By: Robert Nini and Emilia Mah
Rent the Runway is an e-commerce clothing rental platform that allows users to rent, subscribe, or buy designer apparel or accessories from over 750 designer brands. The company was founded in 2009 with the mission to empower women to feel their best everyday through fashion. Headquartered in New York City, United States, Rent the Runway operates in the resale industry and filed for IPO in July 2021 with an approximate annual revenue of $100M at a $800M+ valuation.
Since founding, Rent the Runway operated on a monthly subscription plan that allows members to swap an unlimited amount of clothing per month. In 2019, the company stopped accepting new customers as they ceased operations from a supply-chain breakdown resulting in cancelled customer orders. These problems led to the company dropping from unicorn status, raising $125M at a $1B valuation, to holding a funds valuation of $750M in June 2021.
The impact of COVID-19 also caused the company to drop 39% in revenues and lay off 15% of their employees for the fiscal year 2020. Moreover, Rent the Runway closed all five of their brick-and-mortar stores to focus the company on online shopping and expanding their drop box network during their time of low operations. Additionally, taking the time to reform their business operations strategy, they removed their unlimited clothing swap subscription plan and implemented a new rental subscription plan with a fixed number of rental clothing.
As the company underwent multiple changes and focused on growth strategies, Rent the Runway filed for IPO to capitalize on the favorable market conditions and positive investor sentiment, providing a cash cushion for current and future downturns.
Furthermore, the resale industry which is expected to reach $33B by the end of 2021 and reach $64B by the end of 2024. Whereas the clothing rental industry is smaller than the resale industry and is expected to have an annualized growth rate of 8% up to 2025. Much of the difference in size between the two industries is due to new customer preferences. Changing preferences among Gen Z’s has prioritized “flipping” items rather than renting the newest fad, leaving new users turning to Thredup and Poshmark.
Given the instability of consumer preferences, both industries are subject to many risks. Increases in sustainability awareness has greatly diminished the desire to rent clothing as many consumers believe that the clothing they rent will not be disposed of sustainably; hence, their interest in resale. Also, consumers have found the traditional clothing rental services to be expensive as the industry’s main customers are typically college students and teenagers.
Despite Rent the Runway’s unique value proposition, there are many competitors in the clothing resale industry. Notable competitors include Poshmark, Thredup, and Armoire. Out of the three main competitors, Poshmark is by far the largest, with revenues of $262M and a valuation of $3B at the time of its IPO. However, Poshmark has faced many server disruptions which almost forced an unprecedented bankruptcy in 2013. Thredup also went public back in March of 2021, at a valuation of $1.3B. In efforts to take advantage of changing customer preferences, Thredup has focused more on consignment sales rather than receiving commission from sales made on its site. Lastly, despite Armoire being a privately held company, they are also looking to capture a large portion of the market by creating algorithms that match customer preferences with specific clothing attributes. Nonetheless, success within the industry is dependent on company innovation that satisfies the ever-changing curiosity of the new and potential customers.