Rent the Runway (RTR) is a web-based designer fashion company that allows women of all ages to rent designer dresses and accessories for a fraction of the price.
Rent the runway co-founder and HBS Alum, Jenn Hyman
Success of the RTR business model is highly reliant on the existence of network effects. The company purchases expensive dresses with retail prices in excess of $1000, and then seeks to recoup its heavy capex through multiple rentals of each dress – enter the consumer who rents the dress, take amazing photos of herself and posts them to RTR’s internal stylebook and then (hopefully) tells all of their friends about the RTR service. Evidence of RTR’s initial success can be traced back to its humble beginnings on college campuses, where RTR would target small, well-connected networks such as sororities, where the potential to convert a few “popular” girls on campus into RTR customers would lead to a domino effect across the entire campus.
Another element of RTR’s value creation for consumers is using networks to change behavior. Typically, consumers of high-end designer fashion do not advertise where and when it was purchased at a discount. However, RTR has created a social culture amongst its 5 million users in which sharing how you look, and more importantly, how you felt, in a rented dress is encouraged and rewarded. This sharing of emotion between strangers increases the effect of their networks and enhances the accessibility of its service.
Value capture for RTR is much harder to quantify. Its suppliers, designers who sell their dresses to large retailers like Bloomingdale’s and Neiman Marcus, already have access to datapoints similar to what RTR has captured. However, as 90% of its customers rent from brands they had never owned before, RTR has created an experiential marketing platform for both up-and-coming and established fashion houses, allowing some brands, and even celebrities like Beyonce, to expand into capsule collections created just for the RTR website. As it continuously grows its user base, which spans from high-school women up to Baby Boomers, RTR can begin to leverage its purchasing volume to request steeper wholesale discounts from both designers and shipping companies, creating additional value for the company through increased profit margins.
RTR has also sought to capture value through tweaking its business model to include a subscription-based component. For $99/month, its “Unlimited” program allows RTR to receive payment upfront from its customers, using both custom style profiles and order histories to influence future buying decisions.
RTR’s success in proof-of-concept has certainly attracted other players to the haute couture rental space. Couture Collective, launched earlier this year, providing its members the “right to buy” fractional ownerships of high-end designer clothing. Members of Couture Collective pay $250 for a full year of participation. Once a member chooses her favorite items from the collection she pays just 20% of the retail price which affords her five reservations with the item and unlimited last-minute-wears. Should a member fall in love with her rental, she can pay 50 percent of the retail price to buy the item on the spot or she can wait until end-of-season to purchase at 30 percent off the original ticket price.
Excerpts from Couture Collection’s lookbook.
Couture Collective focuses on elements of the RTR business model that optimizes success on both ends. As RTR focuses more on the consumer who has never worn a couture dress and is open to social media sharing of their experience, Couture Collective is a private network targeting “New York’s Best Dressed Women” to who would prefer to anonymously rent couture clothing and are willing to pay the subscription fee for secrecy. Furthermore, Instead of having little control over inventory management, Couture collective limits the usage of each item and attributes revenue to each individual item. In order to gain market share in this industry, Couture Collective will have to focus on poaching RTR’s core customer – the woman who is willing to rent a dress for everyday wear in addition to special events. The company will also have to shift consumer network behavior away from the current tendency to overshare to a more reserved e-commerce demeanor. As both of these objectives are quite lofty, I do not foresee Couture Collective’s trajectory to be as dramatic as that of RTR.