Rent the Runway: A Resilient Clothing Rental Success Story

The year 2020 shook many business sectors, some harder than others. Fashion experienced a real earthquake, as the sector was only at the beginning of its online penetration.

Production shutdowns, physical store closures, supply chain limitations, and lockdown measures completely disrupted clothing habits worldwide. Rarely has a sector faced so many simultaneous challenges.

However, it would be wrong to believe that e-fashion was completely spared during the crisis. Even agile and digitized models had their share of challenges to overcome.

Rent the Runway, often cited as a success story and a pioneer in online clothing rental, did not emerge unscathed. In a completely unprecedented health context, how do you quickly adapt a clothing rental business model initially designed for special occasions, while pajama sales are exploding?

Key questions of this transformation:

• How did Rent the Runway succeed in its express transformation?
• How can this model inspire other fashion companies?

Rent the Runway: The Origins of Clothing Rental Success

While they were still students at Harvard, Jennifer Hyman and Jennifer Fleiss had the idea to launch an online clothing rental model.

It was while discussing the clothing habits of young American women that the future founders noted that this customer category habitually bought new clothes for special occasions.

The majority of these outfits were actually worn only once and ended up either piling up in closets or being thrown away. What if the alternative was to offer to rent an outfit for a lower cost, while limiting waste? The Rent the Runway project was born.

Its business model is simple: customers can rent one of the branded garments for a period of 4 or 8 days at a price around 10% of the purchase price of a new garment, all through an online platform.

The model is built essentially around usage: the customer doesn't have to worry about garment maintenance (dry cleaning is included in the price). They just need to wear them and return them when they want.

This new model also corresponds to the aspirations of the new consumer: no longer owning, renting rather than buying, and not participating in the waste that has characterized fast fashion over the past 20 years.

The Rent the Runway model adapts well to the United States and inspires other brands like Urban Outfitters to launch rental services as well.

Expansion of Luxury Clothing Rental and the Beginning of Phygital

At the end of 2016, Rent the Runway raised $60 million and opened 5 physical stores in major US cities (New York, Washington, Chicago, San Francisco, and Los Angeles).

These new points of sale allow customers to:

• Work with a personal stylist
• Take items directly
• Reserve clothes for future events

In 2019, the new Series E funding round ($125 million) brought its valuation to unicorn level, i.e., $1 billion.

This latest funding round was intended to make Rent the Runway an Amazon Prime equivalent for the clothing rental market, estimated at $1.9 billion in 2023*.

Furthermore, Rent the Runway has brilliantly tackled logistical challenges: shipping, retrieval, washing, and re-renting often fragile items were difficulties to overcome to convince certain designers to sign partnerships with the brand.

Indeed, they feared jeopardizing their high-end brand image. However, the rise of the sharing economy and the growing success of the business model allowed it to double the number of its partners.

Turbulence in Event Wear Rental

Six years after its creation, Rent the Runway had to face unforeseen challenges.

Internal challenges:

• In 2015, four of its key executives left the company due to "cultural issues" and "disagreements on the company's strategic direction"
• In 2017, co-founder Jenny Fleiss left her management position to become a simple board member

Operational challenges:

• In 2019, Rent the Runway faced significant delivery delays following a software failure in its New Jersey warehouse
• Many customers didn't receive their orders, planned for special occasions, which impacted its customer service image

The company had to adapt very quickly to a chaotic environment: a large part of its business model relied on renting clothes for special occasions, like evening dresses for weddings, while all social life was put on hold when the pandemic struck.

Thus, in early 2020, due to lockdown measures, Rent the Runway decided to drastically reduce its costs.

In August 2020, Rent the Runway made the radical decision to close all its physical stores to focus investments on digitization. All expenses were cut by 51%.

Evolution and Rental Opportunities in the Fashion Sector

At the heart of luxury clothing rental, Rent the Runway has adapted to new trends.

Emerging market trends:

• Increased demand for wedding dress rentals
• Growth in suit rentals
• Development of clothing rental services

Fashion rental companies, like Rent the Runway, are adapting by offering:

• Monthly subscription services
• Professional attire rental services
• Democratized access to luxury fashion

This evolution not only provides access to luxury fashion but also actively participates in the circular economy.

Revival of Formal Wear Rental During the Health Crisis

How do you save a business model designed for a "normal" social life? Indeed, the most rented clothes on Rent the Runway were used for going to the office, attending weddings, or birthdays.

Rent the Runway quickly took several measures to save the company from sinking.

At the beginning of the pandemic, Rent the Runway rewrote the general conditions with its suppliers to pivot to a consignment model with revenue sharing, far from a wholesale model that required additional capital upfront, without guarantee of reimbursement.

That said, during the health crisis, Rent the Runway still managed to raise additional funds.

Customer Service Obsession

Rent the Runway focused all its efforts on customer service performance during the Covid crisis. The bet was far from won, considering it was previously provided in physical points of sale.

After closing these 5 stores, the entire customer service had to be reinvented to go 100% online.

The Pivot to a New Model

Economic and health turbulence could have been fatal for Rent the Runway. Yet the opposite happened.

"What's great is that the pandemic boosted our evolution towards a higher-margin business and accelerated our path to full profitability," Jennifer Hyman recently told Fortune.

"It allowed us to achieve much of the results we were aiming for in 2023, in 2020 or 2021."

Indeed, Rent the Runway also evolved its membership programs to shift from an unlimited rental model to unit rental. The objective was to create a more personalized subscription program, allowing subscribers to increase or decrease their consumption according to their lifestyle.

One Step Closer to the Circular Economy

For the coming months, the brand also intends to reaffirm its DNA and positioning as an actor in circular fashion.

Indeed, the pandemic has amplified consumer awareness of the impact of their consumption on the environment.

Rent the Runway thus wants to build a true "circular platform."

A logical evolution for the brand. Indeed, the potential value of the circular fashion economy could reach $5 trillion in the coming years****.

Diversifying Your Clothing Rental Business to Meet Specific Needs

Segment	Description	Target Clientele
Professional Clothing Rental	Formal attire and suits for work environments, conferences, and business meetings	Companies and professionals
Luxury Clothing Rental Service	Collection of high-end clothing and accessories for special occasions	Clientele seeking luxury without purchase investment
Rental Service for Boutiques	Collaboration with local boutiques to expand their offering without increasing stock	Local boutiques
Event Wear Rental	Diverse range for weddings, galas, ceremonies with matching accessories	Clients for unique events

The New Era of Fashion Rental

Short-term clothing rental and event wear rental are becoming common practices, especially in circumstances where purchasing party clothes is not practical or sustainable.

Renting designer clothes for special occasions, such as prom dresses or event suits, offers an ecological and economical alternative.

Clothing rental boutiques and clothing lending services are multiplying, offering attractive and accessible clothing rental rates, making high-end fashion more accessible and responsible.

FAQ about Rent the Runway

1. What is Rent the Runway?

• Rent the Runway is a pioneering company in online clothing rental, launched in 2009 by Jennifer Hyman and Jennifer Fleiss, then Harvard students.

2. How does Rent the Runway's rental model work?

• Customers can rent branded clothing for a period of 4 or 8 days at a cost lower than purchasing, with a usage-centered model that includes clothing maintenance.

3. What were the major challenges for Rent the Runway?

• The brand had to overcome logistical challenges, internal cultural and strategic problems, as well as delivery delays. The Covid-19 health crisis represented a major challenge, requiring rapid adaptation of the business model.

4. How did Rent the Runway evolve during the pandemic?

• It reduced costs, closed physical stores to focus on digitization, and revised its business model towards consignment with revenue sharing.

5. What is Rent the Runway's philosophy regarding sustainable consumption?

• Rent the Runway promotes less frequent purchasing and access to a wide range of items without accumulating unused clothing, in line with circular economy principles.

6. What are Rent the Runway's future plans?

• The brand plans to strengthen its role in the circular economy and become a "circular platform," reaffirming its commitment to sustainability and the environmental impact of consumption.

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Sources:

• • eMarketer
• ** Ellen MacArthur Foundation
• *** Allied Market Research
• **** Circular Fashion Report