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Rent the Runway: E-Commerce Strategy Plan, 2019-2022

Rent the Runway is an eCommerce website specialized in renting luxury designer clothing and accessories for women. This research paper provides an in-depth analysis of Rent the Runway's business strategy, which includes their digital strategy, marketing strategy, channel strategy, customer segments, competitive analysis, and financial performance, in order to present an eCommerce strategy plan for the next 3 years. This paper is accompanied by a PowerPoint presentation. This paper received First Class Honors in the eCommerce course at Trinity Business School.

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Rent the Runway’s luxury rental business strategy & model

We’ve all been there. It’s a usual Sunday afternoon. There’s a sleek designer dress that you’ve been eyeing, open in yet another tab. However, you know that even if you could afford it, you’ll just wear it a couple of times before it ends up in a black hole at the back of your closet, never to see the light of day again. And to add insult to injury, it’s a whopping $600. Yikes, right?

That’s exactly what Harvard classmates Jennifer Hyman and Jennifer Fleiss noticed while conceiving the business idea for Rent The Runway . Founded in the US in 2009, the ‘unicorn’ e-commerce startup rents high end fashion to women for a monthly subscription.

Customers can rent four items a month from 500+ designers at $99 per month, allowing high end items to be accessed at $22.50 a piece! 

In a world where fashion trends barely endure a few weeks and valid concerns around wastage are being raised, Rent the Runway satisfies the need for modern women to express themselves with fashion, at a ‘mass’ price, while boosting a circular economy.

Five years after its inception, the company was able to amass over 5 million customers while shipping 90,000 items per day . 

In its latest funding round in March 2019, the company was valued at $1 billion . This simple concept has also earned Rent The Runway numerous accolades from the business world. It has been named one of Fast Company’s Most Innovative Companies for two consecutive years in 2018 and 2019. Time recognized CEO and co-founder Jennifer Hyman in its ‘100 Most Influential People of 2019’ list. 

While the business idea itself sounds as easy as butter on toast, there were a million things that could go wrong when you factor in infrastructure and the fact that Rent The Runway had to create a brand new category, with customers and designers to convince. 

Three ‘transferable’ business strategies got Rent The Runway its unicorn status and 8 million strong customers:

1. strategic partnerships with designers to keep up with trends.

To stay relevant for its young, trendy customers and keep up with the fast changing fashion industry, RTR needed to be able to operate a diverse and rich inventory.

CEO Jennifer Hyman began by trying out different combinations of legendary American designer Diane Von Furstenberg’s emails. When they finally got to her, Diane was initially not into it. However, at the end of the meeting, they were able to strike a deal!

The startup could provide DVF’s brand with otherwise inaccessible exposure among younger women aged 18-35. Additionally, Rent The Runway would go on to collect data on customers’ everyday preferences and share this with brands. It worked.

Today, Rent The Runway has relationships with over 500 designer brands and continues to operate on the same partnership model. Taking it even further, Rent The Runway even collaborates with brands to get custom items created to respond to findings from their 8 million+ customers’ data.

While rentals themselves are not defendable, Rent The Runway has brilliantly leveraged relationships with brands against any competition that may arise.

2. Scalable, in-house operations  

Rent The Runway controls every part of the process with efficiency, from the sourcing to storage to the packing, with the exception of delivery. Every piece goes through a rigorous fulfillment process. The company even operates the biggest dry cleaning warehouse in the world, processing 2,000 items per hour. Rent The Runway also has full-time staff for the stock, stain removal, cleaning, and mending.  

Streamlining the fulfillment logistics has helped the business of Rent The Runway cut down costs and ensure a first-class customer experience at scale to millions. This has extended to the usage of patented garment bags and even submission of requests for a patented logistics workflow.

3. Customer experience model and personalization

At the time of registration, every customer can set their preferences to see items that are most suited to their style. When a customer orders an item, she’s given the option of a backup size along with it in case the item doesn’t fit. While it seems small, this perk is invaluable to women, who often find discrepancies in sizing among brands. The guarantee of a garment that fits without having to go through a painful returns call is one factor that has earned Rent The Runway solid brand loyalty.

While its physical stores were closed permanently in response to COVID, they served as a valuable touchpoint for building the brand. Previously, customers could book 45 minute appointments with in-store stylists for a consultation. 

Collecting deep customer data, Rent The Runway builds detailed customer profiles for its entire base . This allows it to respond to industry trends and add new pieces every week!

In conclusion, Rent The Runway created its own luxury retail category while tapping into a growing market of savvy but budget conscious buyers in the US. However, its biggest innovation in the space was in combining the unimaginable – luxury, the circular economy and the masses.

While the status quo of the linear economy invites endless consumption, the circular one is based around keeping goods within the cycle of use for longer. In the words of Jennifer, “Second hand is normal now.” 

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Rent The Runway Business Model In A Nutshell

Rent the Runway, an online provider of designer dress and accessory rentals founded in 2009 by Jenn Hyman and Jennifer Fleiss, met while studying at Harvard Business School. Although the company began as a four-day rental service, it now incorporates the paid subscription model to generate revenue. The company also makes money via its RTR Reserve service based on the rental length and the retail value of the clothing rented.

Table of Contents

Origin Story

Rent the Runway is a North American online provider of designer dress and accessory rentals.

Rent the Runway was founded in 2009 by Jenn Hyman and Jennifer Fleiss who met while studying at Harvard Business School.

Hyman and Fleiss would regularly meet to discuss start-up ideas. During one meeting, Fleiss pitched the idea of a clothes rental service after hearing her sister complain about having a lack of outfits to wear. The pair then decided to test the idea by purchasing designer clothing and renting pieces out to Harvard undergraduates. Rental fees were anywhere from $50 to $400 for a four-day rental period.

Rent the Runway became an overnight success, disrupting the billion-dollar fashion industry with a so-called ‘closet in the cloud’. Users can now access a variety of colors, trends, and prints for a fraction of the cost of purchasing outright. The company has also become a community, enabling issues to swap clothes and share ideas and inspiration.

The company generated over $100 million in annual revenue by 2021.

Rent the Runway mission and core values

Rent the Runaway’s mission is “to power women to feel their best every day.” This mission started to be executed with the “Closet in the Cloud: a dream closet filled with a massive selection of designer styles to rent, wear and return.”

Its core values are all expressed in its manifesto, with the founding team, starting in 2010, with the aim of building a culture that Rent the Runaway defines as “fast-paced, entrepreneurial, and rooted in passion, kindness, and positivity.”

How does Rent the Runaway work?

As the company highlights, with its “two-sided discovery engine, customers are finding new brands they love and brand partners are finding new customers they need.” Customers can choose what they like through an “Unlimited Closet” with a “constantly rotating supply of styles for all occasions, seasons, moods and price points.”

This drives engagement for customers while brand partners can also tap into it to build a loyal customer base.

Value Proposition:

• Unlimited Wardrobe: Rent the Runway offers customers access to a virtually unlimited wardrobe of designer clothing and accessories, allowing them to wear different styles for various occasions without the cost of ownership.
• Quality and Variety: Customers can choose from a wide range of high-quality, on-trend fashion items, ensuring they always have access to the latest styles and brands.
• Sustainability: Renting clothes reduces fashion waste and promotes sustainability by extending the lifecycle of garments, aligning with environmentally conscious consumer values.
• Convenience: Rent the Runway’s subscription model provides the convenience of a constantly refreshed wardrobe without the hassle of shopping, cleaning, or storing clothing.

Customer Segments:

• Fashion Enthusiasts: Individuals who are passionate about fashion and enjoy experimenting with different styles for everyday wear, special occasions, or events.
• Working Professionals: Professionals who require a regular rotation of stylish workwear without the commitment of purchasing new outfits.
• Occasional Dressers: Customers who need outfits for specific events, such as weddings, parties, graduations, or vacations.
• Parents: Parents who use the RTR Kids service to provide their children with fashionable clothing that accommodates their growth .

Distribution Strategy:

• Online Platform: Rent the Runway operates primarily through its online platform, allowing customers to browse, select, and rent items from the comfort of their homes.
• Subscription Model: The company offers subscription plans that provide customers with access to a curated selection of clothing and accessories. Subscribers receive monthly shipments based on their chosen plan.
• RTR Reserve: For one-time rentals, Rent the Runway offers the RTR Reserve service, which allows customers to rent items for specific occasions, such as weddings or parties.
• RTR Kids: The RTR Kids service focuses on providing stylish clothing options for children, reducing the costs and environmental impact of constantly purchasing new children’s clothing.
• Local Warehouses: Rent the Runway operates local warehouses to facilitate quick shipping and returns, ensuring a seamless customer experience.

Marketing Strategy:

• Fashionable Image: Rent the Runway positions itself as a fashionable and trendsetting brand , leveraging social media and influencers to showcase its clothing offerings.
• Subscription Promotion: The company promotes its subscription plans, highlighting the value of having an ever-changing wardrobe and the convenience of subscription-based fashion.
• Sustainability Messaging: Rent the Runway emphasizes the sustainability benefits of renting clothing, appealing to environmentally conscious consumers.
• User Community: Rent the Runway fosters a sense of community among users, encouraging them to share their experiences, outfit photos, and style tips on social media platforms.
• Customer Reviews: Positive reviews and testimonials from satisfied customers play a significant role in building trust and encouraging new users to try the service.
• Personalization: The platform uses algorithms and customer data to personalize recommendations, helping users discover styles that suit their preferences.

Rent the Runway revenue generation

Although the company began as a four-day rental service, it now incorporates the paid subscription model to generate revenue.

Rent the Runway members pay to gain access to a forever-rotating closet of designer clothing and accessories.

Each of the three paid plans is categorized according to how many items can be rented each month.

Here is a look at all three in more detail:

• Up to 4 items in one shipment per month ($69 for 1 month and then $89/month thereafter) – ideal for casual users who desire versatile essentials and statement pieces. This plan has access to a basic closet, containing casual and workwear-oriented items up to a retail value of $350.
• Up to 8 items in two shipments per month ($99/month for 2 months, $135/month thereafter) – this plan is better suited for updated outfits, special occasions, and work and weekend looks. Here, users have access to the full closet incorporating premium clothing up to a retail value of $3500.
• Up to 16 items in four shipments per month ($139/month for 2 months, $199/month thereafter) – ideal for those who need a consistently fresh look for work, weekends, or special events. This plan also has full closet access.

Both the 8-item and 16-item plan users are limited to four items at any one time. Extra items can be purchased for as little as $29/month.

RTR Reserve

Rent the Runway Reserve is perfect for individuals who dislike monthly subscriptions or simply need an outfit for a one-off event like a wedding, graduation, or birthday.

Items can be rented for 4 or 8 days with a free backup size and free returns. Pricing for RTR Reserve is based on the rental length and the retail value of the clothing rented.

Complimentary service RTR Kids is also offered to outfit children for special events. It also reduces the costs of clothing children as they constantly grow out of sizes. Prices range from $30 to $125 depending on the piece and rental time.

Revenue Model:

• Subscription Fees: Rent The Runway offers subscription-based plans that allow customers to rent a certain number of items each month for a fixed monthly fee. Subscription tiers typically include options for a set number of rentals per month, with higher-tier plans offering more flexibility and access to premium items. Subscription fees provide a recurring revenue stream for the company and encourage customer loyalty and repeat usage.
• Rental Fees: In addition to subscription plans, Rent The Runway generates revenue through a la carte rentals, where customers pay individual rental fees for specific items on a per-use basis. Rental fees vary depending on the retail value of the item, its popularity, and the duration of the rental period. A la carte rentals allow customers to rent items for special occasions or one-time wear without committing to a subscription plan.
• Late Fees and Damage Fees: Rent The Runway may charge late fees or damage fees to customers who return items late or damaged beyond normal wear and tear. These fees serve as a source of additional revenue and help offset the costs associated with managing inventory , cleaning, and repairing items.
• Accessories and Add-Ons: The platform may offer accessories, styling services, and add-ons such as insurance or expedited shipping for an additional fee. These upsell opportunities provide customers with added value and convenience while generating incremental revenue for Rent The Runway.
• Brand Partnerships and Collaborations: Rent The Runway may collaborate with fashion brands and designers to offer exclusive collections, limited-edition items, or co-branded products. These partnerships can drive customer engagement, attract new users, and generate revenue through joint marketing efforts, licensing agreements, or revenue-sharing arrangements.

Key takeaways:

• Rent the Runway is a North American clothing rental service founded by Harvard Business School graduates Jenn Hyman and Jennifer Fleiss. The idea for the service came after Fleiss overheard her sister complaining about having a lack of outfits.
• Rent the Runway makes money by offering three paid subscriptions. Each plan offers a distinct number of monthly shipments per month, with the two most expensive plans giving access to premium workwear and designer brands.
• Rent the Runway Reserve offers clothing to those who need an outfit for a one-off special event. Additional service RTR Kids helps parents ease the financial burden of replacing children’s clothing as they grow.

Read Also: Zara Business Model , How Does Farfetch Make Money , How Does Vinted Make Money , How Does Zalando Make Money , Wish Mobile E-commerce Platform Business model .

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What can be learnt from rent the runway’s business model.

Ana Kozlova

This article is part of our Business Strategies series, an insight and analysis into the makeup and model of some of the world's most successful startups.

Let's be honest; we've all done it. We have an important event to attend, or a big night out looming, and in our efforts to impress and look and feel our best, we spend vast amounts of money on clothes that, more often than not, are worn once and never heard from again, left to rot in the back of a heaving wardrobe.

If this sounds like you, then you're not alone; every year, hundreds of women go into credit card debt buying designer clothing. But where there lies a problem, there is always an opportunity, as two Harvard students have realised to great success. By recognising this issue – and subsequently deciding that loaning clothes is more sustainable than loaning money – Rent the Runway's business model has disrupted and reinvented the retail industry. To illustrate how, we've taken a closer look at the company's canvas, as well as what you – as a business owner – can learn from this rapidly expanding industry player. 

Vital Information

• Founded : November 2009
• Founders : Jennifer Hyman and Jennifer Fleiss
• Headquarters : New York City, NY, USA
• Current CEO : Jennifer Hyman
• Global Employees : Approx. 1800 (2020)
• Type : Privately held
• Venture Capital Investors : Bain Capital, Ventures, Highland Capital, Kleiner Perkins Caufield & Byers, Advance Publications, American Express and Novel TMT Ventures
• Key Products / Services : Designer clothes and accessory rental

Our mission is to make women feel empowered and self-confident every single day.

Rent the Runway Mission Statement

When we're able to wear what makes us feel our best, we can be our best selves, and in turn live our best lives.

Rent the Runway Vision Statement

Founded in 2009 by Harvard MBA alumni, Jennifer Hyman and Jenn Fleiss, Rent the Runway was initially inspired by Hyman's debt-ridden sister. At the same time, as companies such as Airbnb and Uber began experimenting with the 'experience economy', the pair saw that women were also ready to experience their closets, rather than wear them.

Luckily, their first cold-call – the fashion heiress Diane von Furstenberg – clearly agreed, and the co-founders began realising their idea through brick-and-mortar locations. Following the advice of industry experts, they opened pop-up stores across New York City to trial their idea and, as more eyes shifted their way, the company eventually decided to take their brand digital.

This "digital closet" canvas became even more popular with numerous brands and independent stores, many of whom willingly offered their products up for rent in exchange for valuable customer shopping data. This, in turn, allowed the startup to build partnerships, as well as gain credibility and brand awareness through other established brands, particularly those seeking to gain access to a larger digital market.

Rent the Runway's popularity has seen it attract investment from Bain Capital and American Express (among others), raising approximately $126m in venture capital. It has worked directly with other businesses to generate brand awareness – a strategy that matured the company to a $1bn valuation in May 2020.

Rent the Runway's Business Model

The company's business model is, essentially, a more complex version of a monthly subscription box . It has leveraged the benefits of traditional marketplaces by injecting the concept with data and analytics, allowing them to personalise customer experiences – a key consumer trend .

"Data is a big part of our business," Fleiss told Forbes in 2013, "encompassing everything from the whole fashion component to metrics around the utilisation of a given dress. We have an analytics team (...) who look at rental statistics, such as how many long dresses get rented, how many short, how many red, (...) and so on. (...). So, all of the art and science gets combined into our ultimate inventory buying decisions."

Indeed, the company leverages data to build efficiencies at every stage of the process. The business canvas utilises analysed web traffic to personalise the online shopping experience, accounting for every logistical question such as rental durations and shipping preferences through trend analysis. They have invested in a pricing engine that optimises the pricing levels of their service; in short, Rent the Runway has automated every nitty-gritty detail so that they can focus on scaling their business .

The company has also worked to optimise the customer experience by dedicating much of its resources towards platform development, customer service, and stock selection and purchasing. By understanding what drives the success of their service (such as staying up to date with latest trends and connecting exciting new designers to eager consumers), the company's automation of their other activities through analytics has allowed them to focus on these key processes.

For a startup, Rent the Runway is exceptionally resource-hungry, too. For instance, the company requires intense dry cleaning and repairs servicing, frequent rotation of designer stock, and a robust shipping service system. The founders have worked to minimise this strain by partnering with their key resources. In return for data on their customers, designers offer RTR wholesale pricing, quantity discounts and full-size runs on new collections. Additionally, the company has partnered with UPS to generate further efficiencies and cost-savings on their shipping services. 

Despite these high levels of expenditure, however, the company's books balance well, generating around  $100m in revenue  through subscriptions. On top of that, they profit from late fees, insurance, sales of old dresses, and rent-by dates.

While this model sounds incredibly fruitful, it's worth noting that the company's use of data to minimise costly errors is crucial to their success. Some of their larger outgoings, such as maintenance and stock, can eat up as much as 30% of revenue before any other variable cost comes into place, highlighting the importance of this intelligence-driven approach.

Value for Customers

Undoubtedly, the appeal of Rent the Runway for consumers is the ease of purchase. Customers have access to higher-end brands without commitment, and they may purchase designer items without remorse for the price they are paying (or for the environmental impact of so-called fast fashion). Thanks to personalised recommendations, customers tend to spend less time shopping around, too.

Indeed, Rent the Runway has managed to tap into a niche solution and target the right audience – generally affluent female professionals and fast fashion consumers in their late 20s. They have paced their earning potential by mastering this current target market, and, through effective initial investment into research and consultation with industry experts, have been able to focus on creating a valuable product.

Impact on the Retail Industry

As one of the first players in the retail experience economy, Rent the Runway has become an innovator within the fashion industry. In 2019, the fashion rental service came in at 5th place on CNBC's Disruptor 50 list, alongside the likes of Uber and Airbnb. This is a natural progression from consecutive years of being featured under Fast Company's 'Most Innovative Companies'.

In more practical terms, the online clothing rental market is estimated to more than double in the next few years, with market research experts TechNavio predicting growth of  around $801m  by 2023. Rent the Runway has played a huge part in this, reshaping the way customers engage in shopping experiences; women, specifically, are growing this market at a rate of 9.7% per year.

The company has acted as a disruptor and has reenvisioned retail shopping as an online, non-committal and personalised service. This has reduced the amount of money and time customers need to click 'pay now', creating huge value and redefining the future of the entire sector.

Competition

Rent the Runway may be a pioneer in the fashion rental movement, but it is far from the only one; top competitors include Le Tote, Stitch Fix, Swap.com, thredUP, Nuuly and Girl Meets Dress (UK).

Many of these retail rentals follow a similar business model, varying only in their approach to personalisation, or the types of products featured. Male services tend to focus strictly on occasion wear, for instance, whereas other, female-focused services are expanding into other market segments (Nuuly, for example, is targeting Gen Z consumers ). All of these competitors share a similar strategy, however: bulk product offers, often for a fixed price, marketed through a personalised approach. Their services are targeted at one niche segment of the market and offer specific types of dress relevant to that segment.

Many of these businesses are also gathering data, but few have scaled themselves as quickly by making it the central piece on the canvas. This is where Rent the Runway stands out. As a startup, they have taken on many risks, and this has left them with little room for error. It has forced them to utilise data and analysis for every decision they make, and the cold hard facts of market research are the only advisor they trust. While this is a strict approach to introducing new ideas into a market, their focus on efficiency through data has propelled them to where they are today.

Key Takeaways

So, what are the key takeaways from the Rent the Runway business model?

• Master every part of your process and create efficiencies: Understand the finer details of your business and automate time-consuming tasks for efficiency; this allows you to focus on key activities within your business. Aim to control most of your logistics pipeline to reduce reliance on outside sources and minimise production costs. 
• Reach out to brands and industry experts to increase brand awareness by word of mouth : You can minimise marketing costs by utilising word-of-mouth advertising and B2B collaborations. People believe others' experiences more than colourful adverts.
• Analyse customer data to personalise your customer experience : Create intuitive and easy experiences for your customers to navigate by leveraging the customer data you have available to you.

Was this article helpful? What do you think of Rent the Runway's business model? Join the conversation, and let us know your thoughts below.

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The Race to $1 Billion—How Rent the Runway Became a Unicorn

Shikhar Ghosh , Marilyn Morgan Westner , Jennifer Hyman , Jennifer Fleiss and Dave Anderson

When co-founders Jennifer Hyman and Jennifer Fleiss launched Rent the Runway in 2009, they had an idea to solve a distinctive problem for a targeted audience. Young professional w omen in their twenties attended multiple social events—like weddings and formal parties—annually. Each event required a new dress. Hyman observed that this demographic purchased closetfuls of designer dresses—each on average $1500 per design—they could not comfortably afford, especially for an item that would be worn only once. Social media exacerbated the problem—women didn’t want to be captured on Facebook and Instagram wearing the same dress to multiple events. Because no viable alternative existed, they continued to purchase dresses. Hyman and Fleiss investigated the problem and designed a solution—Rent the Runway. Their startup offered an online platform that allowed women to rent designer dresses for a fraction of the cost of purchasing one. The idea resonated with their initial target demographic. Within a decade, they had expanded their business model and diversified and broadened their audience. The two effectively disrupted the retail fashion space and grew their startup into a unicorn . In a discussion with MBS students in the HBS course, Founder’s Journey , led by professor Shikhar Ghosh , the co-founders share the lessons they learned. Hear their tips on validating your idea, customer research, creating MVPs, and the importance of being passionate about your mission. 

https://hbsaccelerate.wistia.com/medias/hml7wdyyvi?embedType=async&videoFoam=true&videoWidth=640

An unedited transcript and additional resources follow the video.

Quick Takeaways on Scaling

• Understand market timing . It’s essential to understand market conditions before launching your business.
• Test early and often . Fleiss and Hyman tested their minimum viable product (MVP) on college students before they decided to move forward.
• Unit economics matter . The key to building a scalable business in healthy unit economics from the beginning.

How Rent the Runway Became a Unicorn & Reflections on Scaling

Jennifer Fleiss : One thing we didn’t get to cover was the macroeconomic environment. So before we dug in and say, let’s MVP, test this. It’s going to be fun. Even in that lunch conversation was a realization that a lot of things were changing, both for customers and designers. So for customers, it was the age of social media had started to explode. Facebook had existed for a few years, but suddenly it was like if you wore a dress one night, it was like a bad night on social media. We heard Facebook kills outfits. So you couldn’t repeat your dress. And also you started to be in front of thousands of eyes everyday you wore something. So that was huge. People started feeling they were creating their own brand and their own image on social media.

And then from the designer perspective, you had retailers slashing prices and it was a recessionary time. So they were looking for ways to retain brand equity and fight versus fast fashion as well.

Jennifer Hyman : The basic thesis was that department stores were going to die because their customers were aging. And you had entrance into the market like Amazon and Zara and H&M, which were grabbing away younger customers. So really the thesis initially was if you could deliver a product to a customer at the Zara price point, but give her the real thing, give her the high quality thing, then can you have a business on that proposition of giving the designer product at the really cheap price point? And to designers initially, they understood that their accounts with department stores were actually flat to going down over time. As much as they didn’t want to change their business, they needed to listen and potentially have new customers like Rent the Runway, help them acquire customers.

Jennifer Fleiss : This idea, part of it was luck as always as the case with entrepreneurship, but timing plays a big role. And I think every entrepreneurial journey. So once we said, “Okay. We think this is the moment in time for Rent the Runway.” Then we dig, we dig in and we started MVP testing. Some of the reason we did that was also to see if we enjoyed working on this concept and to really prove to ourselves because we had other jobs we had lined up that were exciting to us. We didn’t want to quit our other jobs and actually go and work on this full time.

Jennifer Hyman : And the only thing that’s going to sustain you in a company over time is fun, is mission, is something you feel like you’re doing something in the world beyond just making money. So from the very beginning of the company at that first customer trial we did at Harvard, we saw these two girls have a reaction to trying on a dress, where their whole body language changed. Where she threw back her shoulders and she felt gorgeous. And she turned to her friend with this feeling of self-confidence.

Jennifer Hyman : We’re like, our company can do that. It could be more than just a business that’s about saving money. It could be about a business that makes women feel confident every single time they go initially to a party or wedding now or businesses, every day when you go to work. So that mission-driven nature of, should you spend your own time on this? I’m nine into this company right now. I’m more energized by the company today than I was nine years ago. But it’s because of the mission. And the mission only continues to get bigger.

Jennifer Fleiss : And I think seeing that light bulb moment of this woman who had that emotional connection would have only been possible with these eyes wide open to observing a customer. So you may go into an MVP test and say, Oh, I want to learn about-

Jennifer Hyman : Conversion rate

Jennifer Fleiss : … conversion, or like how to price a dress or whatever, but the real unlock comes in what a customer says or what they do.

Jennifer Hyman : Yeah. The qualitative data is so important because it’s then that we realized like, what is the real value that we’re bringing to women? And does this concept have legs? I love this word, Smart-Lazy. One of the core values of Rent the Runway is scrappiness is a virtue. So basically Smart-Lazy is how we hire people. And we think about always like, what is the quickest route to get to some data point? So to us, how many times can you turn a dress before it gets destroyed?

Jennifer Hyman : What we actually did is we realized very early on that the chemicals and dry cleaning were the actual things that destroyed a dress, it wasn’t customer use. One of the reasons we went to Harvard first was not only was it easy, but we thought a college sorority girl would probably ruin the dress, with greater probability than a thirty-year-old. So let’s go to the person that’s most likely to get drunk and throw it on the floor at the end of the night and see what happens.

Jennifer Hyman : So what we ended up doing is after that first trial, we would take certain dresses and just dry clean them 30 times in a row and see, how does it look on each subsequent dry clean? Does it still look brand new? Because we wanted, every time you rent, we don’t want you to know how many times, if it’s the first time the dress has been worn, like I’ve rented the runway today. I don’t think anyone would be able … I rent the runway everyday, but I don’t think anyone would know how many times this dress was worn before today. I certainly don’t know. We want every single piece to look like it’s brand new.

Jennifer Hyman : So that quality is really important because the business actually, how we make money is an asset utilization business. Forget about the fact that it’s fashion, we’re taking an article of clothing, which in other retailers’ businesses is a liability, and we’ve now proven that you can rent this out dozens of times and make, currently we make eight times the gross profit on every unit of inventory than Amazon does.

Jennifer Hyman : So we have unbelievable economics and just fast-forwarding to today, our cap, so I don’t know where this hundred dollar number came from, but our cap today eight+ years into the business is less than $10. We hardly spend money on acquiring customers because of what we saw at this first trial. We saw that women felt smart and beautiful when they rented the runway and they wanted to tell everyone they knew. That it wasn’t something that they actually wanted to hide, they wanted to show off the idea that they not only felt great about themselves, but that they felt great for a very cheap price and emphasizing how smart the concept was, has helped the virality of the business offline.

Jennifer Fleiss: We also had to invest in the brand. So we enforced that. So we wanted people to shop from the rooftops. So they rented and post on social media. We also wanted the brand to feel comfortable in trusting us with their inventory and their brand name. So making sure that we had a beautiful website, that we had beautiful garment bags to deliver our dresses in, all those details, we realized were instead of paying to acquire a customer, we were like, let’s funnel that into building an amazing brand.

Jennifer Fleiss : I think the Smart-Lazy, it’s also like smart, efficient. You only have so much time, and time is money. Money is time. Once you raise venture capital, you have a little runway of usually 18 months to make the most progress you can before you need to raise your next round of funding. And the valuation is determined, therefore your dilution is determined by the progress that you make. It was not a choice of like, do we launch, do we wait? We need to hit holiday season because those are going to be the biggest numbers we can ever post this entire year.

Jennifer Hyman : I mean, now just fast forward, we’re eight years into the business. We have 1200 employees that rent the runway. We’ve built a billion dollar company. It’s profitable. And we’re actually in a quite different business than what we launched eight years ago. So we still have the ability to rent for events like Holidazzle and job interviews and whatever you have coming up. But our business today is a subscription to fashion, where you pay a monthly fee and get four things at a time and have your wardrobe on rotation. We call it your closet in the cloud.

Jennifer Hyman : And today women are renting from us on average, 150 days of the year. So they’re using this as a real replacement for shopping. Now, how we got here is just continuous iteration and continuous learning over time. No one could have anticipated when we were sitting in your shoes that Rent the Runway eventually would convince women to rent with us 150 days of the year. We actually had to do something, build it, get going, normalize the behavior, make it cool, prove to women that she can not only rent for a wedding, but she could rent for work and iterate as we go.

Jennifer Fleiss: And this belief like MVP testing, isn’t just for the beginning of your business, it never ends. So you need to create a pipeline of contact with your customers. Jen and I were initially answering the customer service lines. We still have the customer service team as a part of, like your training, when any new employee starts, they spent it on the phone with customers. We go to the retail stores and the retail stores are our channel to observe customer behavior.

Jennifer Fleiss: And the subscription model partially came out of just focus groups and talking to customers and them sharing that like, well, why weren’t they renting for just an everyday occasional, maybe it’s something about price. And then you iterate and you do pricing tasks and gradually moving that very key lever that you guys identified of the number of times someone wears a dress each year.

Jennifer Hyman : One of the things that form big companies is there’s a focus on not wanting to disrupt yourself. Whereas at a startup, it’s all about like, okay, let’s disrupt ourselves. Let’s destroy certain aspects. Let’s cannibalize aspects of our own business, so we could build something bigger. So that we can continuously test and learn and be curious and figure out like, where are we going to bring this concept of a closet in the cloud?

Jennifer Hyman : Over the years we’ve had over 80 different copycats of Rent the Runway. And basically all of them have gone out of business because what none of those copycats understood is that what we were really building was an asset utilization business. Therefore, what we were building was a technology and logistics company. Most of our corporate employees are engineers, data scientists, they work in logistics, they’re figuring out how we could actually turn something more efficiently, more effectively over time. How do we personalize what you see as a customer so it’s the most efficient experience and you get something that you love.

Jennifer Hyman : We actually didn’t even know at the beginning of the business that we were building a tech company. We probably wouldn’t have started Rent the Runway had we known that we were building a tech company because we had no experience in tech or logistics. So being naive at the very beginning of the company, I think has served us extremely well because it just allowed us to jump into the deep end of the pool and figure it out over time.

Jennifer Fleiss : Yeah. We never thought of it as a choice of can we launch this website in a month or not, once the tech partner initially failed? It was kind of like we had to find a way to do this. And I think that was really empowering. I think likewise would we have emailed Diane von Furstenberg had we been from the fashion industry and known how intimidating she was or what like a long shot that was? Possibly not. So coming from the perspective of a consumer, but with this fresh perspective of these industries that we didn’t have backgrounds in, I think was incredibly valuable.

Jennifer Hyman : And just enjoying the ride. We cold called Diane von Furstenberg a few hours after I told Jenny the idea. We were into meet her the next day at five o’clock. It was a bizarre meeting. She hated the idea. She said it was going to fail. She said it was going to cannibalize her business, but two hours later, because we kept on asking her questions about herself because the trick to all of life is just get someone to talk about themselves. People love self-promotion.

Jennifer Hyman : So we asked her questions about herself. By the end of this first meeting, she was laying on a couch, eating grapes in front of us. And like, how did this business not even turned into anything? We would have had the best story of all time. But Diane von Furstenberg was seducing us, laying on the bed eating grapes. It was amazing. Every single component of building a company, when I first told Jenny the idea, her reaction was this sounds fun. That is the only thing that you guys should be thinking about in your career journey. What internship should you take? Should you work on a startup? Where do you work? If it is fun, you will be successful at it. It will turn into something fantastic. That is just so undervalued. I undervalued it until I really put myself in the least fun environment ever for me, which was McKinsey. And then I realized, Oh my God, I just need to do something else and do something fun with my life.

Jennifer Fleiss : That goes back to, you guys have been very privileged seats and we are wishing we were back here every day. We leveraged every resource we possibly could at HBS. The first was obviously we met one another. So finding your co-founder in the setting of a classroom where you-

Jennifer Hyman : On the sit in the classroom.

Jennifer Fleiss : Yeah. So we were in your seats, we heard each other’s responses to different cases. We knew that we had backgrounds that were complimentary. We got along. So that was huge. Leveraging our classmates as people that we bugged about. Like what do you think of this idea or people that we’ve pitched to because some of you are VCs or in private equity.

Jennifer Hyman : We had all of our Bain Capital classmates and other people that had worked in private equity, attack our fundraising pitch. And it was really helpful.

Jennifer Fleiss : It was great. And then professors. We met with over 50 professors, many of them were not our professors, but we were like, they have a background that could be useful and interesting. Alumni network. That’s how we got in touch with major people in the retail industry who became our advisors. So leverage every aspect of being here.

Jennifer Hyman : Yeah. I think that the last thing that I would say is that nothing when you’re doing it is as technical as it sounds now when you’re evaluating the case. When we were going through these popups at Harvard and Yale and then putting it into a PDF, honestly, we were just trying to figure out like, is there an idea here? Will women wear clothes that other women had worn before without feeling it’s totally disgusting? And if we could overcome that barrier, we knew we would have something.

Jennifer Hyman : So we were trying to find just like, is there demand or have we concocted this problem that needs to be solved in our own head? Sometimes you get so into the analysis before you actually figure out, is there a real demand? That you could be in paralysis for your whole life. If we just had to go straight to women, put dresses in front of them and see like, will someone pay money for this dress that has already been worn. And this bias towards action that we’ve had from the very beginning of the company that we still have today in the company, that was the thing that investors invested in.

Jennifer Hyman : They didn’t know whether this idea of renting dresses would work. They didn’t know we’d build a closet in the cloud. Our first investor from Bain Capital basically said, “I’m investing in you guys because you’re both hustlers. I know that if I give you money, you’re going to turn it into something.”

Jennifer Fleiss: And so the MVP test, that was probably the biggest gift of the MVP test. We invited him like, come to our test because also he was a man in his fifties and we’re like, he will not relate to the reason that women actually need thousands of dresses, which is that emotional connection. And because women are crazy, but like, so what, we need to put them in the room and have him see that real energy and passion that women feel.

Jennifer Hyman: And just that it’s all about being assertive and aggressive about what you want in your life. Nothing happens by luck. The idea that we were on the front page of the New York times, we made that happen. We found a person who had an @nytimes email address in our 40,000 person list and found her and gave her a story and posed in tight dresses on ladders at a dry cleaner, so we could end up on the front page of the New York Times. Everything was calculated in terms of how do we push this one connection that we have into the maximum payback that it could potentially have for us and what you guys have right now at business school is time, lots and lots of time. You may think you’re busy, but you’re not. You’re not busy. You could spend all of that time that you have in actually going after something that you’re super passionate about.

• Tag: CEO challenges , Rent the Runway , Scaling , women in entrepreneurship

Posted by Shikhar Ghosh

Shikhar Ghosh is a serial entrepreneur, angel investor, and Professor of Management Practice at HBS. Named one of the "Best Entrepreneurs in the US," by Businessweek, Ghosh has led some most innovative tech-based companies in the US and advised hundreds of entrepreneurs.

Covid Sent Rent The Runway To The Brink. Now The Fashion Business Is Ready For The Reopening Boom

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In early February 2020, Jennifer Hyman, the cofounder and CEO of Rent the Runway, was in build mode. 

Her fashion subscription business, which for $159 a month let customers borrow hundreds of thousands of designer items like Hugo Boss blazers, Marc Jacobs mini-bags and Saint Laurent sunglasses, was growing faster than 100% per year. To stoke growth, Hyman was busy sealing deals with designers to deliver more rent-friendly looks and clothing categories to her style-hungry clientele. 

Rent The Runway cofounder and CEO Jennifer Hyman

Meanwhile, on the grittier and more complex side of the business, she was contemplating the construction of an expensive third distribution facility to take pressure off her two massive hubs in Dallas, Texas, and Secaucus, New Jersey, that received, cleaned and mended an endless parade of worn clothes (Rent the Runway operates the largest dry cleaner in the world) before swiftly packing and shipping them out again.

At the same time, she was putting the final touches on a new, loft-chic headquarters in Brooklyn’s hip Dumbo neighborhood, due to open in the spring. “We were solely focused on growth,” says Hyman, 40. “Growing our subscribers, growing our selection of clothes and accelerating ways we worked with brands who see us as their most important acquisition and data partner.” 

Covid was on her radar, too—but only as a possible inventory headache rather than a world-shaking pandemic. As March approached, a slowdown in new customers gave her concern. Then, on March 8, the U.S. began to shut down. Overnight, Americans found themselves all dressed up with nowhere to go. 

Hyman’s customers fled. Her special-event division, which rented dresses from Marchesa, Ralph Lauren and Veronica Beard for weddings and galas, ground to a halt. Subscribers, many of who used the service to dress for work and who now made up some 75% of Rent the Runway's business, canceled or paused their accounts in droves. By May, just 30% were still active. 

Her business in tatters, Hyman cut costs (layoffs, furloughs, salary decreases), raised capital, negotiated revenue share deals with brands, revamped pricing models and further automated her facilities. “It was important to ground the team in the reality of the situation, but also inspire them with a larger vision,” says Hyman. “We weren’t going to let 2020 go to waste. The pandemic was terrible, but also a time for creation and creativity.”

Thanks to tough pandemic pivots, Rent the Runway is now ready for liftoff in the reopening world. Hyman says subscribers have climbed nearly 100% from the May 2020 lows. While the company doesn’t share subscriber or sales numbers, the jump would put the subscription service at around 60% of pre-Covid levels—all while most office workers remain at home and top markets like New York and California are just now opening. “The recovery is happening much earlier and is much steeper than we ever imagined," says Hyman. “Nobody wants to wear anything they wore in 2020.”

We weren’t going to let 2020 go to waste. The pandemic was terrible, but also a time for creation and creativity. Jennifer Hyman

New subscribers are now joining at the same rate as they did before the pandemic. And they are coming from new regions like Iowa, Ohio and southern states, including Tennessee, Arkansas and the Carolinas. “We have a much more diverse set of people signing up,” Hyman says, adding that Rent the Runway has paused all paid advertising since 2020. “And they have a diverse set of use cases and a diverse set of reasons for why they are coming." 

The company routinely asks users to fill out surveys and sees that customers, who previously used the service for work events and milestone celebrations, are renting for birthday parties, picnics and brunches at twice the rate of 2019. Rentals for vacations increased three times the pre-Covid level. “Ninety percent of our growth has been organic—it's based on word of mouth,” says Hyman. “It’s growth we're not paying for.”

With business stabilized, Hyman is back in the growth mindset. In May, she added A-list actor and Goop founder Gwyneth Paltrow to her board. “Watching Jenn build this idea into a game-changing business, even through the challenges of Covid, has further solidified my admiration for her vision and execution,” Paltrow said via email. “I’m thrilled to join the board at such a dynamic time for the business and help Jenn usher RTR into its next phase.” The company is currently recruiting to fill about 70 new jobs. There is also speculation that Rent the Runway could go public toward the end of 2021.

While much uncertainty and many challenges lie ahead, Rent the Runway’s roller-coaster year offers crucial lessons about the power of swift, painful decisions, the importance of nimble strategic changes—and the fickle, unpredictable nature of consumer psychology. “Customers want to live their lives in a more free and mobile way,” says Hyman. “They are dressing in clothing that is optimistic, joyful and celebratory of everyday life.” 

The recovery is happening much earlier and is much steeper than we ever imagined. . . . Nobody wants to wear anything they wore in 2020. Jennifer Hyman

Conserve Cash

Data drives Rent the Runway as much as fashion trends. In early March, the numbers were showing that Covid was drastically sapping customer demand. To avoid paying upfront cash for inventory likely to sit unused in warehouses, Hyman moved fast to switch to a consignment model with many of her 700-plus brands. Designers would get cash every time their items were rented. “We anticipated that other big buyers would be canceling orders. We thought let’s be true partners and go through this together and share in the success,” says Hyman. “We said, ‘We don’t know what will happen in the coming months, but if we’re partners on this, we can monetize inventory to 2021 or 2022.’”

Other moves were more painful. With demand collapsing, Hyman laid off 15% of the company. Another 30% were given three-month furloughs (many were called back early). The company also instituted a three-month salary cut across the board and paused advertising for the remainder of the year. 

Find A Lifeline

Hyman had to ensure that Rent the Runway would outlast the pandemic shutdown—no matter how long it went. Since launching in 2009, the company had raised some $340 million in venture backing from Bain Capital, Franklin Templeton, Fidelity and Temasek. After months of pitching, Hyman raised a reported $100 million in equity and debt led by Ares Management at a value of $750 million. It was a 25% discount from the company’s $1 billion valuation. Still, Hyman found the terms favorable, and more important, it provided the needed cash cushion to weather the downturn. 

Actress and Goop founder Gwyneth Paltrow joined Rent the Runway’s board in May 2021.

Embrace Covid Disruption

As the old saying goes, necessity is the mother of invention. Covid threatened the life of Rent the Runway but also created a unique pause in operations that let the company make tech upgrades and strategic shifts that would have been impossible under the demands of business as usual. Says Hyman: “Looking at things through a positive lens, we would have never had the opportunity to make the kind of process changes in our operation in a period of continued rocket-ship growth.”

In March, Hyman changed her subscription model. Gone was the unlimited plan, which let customers swap as many items as they liked for $159 a month. In its place were plans starting at $89 that give you the option to rent between 4 and 16 products a month. The cheaper rates have unlocked a new segment of customers. “The programs have a broader diversity of price point, and we’re attracting a higher-diversity household income into Rent the Runway,” says Hyman. “We’re seeing more diversity of customers and seeing higher loyalty of our subscribers than we were if you compare to 2019.” 

The switch also reduced the rate of customer churn and fattened the margins. “This was one example of making a change that’s going to be strategically better for us because it could attract a broader customer base,” says Hyman. “And also financially better for us because these are higher gross margin programs.” 

In another margin-boasting move, Hyman used the halt in demand to update and further automate her existing fulfillment centers in New Jersey and Texas. While most e-commerce companies dread returns—Rent the Runway, the boomerang of retail, relies on them. Like any rental business, Rent the Runway’s success hinges on maximizing the number of times it can loan out a dress, jacket or pair of jeans.

Over the last decade, the company has used big data and trial and error to create some fifty separate cleaning programs to treat specific types of fabrics and stains. Over the 2020 slowdown, Hyman invested in AI, radio ID tags and robots to more efficiently sort, clean, and ship her wears. Thanks to the upgrades, Rent the Runway can avoid opening the third hub while allowing for future growth. “Based on the process changes, our two current facilities can handle quadruple what our max subscriber count was in 2019,” Hyman says. “This enables the business to scale tremendously, and we upped our fulfillment margin by nearly twenty percentage points.”

Ready For Recovery 

The facility upgrade also allows for Rent the Runway to jump into the growing market of secondhand goods. Used clothing sites surged over the last year as Covid made many customers more conscious about spending and sustainability. In February 2021, Poshmark, a digital consignment shop, went public and currently has a valuation near $4 billion. Rival Thread Up went public in May and has a market cap topping $2 billion.

Rent the Runway has always let subscribers buy used clothes, but it opened the program to everyone in June. It’s a strategy aimed at both upping revenue and attracting future high-value subscribers. “Coming out of Covid, the secondhand economy is mainstream—people want to rent, buy or subscribe to secondhand clothing,” says Hyman. “Selling designer items brings in a more casual customer to Rent the Runway. Then it’s our job to educate them on how transformative having a subscription to fashion can be.”

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Rent the Runway opens largest-ever store as it looks beyond clothing

Key takeaways:

• The fashion rental company is increasing access to its services with a much larger San Francisco store, one of five nationwide, and additional drop-off boxes at WeWork locations.
• Rent the Runway is also expanding its assortment, adding girls’ apparel for ages two to 12, and home goods through a partnership with West Elm. An international expansion is also on the company’s roadmap.

On Wednesday, Rent the Runway opens an 8,300-square-foot, two-storey “communal closet” in downtown San Francisco that is twice the size of its New York flagship. This is the latest in a bricks-and-mortar expansion that aims to position the fashion rental service as a “one-stop-shop subscription” for customers’ lives, says COO Maureen Sullivan, after a $125 million Series F funding round valued the company at $1 billion in March.

The company’s subscription offering, which invites users to rent and swap out four or more items per month starting at $89 , was added three years ago as an alternative to one-off rentals. That business now “far exceeds” more than half of total revenue, Sullivan says. Rent the Runway hopes to continue its growth by improving customer access and expanding its assortment into new categories including children’s and home goods.

Although the nine-year-old company has been integral in normalising the concept of the sharing economy , Sullivan says it is “still at the beginning — even in big cities.”

Initially, Rent the Runway opened bricks-and-mortar locations so new customers could try on formal clothes with a stylist before renting them. Today, the stores’ proprietary self-service stations are their biggest draw, enabling customers to return and rent new items quickly, Sullivan says. These self-service stations have allowed the company to facilitate 10 times the amount of in-store transactions that were possible two years ago.

The new West Coast flagship will have a fleet of self-service stations, as well as work, lounge and events spaces, a beauty bar, a coffee bar, a communal fitting room and more than 20 individual fitting rooms.

Sullivan says that all Rent the Runway stores (the others are in Washington, D.C., Los Angeles, Chicago and NYC) are seeing “exponential” growth in traffic, and boosting revenue in those regions. San Francisco, for example, climbed from the sixth to the third-largest market after it opened a store in the city two-and-a-half years ago, with about 55 per cent of local subscribers visiting. (It is not known whether those stores are profitable.)

In October, the company began placing drop-off boxes in WeWork locations. Subscription members are allowed to rent four items or more at a time, and as soon as they scan in one piece, they can select another one to rent. Sullivan says these boxes are now driving significant traffic to WeWork, and in addition to adding value for customers, they save the company on shipping costs.

Rent the Runway is expanding in other ways as well. The company will soon open a second distribution centre outside of Dallas and signed a lease to move its Manhattan headquarters to an 83,000-square-foot office in Brooklyn. It also announced a plan to open an Ireland-based tech hub to employ 150 engineers and developers.

Sullivan confirms that international expansion is in the pipeline, but for now the company is focused on its domestic business — despite the rise of foreign imitators. “It’s super exciting that there are copycats around the world because that tells us that the consumer behaviour is not just in the US,” she says.

Rent the Runway has proven that subscription customers will pay between $89 and $159 a month to wear borrowed clothing. It carries more than 600 brands and has begun a revenue-sharing model with some designers.

This success marks a key about-face in how brands approach rental clothing, and it’s hoping to expand that mindset to new categories. In April, it began renting apparel for girls ages two through 12 and, through a West Elm partnership, will rent out “bundles” of soft home goods. It will get to men “eventually”, Sullivan says.

New York ready-to-wear brand Parker has been available on Rent the Runway since 2011, and Parker president Suzanne Silverstein says that Rent the Runway is an important channel for brand discovery. A focus group found that 25 per cent of Parker’s best customers discovered the brand through Rent the Runway and 75 per cent of them continued to rent, but still bought new Parker merchandise.

“If you get a Rent the Runway customer into your product, she will visit your website and find other things that she loves, and she will purchase. It is not a threat,” Silverstein says. She adds that Parker gets its “most robust data” from Rent the Runway, including customer geography, age, fit notes, damage rate, reason for renting and customer reviews.

But being a pioneer of the sharing economy also introduces an expectation of sustainable business practices. To that end, Rent the Runway has patented its reusable shipping bags and uses green dry cleaning . It’s struggled with how to handle plastic clothing bags because customers feel like it is coming from the dry cleaner, Sullivan says. For now, it’s added plastic recycling facilities, and 60 per cent of hangers are sent back by customers to be re-used.

Now that the company has passed the $1 billion valuation mark, speculation is mounting as to when the company will go public. Sullivan says she has “no news to share” on that front for now. “We are just laser-focused on accelerating our growth and continuing to do an awesome job making subscription part of women’s daily lives,” she says.

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