How Fashion Unicorn Rent the Runway Lost Over 90% of Its Value | WSJ What Went Wrong

Summary

Rent the Runway, a clothing rental startup founded in 2009, aimed to disrupt the luxury fashion market by offering designer dresses for rent, attracting consumers with a $1 billion valuation by 2019. However, the company's fortunes have since declined, with its stock value plummeting over 90% and facing potential bankruptcy. Initially successful with a subscription model, the COVID-19 pandemic and changing work-from-home trends significantly impacted its business. Despite an IPO in 2021, the company has struggled to maintain customer interest and compete with newer entrants like Nuuly, which offers a more diverse and sustainable inventory. Rent the Runway's future hinges on its ability to adapt to the evolving fashion landscape and regain consumer trust.

Takeaways

• 👗 Rent the Runway was founded in 2009 with the aim to revolutionize fashion for formal occasions by offering high-end clothing rentals.
• 💰 The company targeted the $100 billion global luxury goods market and reached a valuation of over $1 billion by 2019.
• 📉 Despite initial success, Rent the Runway's stock value has since plummeted by over 90%, and the company is on the brink of bankruptcy.
• 🛍️ The business model involved buying designer clothes wholesale and renting them to customers at a fraction of the retail price.
• 🔄 In 2016, Rent the Runway shifted to a subscription model to attract recurring revenue and a more established customer base.
• 📈 The company experienced its best financial months at the start of 2020, before the COVID-19 pandemic disrupted operations.
• 😷 The pandemic led to a massive drop in demand as work-from-home became the norm and formal events were canceled or postponed.
• 📉 Subscription cancellations skyrocketed, reducing active subscriber accounts from over 133,000 in 2019 to less than 55,000 in 2020.
• 💼 Returning to the office with relaxed dress codes in 2021 further eroded the company's customer base and business model.
• 🏢 Despite going public in 2021 with high hopes, Rent the Runway's IPO did not prevent the company's financial struggles.
• 🆚 Competition from other clothing rental companies like Nuuly, which offers a wider range of styles and is backed by Urban Outfitters, added to Rent the Runway's challenges.
• 🔄 The company's survival now hinges on its ability to adapt to changing fashion trends and consumer preferences in a competitive market.

Q & A

What was the initial concept of Rent the Runway?

Rent the Runway was founded with the goal of revolutionizing the way women thought about fashion for formal occasions by offering high-end designer clothing for rent instead of purchase.

How did Rent the Runway disrupt the luxury goods market?

The company disrupted the market by providing access to designer clothes at a fraction of the retail price, allowing customers to wear expensive items without the full cost of ownership.

What was the business model shift in 2016 for Rent the Runway?

In 2016, Rent the Runway shifted its business model to focus on subscriptions, offering recurring revenue streams and aiming to attract more established customers with higher spending power.

What was the monthly cost for Rent the Runway's Unlimited Designer Looks subscription plan?

The Unlimited Designer Looks subscription plan was offered at a cost of $139 per month.

How did the COVID-19 pandemic impact Rent the Runway's business?

The pandemic severely impacted Rent the Runway as it led to a significant drop in demand for formal wear due to work-from-home policies and the cancellation of events like weddings.

What was the consequence of the pandemic on Rent the Runway's subscriber base?

Active subscriber accounts fell from over 133,000 in 2019 to less than 55,000 in 2020, leading to significant net losses for the company.

Why did Rent the Runway decide to go public with an IPO in 2021?

The company pursued an IPO in 2021 with the hope that going public would help fund its debt and promote growth, despite the challenges posed by the pandemic.

What was the initial market response to Rent the Runway's IPO?

The IPO started successfully, but within less than two months, the stock had dropped by about 50%, indicating a lack of sustained investor confidence.

How does Nuuly, a competitor to Rent the Runway, operate differently?

Nuuly, founded by Urban Outfitters Inc., offers a subscription service with inventory from various casual brands owned by the parent company, benefiting from existing inventory and a wider range of styles.

What challenges did Rent the Runway face in maintaining customer interest post-IPO?

The company struggled to maintain customer interest due to a perceived lack of 'newness' in their inventory and increased competition from other rental and subscription services.

What steps is Rent the Runway taking to adapt to the changing fashion market?

Rent the Runway is focusing on buying fewer but more popular styles and aiming to spend less money than the company makes in 2024, in an effort to adapt to the evolving fashion market.