Thanks Charles. Very good question and probably one faced by other online retailers that have consumer friendly try-out and return policies. The benefit Warby Parker has relative to some other companies with this model (Zappos, Bonobos, etc.) is that glasses are small and relatively cheap to ship (compared to shoes, for example). Still, a fair question that hits on both profitability and barriers to online penetration of the eyeglasses market.
Thanks for the post Zhihan. Like Monica, I’m also amazed by the fact that 60% of dresses are returned from one customer and sent back out the door to another customer on the same day. This is a critical operating metric because it minimizes their inventory risk. I like the catchy quote at the top, but ultimately Rent the Runway seems to me like a fashion company, just with an unusual operating model to match its unusual business model. Like other fashion companies, one of the keys to success is avoiding inventory obsolescence. Whereas most fashion companies produce clothing that they hope to be able to sell once, Rent the Runway is buying fashion wear and using its technology-engineering-supply chain-reverse logistics-dry cleaning-analytics operations to ensure that it can rent that dress out enough times to turn a profit before it becomes obsolete. In addition to the operations identified by the company, I think it also benefits from working with designers instead of producing its own dresses – that allows it to shift / add / drop styles more quickly.
Liam, thanks for writing this and agree with Adam above that Amazon is an interesting company to consider. You allude to it in here, but I think the key to Amazon’s success is that they have foregone profitability in order to become both low cost and premium service (in terms of breadth of goods offered, shipping times, and user experience). The enabler of this strategy is that the market is growing so fast and the online retailing opportunity is so large that they (and their investors) are willing to sacrifice short term profits for growth. The biggest decisions Amazon has to make now are around scope, and specifically, whether or not they should enter the shipping / delivery logistics business. That decision is somewhat analogous to Google’s decision to build or partner on self-driving car manufacturing that we discussed today in class. On one hand, the control of the value chain will allow them to innovate more; on the other, delivery is not Amazon’s core competency right now. It will be interesting to see where they decide to go.
Thanks for the post. SoulCycle is an interesting story and you did a great job capturing the essence of its value – namely, the (exclusive) community.
There are two things I worry about for the company longer term though. First, a lot of the loyalty is to individual instructors. As you point out, SoulCycle has tried to combat that by making their instructors exclusive to them, but this isn’t a complete fix. One of the company’s biggest competitors, Flywheel, was founded by one of the founders of SoulCycle and a star instructor. The threat of new entrants aided by star instructors is inherent to their business model, but could be reduced if they made tweaks to their operating model – for example, by not announcing the instructors of classes ahead of time to make it harder for customers to follow specific instructors’ schedules. Of course, that could create new problems for the business, including reduced satisfaction of current customers.
Second, I’m concerned that the high price point may limit the company’s ability to grow, especially in smaller (less wealthy) cities and towns. I wonder what the saturation point for their market segment is, and whether they’ll one day offer less premium locations in order to tap into new markets. That decision may ultimately be a question of how core exclusivity is to their operating model and business strategy.