative officer, chief technology officer, chief people officer, and head of partnerships in two months. Employees describe a corporate culture at the fashion company that is unwelcoming, stressful, and occasionally hostile. Some employees referred to the corporate culture as divided and compared it to Mean Girl or the Devil Wears Prada. Screaming matches are common on the work floor according to the former employees. Recently also co-founder Jenny Fleish stepped down to join a new Walmart e-commerce incubator project called code 8 right before the IPO. Fortune magazine published an article about the instability and sudden shift in management (in 2015), and RTR begged them not to publish it saying it could harm the company’s potential to attract additional investments. (Roberts, 2015. Exclusive: What is behind the Exodus at RTR? Retrieved from: http://fortune.com/2015/11/17/rent-the-runway-exodus/)

The online reviews on popular social media sites such as Yelp and Sitejabber don’t seem to picture quite the success story the media paints RTR out to be. From holding customers liable and making them pay for dresses which didn’t arrive or which were sent back, to faulty and late deliveries, to frustrating in-store experiences. A large user base of RTR seems to be frustrated with their experience, and the majority of social media reviews are negative. The average rating on social media is a meager two to three stars. Customers mention the poor customer service as their number one frustration, combined with confusing policies, bad logistics and shipping policies, low inventory and availability, and impossible fees and fines.

Some example reviews from Sitejabber and Yelp:[/vc_column_text][/vc_column][/vc_row]