In 2009, Jennifer Hyman and Jennifer Fleiss created Rent the Runway (RTR) as a way to solve the quintessential fashion problem for cost-minded, millennial women: not being pictured twice in the same high-end dress.
“On-demand economies” a la Netflix and Uber were new to the luxury fashion market. As a result, RTR was uniquely positioned to revolutionize the way women shopped. But managing inventory for an e-store, ensuring an efficient supply chain management system, and minimizing cleaning costs posed incredible operational challenges for the business.
Today, RTR is valued at $500 million because it has used data and a “technology-first” mindset to build a two-sided platform that serves both high-end designers and millennials. The result? A scaleable model that delivers reliable rentals and accessibility to an enormous breadth of high-fashion options.
RTR’s value proposition is to “give people access to luxury experiences, and to change the meaning of ownership .” Its business model achieves this via five tenants: partnerships, engineering, fulfillment, returns, and learning from data.
RTR’s “high-speed reverse-logistics” operations model facilitates efficient returns . To obtain throughput times of less than one week, RTR collects data on “physical” (when a garment is moved, whether it is damaged, in rotation, or put out for sample sale) and “theoretical” inventory (expressing what state the garment is in when put up for rental, what seasonal demand will look like). RTR has built a 150,000 square foot warehouse – the largest dry cleaner in the U.S. Finally, RTR is focused on “spotter utilization:” the rate at which employees identify and correct stains. Because the job requires specialized knowledge and lots of experience, hiring is difficult, and they become the bottleneck in the fulfillment process.
RTR’s primary advantage is the data they collect and the technologies they have built to store and learn from such data. For example, a “chemical database” is used by spotters at the fulfillment center to identify and record which chemicals to use on different fabrics when removing stains.
As with Toyota’s operation, RTR has built software to facilitate open and bidirectional channels of communication – between customers and RTR through the reservation system, but also between fulfillment employees, and between designers and RTR. Furthermore, fulfillment employees are encouraged to use rolling bins and portable tools like mallets. This allows movement between steps to occur more easily, and a reallocation of resources to flow effectively.
When RTR was founded in 2009, its challenges were centered on partnerships and variability of demand. Specifically, why would high-end designers choose to partner with a rental service? Moreover, swift changes in fashion trends could lead to huge variability in demand – how would RTR handle the bullwhip effect? Most importantly, how would RTR deliver consistent high-quality items in a timely manner in order to not lose customers for life?
The answers to those questions were solved by building software to increase information transparency to all parts of the organization. However, it remains to be seen whether RTR can survive financially. It remains unprofitable  (despite raising $126 million in VC), with Fortune estimating only $28 million in revenues in 2013 (25% lower than RTR’s internal projections), and losses of $14.5 million. RTR has had to rethink its entrance into other markets, like unlimited accessories – a program that has been in beta for over a year and a half, despite having 10,000 people on the product’s wailtist. Additionally, by branching into in-house-made “private” labels, as they did in December 2015 , RTR is toeing the line between horizontal and vertical integration, as well as customer trust.
Above all, as RTR grows from start-up to a full-fledged corporation, it must reconcile its mission with its apparent culture problems : in 2015 alone, four C-level executives left, including the COO and CTO. Ex-RTR employees describe a Mean Girls culture, where assignments are based on founders’ whims rather than business acumen. This toxic environment merits introspection, largely because it can be a problem to operational efficiency, as exemplified by the case on Shinkansen in Japan.
A Fresh New Look
RTR has proven that rental services for high-end clothing can be operationalized with digital innovation. As it moves forward, I recommend RTR remain focused on what it’s clearly good at – clothing items for millennial women – and move to permeate additional geographies in the U.S., outside of the urban centers that it has been most focused on. To do this, RTR should invest in more brick-and-mortar stores beyond New York and Los Angeles, increasing “try-ability,” and earned media. This will require consideration of the type of inventory and pricing strategies used in the physical versus online stores. Most importantly, however, leadership must improve the company’s culture if they plan on being a sustainable enterprise.
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 Primary source, Rent the Runway Senior Data Engineer [Phone interview]. 16 Nov 2016.