Founded by two HBS graduates in 2009, Rent the Runway (“RTR”) partners with designers to offer high-end dresses and accessories for online rental at affordable prices. RTR founders – Jennifer Hyman and Jennifer Fleiss – noted that young women often faced the dilemma of buying expensive designer dresses which they would only wear once, especially after photos of them wearing these dresses were posted on social media. To resolve this dilemma, Hyman and Fleiss decided to create a platform to make luxury brands accessible to everyone through rental.
The analysis below illustrates how RTR is highly effective at designing an operating model which closely aligns with its business model to create value for customers, designers, and the company itself.
The firm creates value to both customers and designers. For customers, RTR significantly lowers the cost of acquiring a designer dress for a special occasion, typically renting at 10% of the retail price. Customers can choose to rent out dresses for a four or eight-day period, allowing sufficient time to try the rental dress and in case it does not work, exchange it for another one right in time for the event. The rental experience is designed to be highly convenient and flexible, with RTR providing a free second size, an inexpensive second style as a backup (for an additional $32.5), and a prepaid package for customers to return the dresses. After the return, RTR takes care of the dry cleaning, which is included in the rental price.
For designers, RTR provides them with a platform to rent their collections to and build loyalty among young women who will grow into designer brand customers in the coming years. In addition, designers receive feedback from RTR on what styles and colors are most popular, as well as how well their dresses fit, powered by RTR’s data collection and analytics.
The core of RTR’s business model relies on offering a sizable, fashionable selection of dresses and accessories and making the rental experience as convenient and flexible as possible. In addition, RTR needs to take good care of the dresses to maximize their useful life and minimize inventory to drive sales. RTR supports its business model with a five-step operating model.
- Partnering with Designers: RTR builds exclusive relationships with high-end designers to maintain an extensive and in-demand inventory for customers to choose from. Decisions about what to add to or remove from the inventory are further informed by RTR’s data analysis capabilities, as described in point #5.
- Fitting: To help customers navigate the 65,000 items in its inventory and identify the best fit, RTR created “Our Runway”, a section on the website where customers can see how other customers, not models, look in a dress.
- Order Fulfilling: RTR leverages its proprietary allocation system to fulfill orders. The system tracks items coming in and out and prioritizes orders, taking into consideration time required for dry cleaning and any repairs.
- Returning: RTR operates a dry cleaning and processing empire in its 150,000 sq. ft. warehouse, where all dresses and accessories are returned. Having received items returned by customers, the allocation system scans the barcodes and determines what to prioritize. Workers then inspect the dresses and conduct either regular dry cleaning, stain removal, or repairs as needed. RTR employs some of the world class “spotters” to remove stains in a timely manner, significantly improving the useful life of a dress. The dresses are then steam pressed, re-inspected, bagged, and mailed to the next customer. 60% of dresses are back out of the door on the same day.
- Data Analysis: RTR analyzes an enormous amount of data on customer preferences, renting behaviors, and feedback to consistently improve its inventory selection and rental process.
RTR’s partnerships with designers and strong data analysis capabilities enable it to provide a wide range of sought-after designer products to customers and to feed the valuable customer insights back to the designers. In addition, its highly efficient order prioritization, dry cleaning, and order fulfilling process allows it to offer both reliable delivery and flexibility (in terms of a free second size and an inexpensive backup style) to customers. Lastly, the RTR warehouse’s record turnaround time enables it to minimize idle inventory and maximize sales.