Rent The Runway Business Model: Case Study

Rent the Runway has transformed the way we think about fashion and the sharing economy.

Rent The Runway Business Model: Case Study

Rent the Runway has transformed the way we think about fashion and the sharing economy. The company was founded in 2009 by Jennifer Hyman and Jennifer Fleiss as a solution for busy women who needed access to high-end designer clothing without the commitment and cost of purchasing.

Today, Rent the Runway has become a household name, offering a vast selection of dresses, accessories, and even designer handbags for rent. The company's success is a testament to the growing trend of the sharing economy and the desire for sustainable fashion. With over 11 million members and partnerships with top designers like Diane von Furstenberg and Jason Wu, Rent the Runway has truly disrupted the fashion industry.

In this article, we will take an in-depth look at the company's success story, exploring how it has revolutionized the way we shop for clothes and the impact it has had on the fashion industry as a whole.

The Sharing Economy and Its Impact on Fashion

 

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The sharing economy has been a growing trend in recent years, with companies like Airbnb and Uber leading the way. The concept of sharing resources, rather than owning them, has become increasingly popular, as people look for ways to save money, reduce waste, and live more sustainable lifestyles. The fashion industry has not been immune to this trend, and Rent the Runway has been at the forefront of the movement.

Rent the Runway's business model is based on the idea of sharing high-end designer clothing. Customers can rent dresses, accessories, and handbags for a fraction of the cost of purchasing them outright. This not only makes high-end fashion more accessible to a wider audience, but it also reduces waste by allowing multiple customers to use the same item.

In addition, Rent the Runway's business model has helped to promote sustainability in the fashion industry. By renting out clothing, rather than selling it, the company is helping to reduce the demand for new clothing production, which can have a significant impact on the environment. This is especially important, given the growing awareness of the fashion industry's impact on the environment.

The Early Days of Rent the Runway

Rent the Runway was founded in 2009 by Jennifer Hyman and Jennifer Fleiss, who met while attending Harvard Business School. The idea for the company came to Hyman when she was preparing for a wedding and realized that she had nothing to wear. She thought it would be great if she could rent a designer dress for the occasion, rather than spending a lot of money to purchase one that she might only wear once.

Hyman and Fleiss saw an opportunity to create a business that would cater to women who wanted access to high-end fashion, without the commitment and cost of purchasing. They started by renting out dresses from their own closets, and soon expanded to include dresses from designers like Badgley Mischka and Hervé Léger.

Despite early challenges, including a lack of funding and a recession, Rent the Runway quickly gained traction. The company was featured in major publications like The New York Times and Elle, and was even featured on the Today Show. By 2011, the company had raised over $30 million in funding, and had expanded its offerings to include accessories and clothing for everyday wear.

The Business Model of Rent the Runway

 

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Rent the Runway's business model is based on a subscription service, where customers pay a monthly fee to have access to the company's inventory of clothing and accessories. Customers can choose from a variety of plans, ranging from $69 to $199 per month after the trial period, depending on the number of items they want to rent and how frequently they want to receive them.

In addition to the subscription service, Rent the Runway also offers one-time rentals for special occasions. Customers can rent dresses, accessories, and handbags for a specific event, and then return them once the event is over. This option makes high-end fashion more accessible to customers who may not want to commit to a monthly subscription.

Rent the Runway's business model has been successful for a number of reasons. First, it offers a more affordable way to access high-end fashion, which makes it appealing to a wider audience. Second, it reduces waste by allowing multiple customers to use the same item of clothing. Finally, it promotes sustainability by reducing the demand for new clothing production.

Maximize Product Assortment Strategy

 

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Since its founding, Rent the Runway has experienced remarkable growth. In the early days of Rent the Runway, the company would buy 20 to 25 units from brands. However, as the business grew, they started ordering hundreds of units, becoming the largest wholesale partner for some brands.

The company has expanded its product offerings to include a wider variety of clothing and accessories, including designer handbags and jewelry. In recent years, the company has expanded its offerings to include maternity wear and plus-size clothing, as well as clothing for men.

These new categories have helped to make Rent the Runway more accessible to a wider audience, and have helped to drive demand for the company's services. It has also expanded its reach, with brick-and-mortar stores in major cities like New York and Los Angeles, as well as partnerships with retailers like Neiman Marcus and Nordstrom.

Partnerships with Top Designers

 

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Rent the Runway's partnerships with top designers have been a major factor in the company's success. These collaborations have helped to drive demand for the company's services, and have helped to establish Rent the Runway as a major player in the fashion industry.

At the end of 2018, Rent the Runway launched its Designer Collective project, which involved co-manufacturing with designers like Derek Lam and Jason Wu. These designers provided new designs, while Rent the Runway sourced materials and handled production. The Designer Collective has since grown to include 12 designers, such as Victor Alfaro and Prabal Gurung.

One of the most notable collaborations was with designer Diane von Furstenberg, who partnered with Rent the Runway to create an exclusive collection of dresses and accessories. The collection was a huge success, and helped to establish Rent the Runway as a go-to destination for high-end fashion.

Another notable collaboration was with designer Jason Wu, who created an exclusive collection for Rent the Runway in 2011. The collection was so popular that it sold out within hours of its release, and helped to drive demand for the company's services. Rent the Runway has also collaborated with other top designers, including Badgley Mischka, Hervé Léger, and Marchesa. These collaborations have helped to drive demand for the company's services, and have helped to establish Rent the Runway as a major player in the fashion industry.

In the last six months, Rent the Runway introduced a revenue-sharing model, where brands provide products at no charge and split revenue every time a piece is borrowed. Brands like Ralph Lauren and Ganni are currently part of this program, and it is projected that 200 revenue-sharing brands will be on the platform by the end of the year.

Rent the Runway also focuses on sharing data with brands, allowing them to see what's popular in terms of color, style, and fabric. This collaboration has helped designers receive feedback on the fit of their dresses and improve their offerings.

The Impact of Rent the Runway on the Fashion Industry

 

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Rent the Runway's impact on the fashion industry extends beyond its customers. It has disrupted the traditional retail model, and has forced traditional retailers to rethink their approach. The company has also created a more sustainable business model by encouraging the reuse and sharing of clothing, thereby reducing the environmental footprint associated with fashion production. As a result, Rent the Runway has emerged as a key player in the growing market for rental and resale fashion, which is expected to continue expanding in the coming years.

One of the biggest impacts of Rent the Runway has been its ability to make high-end fashion more accessible to a wider audience. By offering designer clothing for rent, the company has made it possible for people who might not be able to afford high-end fashion to experience it. This has helped to democratize the fashion industry, and has helped to break down barriers to entry.

Another impact of Rent the Runway has been its ability to promote sustainability in the fashion industry by reducing the demand for new clothing production. In addition to its environmental benefits, Rent the Runway offers various perks and discounts to its employees, including employee discounts, free lunch or snacks, and company social events. These benefits have contributed to a positive work environment and helped attract top talent to the company.

Despite facing challenges during the pandemic, Rent the Runway has managed to bounce back and adapt its business model to better serve its customers. As of the end of the third quarter in 2022, the company had 134,240 active subscribers, a 15% increase from the previous year, and a total of 176,167 subscribers, up 17% from a year ago.

The company now offers different subscription tiers, allowing users to rent up to 16 items per month in up to four shipments. This new model appeals to a broader array of customers and is more cost-effective and environmentally friendly, as it reduces the number of deliveries and dry cleaning required.

Challenges Faced by Rent the Runway

 

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One of the main challenges faced by Rent the Runway was resisting the urge to expand its offerings beyond high-end dress rentals. The introduction of Rent the Runway Unlimited required women to rethink their relationship with fashion and ownership, which proved to be a difficult task. The company needed to maintain a strong product focus to ensure its success as a startup.

In 2019, Rent the Runway experienced a massive enterprise software failure that disrupted its supply chain, leaving hundreds of customers empty-handed. This incident highlighted the importance of having a robust and reliable supply chain management system in place. The company's supply chain disruptions were not solely due to faulty technology but also involved other underlying issues that needed to be addressed.

Rent the Runway has also struggled to achieve profitability. In September, the company announced layoffs as part of a cost-cutting plan, reducing its corporate headcount by about 24% by the end of the fourth quarter. This move aimed to save between $25 million and $27 million annually.

Another challenge faced by Rent the Runway is maintaining its competitive strategy. The company's business model focuses on providing members with access to expensive dresses that they typically would not purchase in-store but are willing to pay a fraction of the price to wear for a night. However, the rise of resale platforms and the impact of the COVID-19 pandemic on fashion rentals have made it increasingly difficult for Rent the Runway to maintain its unique value proposition.

The company has also had to walk a fine line between making its products accessible to a wider customer base and avoiding the risk of going down-market by cheapening its value proposition. Some customers have complained about the quality of the clothes and poor customer service, which could potentially harm Rent the Runway's brand image.

Future Plans for Rent the Runway

The future of Rent the Runway, a fashion rental and subscription service founded in 2009 by Jennifer Hyman and Jenny Fleiss, remains uncertain as it navigates the challenges posed by the COVID-19 pandemic and changing consumer preferences. Despite improvements from 2020, the company has yet to recover sales and active user count to pre-pandemic levels. However, the platform expects to break even by the end of next year.

Rent the Runway's stock has experienced a decline due to a reduction in subscribers and guidance, leading to the company cutting nearly a quarter of its workforce. The pandemic significantly impacted the company's subscriber base, which was halved, and it remains unclear if some of the company's core use cases, such as work-from-home, have been permanently impaired.

 

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To adapt to the changing landscape, Rent the Runway slashed costs, renegotiated terms with suppliers, revamped membership plans, and expanded into the resale market. The company also closed all retail locations and laid off retail staff members in March 2020, focusing on online innovations and adding more drop boxes for customers to return clothes.

Final Thoughts

Despite these challenges, Rent the Runway has a first-mover advantage in the apparel-sharing economy and is well-positioned to take share from traditional retailers in the $300 billion U.S. apparel market. The rental market is projected to increase at a 19% CAGR during 2022-2026, according to GlobalData. The company has disrupted the traditional retail model, and has helped to promote sustainability and a shared economy in the retail industry.

With over 11 million members and partnerships with top designers like Diane von Furstenberg and Jason Wu, Rent the Runway has truly become a household name and a force to be reckoned with.