Future of Clothing = Renting?
Founded by two graduates of Harvard Business School, Rent the Runway (“RTR”) is an e-commerce business which is trying to transform the way in which women (particularly millennials) consume fashion. Specifically, the company is using technology to move towards a shared economy for clothing and accessories, encouraging women to rent (as opposed to buy).
The concept is simple: women can rent a dress from high-end designers for special events. After the event, they simply return the gown. This means spending between $50 and $200 instead of thousands. [1] The company also debuted a subscription service called Unlimited. It charges $99 monthly to rent up to three items at a time. Geared to women who want to refresh their wardrobe midweek—maybe multiple times during the week—the service lets customers create a queue of desired items that will ship based on when other items are returned. [2]
The key ways in which RTR captures creates / captures value is by offering customers the combination of (i) a huge selection of items (much more than could be found in any one retail store), (ii) the opportunity to rent clothing, (iii) an engaged community of users and (iv) a high-quality service.
- Huge Selection: RTR offers its customers an “endless” closet, consisting of thousands of items. It uses a highly developed online platform to accomplish this. When a user visits the company’s website, they have the option to search items by many types of filters, whether that be favorite designer, type of event (i.e., different types of events call for different types of dresses), type of material or color, etc. Without a strong digital platform, RTR would only be able to provide a limited assortment of items. While many e-commerce websites also have a large assortment of items, most do not have strong digital content. RTR, on the other hand, employs a large digital media team who is constantly uploading proprietary media (pictures, videos, etc.) for each item.
- Rent: A key component of RTR’s value proposition is that consumers can rent an item for a fraction of its purchase price. Compared to traditional retail, where customers purchase their items and only a few of them come back to the store through the form of returns, RTR needs to manage the constant flow of incoming and outgoing items. To accomplish this, they leverage a highly developed digital inventory management system to track each item. This allows them to update their online website with the latest inventory at any given point in time and ensure customers are only ordering items which will be available by the date they need it.
- Community: RTR has created a robust digital community of users. Their model 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. [3] These posts include their review of the product, how it fit them based on their physical characteristics and oftentimes include a picture of the individual wearing the item. RTR’s digital community is a key competitive advantage and helps them differentiate from other competitors (particularly e-commerce players).
- High Quality Service: RTR promises its customers that they will receive a dress which looks new and is always delivered on-time, if not early. To accomplish this, the company leverages a complex logistics platform, including purchasing, marketing/retailing, shipping, dry cleaning, and inventory management, all of which require digital technology. For example, RTR operates the world’s largest dry cleaning operation. Interestingly, the entire system is digital and RTR has the ability to track how far along a dress is in its cleaning process at any given time. This type of information through the help of technology helps the company stay ahead of potential quality problems and ensure each customer gets a quality rental service each time they order with the company. RTR also employs digital technology in its customer service platform, offering immediate video chat with customer service representatives, if desired.
Next Steps
To establish itself as a more attractive alternative to traditional retail, RTR will need to continue to develop its digital technology platform. Possible additional steps include:
- Digital Fittings: I imagine many women don’t enjoy shopping because it means having to try on many pieces of clothing in the dressing room. RTR has an opportunity to create a digital platform where women could enter their physical metrics or take a photo of themselves and see how different dresses might look on them.
- Improved Mobile Application: As more and more consumers make their purchases using mobile technology, RTR has an opportunity to develop a more robust mobile application to encourage users to make more of their rentals on the go.
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[1] American Express, “How Rent The Runway’s CEO Built an Empire in Two Years,” [Online]. Available: https://www.americanexpress.com/us/small-business/openforum/articles/exclusive-qa-with-rent-the-runway-ceo-on-how-she-built-an-empire-in-two-years.
[2] CNBC, “Rent the Runway’s designer closet tops $800 million,” [Online]. Available: http://www.cnbc.com/2015/07/25/rent-the-runways-designer-closet-tops-800-million.html.
[3] “The Power of Digital Engagement: A Case Study on Rent the Runway,” [Online]. Available: http://www.buzzbinpadillacrt.com/the-power-of-digital-engagement-a-case-study-on-rent-the-runway/
As Rent the Runway becomes more popular, one risk is scaling the dress inventory to align with demand. A concern for women renting through the site is getting a unique dress, which poses a challenge when many people are using Rent the Runway for events like proms, weddings, or formals. One way around this is to provide details on the dresses such as how many have been rented to people in your zip code or how many dresses are available. Given the uniqueness of many of the dresses, I could see people paying a premium to ensure they are getting a one-of-a-kind dress for a special occasion.
This is really interesting. It seems that RTR is capitalizing on a culture obsessed with celebrity and “pics or it didn’t happen,” making red carpet fashion accessible to all (or many more) women. In some ways this makes me really sad – rather than customers placing a premium on quality, we’re placing a premium on the ability to always have the latest thing. In other ways, I’d rather see these dresses fully utilized (and instead of being worn once and then in the back of the closet, they are cleaned and rented out again and again). I’m conflicted about whether I agree with this as a good thing, but I’m impressed with the logistics they’ve put together to make this all work!
Really cool image of the dry cleaning–I didn’t realize just how huge an operation that would have to be!
I’ve found RTR to be a fascinating business. I’ve used the service a few times for weddings and formals, and it’s really great, especially because they send you more than one size just in case. It’s strongly targeted at a younger demographic, such as a college-aged or young professionals, who provide a huge opportunity for brand marketing. Many of these consumers haven’t yet tried certain designers as the prices were prohibitive. But by getting to try the high-fashion brands at a lower rental price, these young women become fans of certain designers and build brand equity, which I imagine helps sales of the brands eventually.
I completely agree with your ideas for further digital growth. I also wonder what you think about growing into more physical places as well. RTR has a few store fronts, such as in Chicago and NYC, and also go to colleges and other places for special events. For example, at my college, RTR had a few events where we got to try the dresses on and rent on the spot for a discount. I think a selective targeted growth strategy in the physical space can continue to help them to attract even more customers.
RTR definitely needs to embrace new digital technologies if it wants to grow its top line. One area – machine vision, which is the branch of artificial intelligence that utilizes imagery. Specifically, machine vision is a technique that can analyze pictures and make sense of what’s being represented (this is how facebook can suggest who to tag in photos). RTR can use this technology to run their recommendation engines and also do digital fittings.
Great post. I’m a big fan of RTR but unfortunately have a hard time finding inventory on the site that fits me (because of my height). I imagine that they must keep a low level of abnormal size inventory since it is uncommon, but it is quite disappointing as a consumer. It would be interesting to better understand how they’ve been tackling this issue from an inventory management perspective. Also, I think it’s quite interesting that RTR has started to rent out accessories to go with the dresses. I wonder what verticals they will penetrate next and how this will affect their value prop.
I agree that Rent the Runway would be vastly improved if it allowed for digital fittings and expanded its technological capabilities. With more accurate sizing, RTR would no longer have to send 2 sizes for every order, which would cut down on inventory costs and NWC. This would also allow RTR to purchase a larger selection of designer brands and to stay more up-to-date with the current fashion trends.