Rent the Runway (RTR) is expected to rent over $1B worth of designer dresses this year1, taking $100 million of that as revenue2. Initially launched as a “passion project” by two HBS graduates, RTR has grown to employ over 850 people and serve more than five million members1.
With a current valuation between $400 and $600 million, I think it is important to take a look at the incredibly effective and targeted business model of RTR1.
Creating Value by Making Members Runway Ready
The average American woman buys 64 new pieces of clothing each year, and of these purchases, only wears 50% of them more than once3. RTR is capitalizing on millennials decreasing emphasis on ownership and increasing focus on individual experiences and access to a wide array of items4.
But, how exactly do they pull this off? RTR allows members to rent designer clothes and accessories for 4 or 8 days at a fraction (usually about 10%) of the retail cost4. However, in addition to the accessibility and affordability of RTR, the company continues to add value by making the process undeniably convenient. For example, RTR offers customers the option to choose a back-up size for free just in case the original piece does not fit, and will next-day you a new garment if neither of those options worked4. Finally, after the customer has worn the clothing all she (RTR is currently targeted for women) has to do is place the garment is a prepaid shipping envelope and drop it in mail-box…no dry cleaning required. The lack of responsibility for upkeep of the garment is a significant convenience factor that drives the logistical operations explained below.
Creating and Maintaining an $800M+, 40,000 Square Foot Closet
To give you an idea of what an $800M+ closet looks like, just look at the image below. And to lay it out in even more detail, RTR owns more than 65,000 dresses and 25,000 accessories6.
Keeping a 160,000 square foot closet that serves five million members is no easy task, but this is exactly what happens at the RTR warehouse in Secaucus, NJ7. Critical to keeping satisfied members is RTR’s ability to provide garments that are ready-to-wear upon arrival and don’t make the member feel as if she is wearing something that has been passed around. In order to avoid sacrificing the quality of the experience, RTR places every garment through a 20-step dry cleaning process2. “Spotters”, or the brilliant cleaning masterminds who can get nail polish out of a gown, typically complete 30 dresses per hour2. The VP of Operations, Charles Ickes, states that maintaining dry-cleaning operations in house was an important move to control the quality of the RTR inventory2. The RTR warehouse is currently the largest dry-cleaner in the U.S.7 Also, by having this in-house, RTR can continue to meet the high demand for items: 60% of dresses depart the same day they arrive back to the warehouse6. Due to the high quality in-house operations, RTR is able to average 30 uses per garment – with every save by the highly skilled spotters allowing more revenue per piece2.
Staying on the Best Dressed List for the Foreseeable Future
RTR continues to effectively utilize their assets, including a 2,500 square foot shop in the warehouse where coveted items are sold at up to 90% off after their days being shipped across the U.S. are over7. RTR is also planning to roll their unlisted membership out more broadly in 2016, which will increase the amount of units in rotation as well as the frequency which members use RTR services. The RTR co-founders believe women’s closets will consist of a majority of rented pieces consistently in rotation, and if this prediction comes true, RTR is suited for success5.