Source: Rent the Runway

Soon You May Be Renting Your Work Clothes

Rent the Runway started out catering to women wanting one night of high fashion. Now it’s doubling down on subscriptions for the whole work week.

Jennifer Hyman, the chief executive and co-founder of Rent the Runway, has vast ambitions for the fashion rental service she co-founded in 2009. In the beginning, the company offered shoppers clothing choices they couldn’t afford to buy, enabling everyday Americans to sprinkle some haute couture on a prom or wedding. Now she wants you to wow your workplace all week long.

Jennifer Hyman 
Photographer: Cindy Ord/Getty Images

“I want to put H&M and Zara out of business,” Hyman proclaimed from a spacious conference room at Rent the Runway’s Manhattan headquarters overlooking Hudson Street. “I don’t want to,” she corrected herself. “I plan to.”

Hyman, 37, plans to replace the American woman’s static closet with a dynamic one. Rent the Runway has bet its future on subscriptions, hoping it can convince shoppers to use its service for everyday wear, not just dress-up events. For $159 a month, its Unlimited program allows members to rent four pieces at a time on rotation, effectively replacing their wardrobe if they want. The company recently began offering a cheaper option, called Update, which lets subscribers grab four pieces total per month for $89.

As Hyman sees it, it’s impossible to serve all of America’s women at a price point above $100, especially those her strategy depends on most. While Rent the Runway’s subscription service has taken hold in the cities, in suburban and rural America—where more than 50 percent of her customers live—it’s still used mainly for special occasions: a designer gown for graduation; a cocktail dress for New Year’s Eve. To make subscriptions work, Hyman needs to get those consumers onboard.

“Rural areas and far flung suburban areas are a little bit of a challenge because of lower e-commerce penetration,” said Manik Aryapadi, an analyst in the retail practice of consulting firm A.T. Kearney. But perhaps the bigger issue is cultural—some people just don’t desire an ever-changing wardrobe. “The way of thinking needs to change,” he said.

Rent the Runway’s facility in Secaucus, New Jersey.
Source: Rent the Runway

Right now, subscriptions account for about a third of Rent the Runway’s revenue, said Hyman. The company hit $100 million in revenue in mid-2016 (it declined to share updated revenue figures) and has raised more than $190 million in venture capital over six rounds. The latest, a $60 million injection last year led by Fidelity Investments, pegged the company’s valuation at a “significant step up” from the $520 million mark it set in 2014, Hyman told Recode at the time.

That vote of confidence notwithstanding, brand awareness remains a problem—Rent the Runway hasn’t advertised much since it first popped up eight years ago. Being based in New York, “you become slightly delusional as to what your brand awareness is,” said Hyman. “And I’m not talking about our awareness in Kansas. I’m talking about it in Boston, or L.A.”

To get the word out, the company launched its first national ad campaign last month, with commercials that promise the service could replace someone’s entire closet of clothes.

“We all want to be a star,” said Mike Kim, a director at data consultancy AArete, describing the look of Narciso Rodriguez, Derek Lam, or Naeem Khan that can appear at your doorstep courtesy of Hyman’s shop. “What Rent the Runway has been able to do is make that kind of luxury accessible.” The first rental company that can find real success in markets outside of the biggest cities will be “the winner for years to come,” he added.

Hyman’s headquarters may be in a shiny Manhattan tower, but the heart of her operation is a 250,000-square-foot facility across the Hudson River in Secaucus, New Jersey. At around 6 a.m., FedEx, UPS, and U.S. Postal Service trucks begin to arrive, carrying returning garments from across the country. Each piece must be scanned, inspected, dry cleaned, repaired, and sent through quality control before being packed and shipped out again at the end of the day. A dress may come from California that morning and get sent off to North Dakota by nightfall, returning for its next voyage a few days later.

Source: Rent the Runway

Unlike regular retailers, it’s more difficult for Rent the Runway to expand its warehouse and distribution operations beyond its New Jersey hub. With normal retail returns, there’s less urgency to send an item back into the world. Rent the Runway essentially has 100 percent returns. Workers have about 12 hours to finish turning around a daily batch of items, a process that includes a scale of on-site dry cleaning that a traditional clothing retailer wouldn’t have.

Nevertheless, Rent the Runway must build more hubs if Hyman’s dream is to come true. The amount of inventory the company keeps has doubled over the past year as it ramps up its subscription service, and there are ever-more shipping expenses lurking in the weeds of Secaucus: Sending merchandise all over the country from only one location is a pricey proposition.

In addition to more shipping centers, physical stores are part of Hyman’s plan, too. Rent the Runway has five shops so far, all in cities, where shoppers can try on clothes or even stop by to change outfits. It’s unclear though how viable store locations may be in less-populated areas. “Whether or not a few years from now we’ll expand that model in suburbs remains to be seen,” said Hyman.

Meanwhile, others are looking to battle Rent the Runway for that suburban consumer. There’s a smattering of startups out there, such as Le Tote, Armarium, and Curtsy—but the bigger threat looms in the form of legacy retailers looking to squash this new threat.

“I’m not naive enough to think that someone couldn’t get into this space and compete with us,” said Hyman. “We all know a big company that likes to do this with startups.”

While Inc. has yet to devour the clothing rental business, mall stalwart Ann Taylor is trying. Earlier this month, the women’s workwear go-to announced a $95 per month unlimited subscription service.

Ann Taylor’s executives dubbed the subscription “Infinite Style,” not far from Rent the Runway’s tagline of “endless style, infinite possibilities.” It seems that, in the apparel industry, the only thing that’s finite is the lifespan of the traditional clothing store.

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