Rent The Runway (RTR) is a website which allows members to rent designer dresses at a variety of price points for either 4 or 8-day rentals. The dresses are from popular and high-end designers and at rental prices that are typically only about 10% of the list price of the dress . The site also offers rentals of accessories and more casual outfits. RTR’s business model is to provide opportunities for members to rent an expensive dress that is likely above their price point – therefore that they typically would not purchase in store – but that they are willing to pay a fraction of the price to wear for a night. Part of this strategy is to ensure that the customer can have the in-store “Cinderella” experience of purchasing a nice dress, without needing to foot in a store, and while only spending a fraction of the cost. RTR, founded by two HBS grads, is structured to drive high levels of alignment between its business model and operating model.
RTR aligned its operating model to its business model and strategy both externally to customers and internally through its structure and processes. In its customer facing structure, RTR has created a rental process for members that is no more difficult than buying a dress in store. First, all members may select a free-back up size for each of their rented items. This way, the member, who may not know exactly how they will fit in their dress, is essentially able to “try on” the dress and determine which is the best fit. RTR also structured the rental return process to be seamless. When a member rents a dress, they also receive a pre-printed return address and envelope, which they can simply drop with their worn dress inside at a post box. This rental-return experience is almost easier than needing to return a garment in store. RTR’s cohesive and efficient customer service model ensures they provide a high-quality customer experience that is no different than buying in store, while giving customers access to a broader and higher quality range of goods than they would normally be able to experience.
Internally, RTR supports its business model through robust data analytics, physical distribution strategy, and dry cleaning logistics. The firm uses data analytics to provide data back to the designers of the garments it has available to rent – typically giving these designers information on the most popular items and their corresponding colors and styles. Also, RTR uses data analytics to provide customers with personalized recommendations for additional rentals and showcases dozens of reviews from other customers who have rented each dress the customer looks at. Secondly, while RTR has recently opened brick-and-mortar stores, its main presence is online and the majority of its thousands of dresses, outfits, and accessories come from one warehouse in New Jersey. By keeping the number of physical stores low, RTR is able to keep fixed costs low (and therefore prices lower), while also efficiently streamlining distribution and creating faster turn around time on rentals. This translates to more opportunities for customers to rent and therefore more opportunity for RTR to make money. Also within this warehouse, RTR has its own dry cleaning business, the largest in the US. RTR allows customers to send back garments dirty – a win-win. For the customer, this means less work, for RTR, it means a quicker turn around time on garments, as they launder them almost as soon as they get in with their own staff of highly trained dry cleaners. With a shorter cycle time on the dresses, they almost guarantee themselves higher revenue, while simultaneously giving their customers a better, easier experience.
Through a deliberate operating model, RTR has created a competitive advantage in several ways. First, RTR partners with designers to ensure that they have long-term access to the designers’ goods (and in turn RTR provides them with data). Through this, the company has ensured that any newcomers to the space are at an immediate disadvantage without the leverage that comes from those partnerships. Also, by successful utilization of data and customer metrics and a best-in-class customer service model and experience – RTR has come to know its customers and establish brand loyalty.
By careful alignment of RTR’s operating model and the development of a competitive advantage, RTR has secured itself in a position of sustaining high performance. Solid partnerships with designers, thousands of customer reviews on items, easy rental and return experience, and centralized distribution (and corresponding lower costs) are all methods by which RTR has successfully positioned itself for the future of continued growth and success.