Rent the Runway: A Trendsetter Behind the Scenes Too

Rent the Runway uses digital technology throughout its supply chain to handle the complex operations of an e-commerce business that expects 100% of its inventory to be returned.

Jennifer Hyman and Jennifer Fleiss, two HBS grads, founded Rent the Runway (RTR) in 2009 as an online service that lets customers rent designer dresses for special occasions [1]. Since then, the company has expanded to cover the entire female wardrobe with tops, bottoms, coats, purses, and jewelry [2]. Along the way, it has built a loyal community who believe that “renting is the new buying” [5].  

It offers three subscription options:

  1. RTR Reserve: Pay as you rent for $30-$500 and rentals lasting 4-8 days,
  2. RTR Update: $89/month for a monthly shipment of 4 styles, and
  3. RTR Unlimited: $159/month to rent 4 pieces on constant rotation, ability to swap out pieces anytime [5].

In all above options, RTR provides free cleaning services, guarantees fit with back-up sizes, and provides pre-paid shipping labels for customers to drop off pieces at UPS [5].

The company is valued at close to $1 billion and confirmed last December that it is profitable with over $100 million in revenue [2].

Rent the Runway’s Supply Chain

RTR is referred to as the “Netflix of Fashion,” but in reality, its operations are more complicated with much higher stakes [3]. If a DVD arrives to a customer late or scuffed, that’s usually not a big deal. If a designer gown doesn’t arrive in time for her best friend’s wedding, or arrives with a tear? That can lead to a customer relations nightmare and the customer (and her best friend) hating the company for life.

To deal with these challenges, a supply chain used by traditional retailers doesn’t suffice. RTR has a digitalized supply chain centered around its 150,000 sq. ft. fulfillment center, which can turn around items usually within one day [4].

What does its logistics platform accomplish with digital technology?

  1. Allocation: Thousands of returned items from UPS are scanned by a computer that decides which of the items need to be shipped out same day and which can wait [3].
  2. Inspection: Workers inspect each item, dropping them into bins for regular cleaning, stain removal, or repairs [3].
  3. Regular cleaning: Automated machines sterilize and steam dresses in under a minute [3].
  4. Stain removal: Workers remove stains, using a database that instructs them which chemicals to use for different stains on different fabrics [3].
  5. Mending: Seamstresses fix tears and re-attach beads or sequins, recording their actions in a database [3].
  6. Ship out: Orders are packaged, and a computer calculates the most cost-effective shipping method based on forecasted item demand [3].

  

These technologies allow RTR to make their operations more efficient (e.g., prioritizing which items need to be cleaned first, not FIFO) and analyze which styles are in demand and turnover fastest, which stains take longest to remove, and which dresses fall apart the quickest. For RTR’s designer partners, this database gives them a pulse on fickle consumer tastes and improve product quality [2].

 

Rent the Runway’s Plan

In the next 3-10 years, RTR is expanding the accessibility of its subscriptions by lowering prices and positioning itself as an alternative to fast fashion [2]. 60% of its customers live outside of major cities, and the company expects that percentage to increase [2]. These strategies will increase the supply chain’s complexity: it’s harder to predict timing when customers can swap out items as they wish, and speed will be harder as customers trend more outside of major cities.

Management is focused on maintaining the fast turnover of items to maximize profit. The company recently hired the previous Chief Supply Chain Officer at Gilt as its first Chief Logistics Officer; he will focus on bringing more innovative technologies to RTR’s logistics system and distribution center [6].

Further Considerations

I recommend a few areas that management can address in the near future.

First, RTR has opened 5 own retail stores, creating a unique in-person experience [7]. RTR can leverage these stores as distribution centers, using an inventory control system to forecast when to ship which styles and which sizes to the stores, similar to Amazon’s advance shipping. This will let them fulfill their promise of quick delivery to more customers.

Second, RTR’s reliance on UPS will likely slow it down, especially as it expands into less urban areas. I recommend looking into new transportation partners or supply chain technologies, such as drones.

Questions for Discussion

  • How will companies like RTR estimate the expected benefit of a new supply chain digital technology that requires a large initial investment? Is there a risk of investing in digital technology for the sake of digital technology, when in reality it provides no significant benefit?
  • When does it make sense to fulfill from store versus from distribution centers?

Word Count: 775

[1] Clare O’Connor, “Rent The Runway Cofounder Fleiss Bows Out As Company Preps For IPO,” Forbes. 20 Mar 2017. Accessed 14 November 2017. https://www.forbes.com/sites/clareoconnor/2017/03/20/rent-the-runway-cofounder-fleiss-bows-out-as-company-preps-for-ipo/#45711ad666c3

[2] Hilary Milnes, “‘I plan to put Zara out of business’: Why fast fashion is Rent the Runway’s biggest foe,” Digiday. 16 Oct 2017. Accessed 14 November 2017. https://digiday.com/marketing/plan-put-zara-business-fast-fashion-rent-runways-biggest-foe/

[3] Steven Bertoni, “The Secret Mojo Behind Rent the Runway’s Rental Machine,” Forbes. 26 Aug 2014. Accessed 14 November 2017. https://www.forbes.com/sites/stevenbertoni/2014/08/26/the-secret-mojo-behind-rent-the-runways-rental-machine/#61f8e06238bf

[4] “About Rent the Runway,” Rent the Runway Company Website. Accessed 14 November 2017. https://www.renttherunway.com/pages/about

[5] “Ways to Rent,” Rent the Runway Company Website. Accessed 14 November 2017. https://www.renttherunway.com/plans

[6] “Chris Halkyard Joins Rent the Runway as Chief Logistics Officer,” PR Newswire. 17 June 2015. Accessed 14 November 2017. https://www.prnewswire.com/news-releases/chris-halkyard-joins-rent-the-runway-as-chief-logistics-officer-300100364.html

[7] Glenn Taylor, “3 Lessons From Rent The Runway’s New Futuristic Flagship,” Retail Touchpoints. 16 Dec 2016. Accessed 14 November 2017. https://www.retailtouchpoints.com/features/editors-perspective/3-lessons-from-rent-the-runway-s-new-futuristic-flagship

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7 thoughts on “Rent the Runway: A Trendsetter Behind the Scenes Too

  1. As a loyal Rent the Runway customer, I’ve always admired the level of complexity that this business deals with to get items (not just the item you order but also a back up dress of the same SKU but in a different size) out on time. There is so much variability in their supply chain such as 1. if the previous renter returns on time, 2. UPS to deliver the returned package back on time (which depends on weather patterns in various parts of the country), 3. level of cleaning/fixing required. These insights into their operation (which sounds like a highly automated, large-scale laundromat) are very helpful.

    One question I have is whether they use their recommendation engine to also help smooth or create demand for items that they know are more likely to arrive in time for a particular rental period + zip code combination. For example, they can push items that are less in demand or less likely to need repair higher up in the search result.

  2. Though the business model is not new, it’s still super interesting to get a sense of what’s behind the scene about supply chain digitalization. As we learned in the beer game and Barilla SpA case, there’s always tradeoff between inventory cost and stockout cost. The challenge for operators is to locate the optimal point of customer experience and cost control.

    Reflecting the first point under its logistics digitalization – allocation, the order picking practice from Amazon might be considered to further improve efficiency. When items (either new or returned) get shipped to Amazon’s warehouse, instead of storing items into shelfs by product category, warehouse staff puts the items “randomly” based on Amazon’s algorithm that minimizes staff’s time and travel cost within the warehouse. By recording item’s exact location, Amazon will provide instructions to warehouse pickers on where the item is stored and which packing line it should be delivered to. [1] Additionally, Robot pickers are trying to replace warehouse pickers at Amazon. Robot’s cost is still a concern but let’s wait and see how Amazon could justify its cost effectiveness in the future. [2]

    [1] http://www.bbc.com/future/story/20150818-how-algorithms-run-amazons-warehouses
    [2] https://www.wsj.com/articles/next-leap-for-robots-picking-out-and-boxing-your-online-order-1500807601

  3. Digitalization efforts by RTR to date appear to focus on improving speed – both that by which customers receive ordered items and that by which returned items are processed and prepared for future shipments. This focus is strongly aligned with RTR’s customer promise of on demand apparel and accessories.

    While this focus has undoubtedly been important, I believe that a primary concern of a customer using this service is whether a piece which they have been unable to first try on will fit and suit their body type well. With this in mind, digitalization efforts by RTR going forward should focus on ensuring that: (1) customers are better able to anticipate the fit of their purchase so as to maximize customer satisfaction and minimize the incidence of and costs related to returns and (2) customers who are attracted to the business model, but otherwise skeptical of purchasing apparel or accessories that they have been unable to try on, will be incentivized to use this service.

    In studying Li & Fung, we saw an example of how using digital imagery for online inspection and troubleshooting helped address quality problems. Similarly, RTR would benefit from technology that aids apparel selection through the use of digital images. For instance, RTR could enable customers to view a dress on a “mannequin” with dimensions customized to their body type in order to properly envision the dress prior to ordering it.

    1. Great suggestion. This actually reminds me of a platform that other retailers are using to do exactly what you’ve suggested – offer personalized fit suggestions to increase customer satisfaction, reduce returns and drive repeat visits to / incremental revenue for the retailer. “True Fit”, a data-driven personalization platform, uses data points from thousands of brands (re: dimensions, style attributes) and millions of users (re: their body shape, measurements, and their favourite brands that fit them well) to offer customers an informed view of what items would fit well and in what size. I’ve used “True Fit” on House of Fraser’s online store with great success, and wonder if RTR is better served leveraging an established platform’s network effects.

      https://www.truefit.com/About-Us/What-We-Do

  4. Fascinating topic and given the complexity that “fast fashion” has brought to the supply-chain, having the infrastructure in place to react is critical to sustainable success. During your post, you referenced servicing from a retail locations. Did you propose doing this as the Company gained scale or in highly-populated metropolitan areas where the Company has an incumbent presence? Currently, one of the Company’s largest fixed cost is it’s leasing operation in Manhattan. While profitable growth may not be nearly as relevant in the era where a Company with de-minimis assets and little profitability can be valued at 10x revenue, it should be considered to what is the best source of growth for the Company’s multi-facted strategy moving forward.

    Would you prefer having an Amazon model, with DCs located outside dense, highly populated areas, with shipments to the retail footprint within the city, or having an retail/DC located in epicenter of the fashion district?

    As it pertains to your first question, RTR is essentially a logistics company. The tangible asset side (re: used inventory) of the equation has little to no liquidation value. This Company is an asset rental business that just happens to operate in the fashion industry, however user engagement is very attractive and market penetration is low. As the Company expands into selling fashion items to consumers, which it already has, an inevitably the private label discussion comes up, I don’t see how you would not invest in upgrading the technology side. The Company was not created to only be a rental business for high-end fashion, and in order to succeed at mastering it’s first offering and prove out market viability, it has to invest in order to raise additional capital and become the business it will ultimately become.

  5. I am a new RTR customer and as I was reading your article, I was fascinated by the structured and heavily automated supply chain behind the scenes. I think up until now, RTR has done a great job of ensuring convenience and speed to its customers: such as the effective & easy mobile app to timely and clean-products delivery and backup options. But like all the other online apparel companies, it has the ultimate challenge that customers are not able to see and try the garments before they actually receive it. This is actually even more important for RTR customers because they usually wear those garments in special occasions and they surely wouldn’t be happy if the garment doesn’t fit or is damaged. To tackle this problem, RTR website asks customers to put in their size information and it then shows the top reviews from women with similar shapes. Since the size info is very limited and most people don’t have a regular size, I think having a couple of big physical stores and or investing in virtual fitting rooms can be very effective.

  6. I see big upside in investing in warehousing technologies as fulfillment will be their biggest challenge as they try to scale. Fashion/Cloth rental logistics seem very different from traditional retail and that is why there is tremendous value in creating it. If RTR continues to grow this way , long term, RTR seems like an attractive acquisition target for Amazon with a lot of synergies in play (fulfillment and subscription from Amazon, RTR to expand Amazon’s fashion/rental space).

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