Rent the Runway: Data and fashion combine to deliver your dream wardrobe
“Love. Wear. Return.” Rent The Runway is your designer closet on demand. Can their operations scale to keep up with demand?
Rent the Runway: A revolving closet
What if you could wear virtually any brand you wanted without having to buy it? With Rent The Runway, that designer dress could be yours for Holidazzle and it won’t take up space in your closet after the music stops. RTR creates value by providing an alternative to investing in expensive clothing. It offers customers the opportunity to try brands they wouldn’t otherwise be able to afford and presents an alternative to fast fashion retailers like H&M and Forever 21. The e-commerce rental service caters to millennials who place a premium on variety and keeping up with changing styles on a budget. According to Rent the Runway’s internal research, American women buy an average of 64 new pieces of clothing a year–half of which they wear once. [1]
RTR leverages large amounts of data to make recommendations to customers based on their preferences. “With every click, delivery, return and step along the way, we gather an insane amount of data, informing every decision our company makes.” [2] The company presents a clear value-add to customers who want a designer closet, ease of use, and the ability to try a variety pieces without having to commit to owning them.
Business Model:
The RTR business model is similar to Netflix’s DVD rental business: choose your items to borrow online and they’ll ship them to you with minimal return hassle for the user.
- How it works [3]:
- Pick a piece of clothing to rent for a period of either 4 or 8 days.
- Choose your size and a free second size or a backup style for an additional $32.50.
- Your outfit is delivered on the day you specify with a pre-printed return label and garment bag. Simply drop it off at any UPS store or drop box to return. No dry cleaning necessary–it’s on them.
The Largest Dry Cleaner in the US:
- RTR rents over 65,000 items and processes all orders through one 160,000 sq foot warehouse.
- The company itself is now the largest dry cleaner in the country, measured by pounds per hour. [4]
- It is in RTR’s best interest to process items as quickly as possible to save on shipping costs and maximize rental time.
Operating Model:
One key difference between Netflix and RTR is the cost and turnaround time from one rental to another. Although their business model creates value for customers, it will be difficult to scale given their current operating model. Rent the Runway buys dresses and other designer clothing items at wholesale in order to rent them to customers. The more rentals a dress can withstand, the more return RTR will realize on their investment. According to RTR, the average garment can be rented about 30 times before it is sold at a discount, however, once a dress is irreparably stained it is essentially worthless to the company [4]. The company offers insurance on their dresses and does not charge customers for these damages.
Rent the Runway invests significant resources in the care and repair of their pieces. Although Netflix DVDs may come back with scratches or broken, the cost of replacing them is far lower than a designer dress and there is less care required to maintain them. RTR says that 50% of their garments are returned with stains and in need of hand spot treatment [4]. This creates a bottleneck because there is a methodical 20-step process that spotters typically employ to remove a stain. Although highly skilled spotters are typically able to circumvent this process to treat around around 30 dresses per hour, the skill set is difficult to find and recruit. According to the National Cleaner’s Association, experienced spotters who understand the nuances of how to treat blemishes are rare, and becoming more rare due to the business models of most dry cleaners (who are paid per piece). [4] According to Fast Company, RTR CEO Jennifer Hyman explains, “The hardest position to recruit has not been engineers, it has been spotters.” [5]
Conclusion:
Although RTR may be a great way to get into that Nicole Miller dress for a night, as their operations expand they’ll need to find a more scalable way to process their clothing. Although the company’s revenues have been growing steadily year over year and it has raised $54.4 million dollars in funding [7], it has yet to be profitable. According to Forbes, the company lost $14.5 million in 2013 and came in 25% lower than internal projections [6]. Additionally, their newest product offering, an unlimited subscription has failed to scale. “Very honestly,” Hyman says, “that model did not work. It took us four to five months to fully realize it. When we launched, we got such great PR that it looked like an immediate boost, but it didn’t sustain itself. It was a false positive. So we started iterating furiously.” [8] Given these challenges, it seems that RTR has not found its ideal steady state. It needs to continue to iterate in order to scale the business.
[2] https://www.renttherunway.com/pages/about
[3] https://www.renttherunway.com/
[5] http://www.fastcodesign.com/3035238/innovation-by-design-2014/borrowing-is-the-new-owning
[6] http://fortune.com/2014/10/29/rent-the-runway-raising-50-million/
Very interesting business! I wonder how strong/important are the relationship of rent the runway with brands? and if they ever tried to strike agreements with them to lock in cheaper supplies
Elena – thanks so much for writing this, really informative and enlightening! You mentioned the challenge of scaling RTR’s clothing processing operation as its business grows, which I think is spot-on. I wonder if an additional scaling challenge around clothing selection might arise as RTR broadens its audience: as RTR has become near-universal in some communities, many users are arriving to events disappointed that others are wearing the same dress as they are, or that they can spot every dress in the room that comes from RTR. Would love your thoughts on the challenge of keeping the service exclusive (i.e. “I’m renting a unique dress”) and discreet (i.e. “and no one knows where I got it!) as RTR makes its (welcome) way into our closets!
Elena – this is great post and Monica hit right at the heart of the issue of rising complaints of customers showing up to the event with same dress.
In addition to that, I found your argument about the unsuccessful roll-out of unlimited subscription model very interesting. From personal experience, one of the issue was the difficulty of getting access to the unlimited program. I had to wait 6 months to get off the wait-list and that significantly reduced my interest in the program. In addition, the selection is very limited for unlimited customers – not all dresses and accessories are available for shipment. I think this really undermines their customer promise and reduced value of the program.
Currently, they are requiring new enrollments to lock-in for 6 month / 1 year subscription, but if they don’t deliver excellent customer value, I feel it will be extremely hard to keep customer retention. It might be better for them to open up the entire selection, provide flexibility in cancellation, and if needed raise price in order to provide best customer experience.