rent-the-runway-business-model

Rent The Runway Business Model In A Nutshell

Business / By /

Rent the Runway, an online provider of designer dress and accessory rentals founded in 2009 by Jenn Hyman and Jennifer Fleiss, met while studying at Harvard Business School. Although the company began as a four-day rental service, it now incorporates the paid subscription model to generate revenue. The company also makes money via its RTR Reserve service based on the rental length and the retail value of the clothing rented.

Origin Story

LOGO
As highlighted in its prospectus, it all started with a dress!

Rent the Runway is a North American online provider of designer dress and accessory rentals.

Rent the Runway was founded in 2009 by Jenn Hyman and Jennifer Fleiss who met while studying at Harvard Business School.

Hyman and Fleiss would regularly meet to discuss start-up ideas. During one meeting, Fleiss pitched the idea of a clothes rental service after hearing her sister complain about having a lack of outfits to wear. The pair then decided to test the idea by purchasing designer clothing and renting pieces out to Harvard undergraduates. Rental fees were anywhere from $50 to $400 for a four-day rental period.

Rent the Runway became an overnight success, disrupting the billion-dollar fashion industry with a so-called ‘closet in the cloud’. Users can now access a variety of colors, trends, and prints for a fraction of the cost of purchasing outright. The company has also become a community, enabling issues to swap clothes and share ideas and inspiration.

The company generated over $100 million in annual revenue by 2021.

Rent the Runway mission and core values

Rent the Runaway’s mission is “to power women to feel their best every day.” This mission started to be executed with the “Closet in the Cloud: a dream closet filled with a massive selection of designer styles to rent, wear and return.”

Its core values are all expressed in its manifesto, with the founding team, starting in 2010, with the aim of building a culture that Rent the Runaway defines as “fast-paced, entrepreneurial, and rooted in passion, kindness, and positivity.”

LOGO
The Founding Manifesto, defining the Rent the Runaway core value, as per its prospectus.

How does Rent the Runaway work?

As the company highlights, with its “two-sided discovery engine, customers are finding new brands they love and brand partners are finding new customers they need.” Customers can choose what they like through an “Unlimited Closet” with a “constantly rotating supply of styles for all occasions, seasons, moods and price points.”

This drives engagement for customers while brand partners can also tap into it to build a loyal customer base.

Value Proposition:

  • Unlimited Wardrobe: Rent the Runway offers customers access to a virtually unlimited wardrobe of designer clothing and accessories, allowing them to wear different styles for various occasions without the cost of ownership.
  • Quality and Variety: Customers can choose from a wide range of high-quality, on-trend fashion items, ensuring they always have access to the latest styles and brands.
  • Sustainability: Renting clothes reduces fashion waste and promotes sustainability by extending the lifecycle of garments, aligning with environmentally conscious consumer values.
  • Convenience: Rent the Runway’s subscription model provides the convenience of a constantly refreshed wardrobe without the hassle of shopping, cleaning, or storing clothing.

Customer Segments:

  • Fashion Enthusiasts: Individuals who are passionate about fashion and enjoy experimenting with different styles for everyday wear, special occasions, or events.
  • Working Professionals: Professionals who require a regular rotation of stylish workwear without the commitment of purchasing new outfits.
  • Occasional Dressers: Customers who need outfits for specific events, such as weddings, parties, graduations, or vacations.
  • Parents: Parents who use the RTR Kids service to provide their children with fashionable clothing that accommodates their growth.

Distribution Strategy:

  • Online Platform: Rent the Runway operates primarily through its online platform, allowing customers to browse, select, and rent items from the comfort of their homes.
  • Subscription Model: The company offers subscription plans that provide customers with access to a curated selection of clothing and accessories. Subscribers receive monthly shipments based on their chosen plan.
  • RTR Reserve: For one-time rentals, Rent the Runway offers the RTR Reserve service, which allows customers to rent items for specific occasions, such as weddings or parties.
  • RTR Kids: The RTR Kids service focuses on providing stylish clothing options for children, reducing the costs and environmental impact of constantly purchasing new children’s clothing.
  • Local Warehouses: Rent the Runway operates local warehouses to facilitate quick shipping and returns, ensuring a seamless customer experience.

Marketing Strategy:

  • Fashionable Image: Rent the Runway positions itself as a fashionable and trendsetting brand, leveraging social media and influencers to showcase its clothing offerings.
  • Subscription Promotion: The company promotes its subscription plans, highlighting the value of having an ever-changing wardrobe and the convenience of subscription-based fashion.
  • Sustainability Messaging: Rent the Runway emphasizes the sustainability benefits of renting clothing, appealing to environmentally conscious consumers.
  • User Community: Rent the Runway fosters a sense of community among users, encouraging them to share their experiences, outfit photos, and style tips on social media platforms.
  • Customer Reviews: Positive reviews and testimonials from satisfied customers play a significant role in building trust and encouraging new users to try the service.
  • Personalization: The platform uses algorithms and customer data to personalize recommendations, helping users discover styles that suit their preferences.

Rent the Runway revenue generation

rent-the-runaway-revenue-generation
The company revenues primarily come from subscription and reserve rental, with the company hitting over $135 million in 2021, as stated in its prospectus.

Although the company began as a four-day rental service, it now incorporates the paid subscription model to generate revenue.

Rent the Runway members pay to gain access to a forever-rotating closet of designer clothing and accessories.

Each of the three paid plans is categorized according to how many items can be rented each month.

Here is a look at all three in more detail:

  1. Up to 4 items in one shipment per month ($69 for 1 month and then $89/month thereafter) – ideal for casual users who desire versatile essentials and statement pieces. This plan has access to a basic closet, containing casual and workwear-oriented items up to a retail value of $350.
  2. Up to 8 items in two shipments per month ($99/month for 2 months, $135/month thereafter) – this plan is better suited for updated outfits, special occasions, and work and weekend looks. Here, users have access to the full closet incorporating premium clothing up to a retail value of $3500.
  3. Up to 16 items in four shipments per month ($139/month for 2 months, $199/month thereafter) – ideal for those who need a consistently fresh look for work, weekends, or special events. This plan also has full closet access.

Both the 8-item and 16-item plan users are limited to four items at any one time. Extra items can be purchased for as little as $29/month.

RTR Reserve

Rent the Runway Reserve is perfect for individuals who dislike monthly subscriptions or simply need an outfit for a one-off event like a wedding, graduation, or birthday.

Items can be rented for 4 or 8 days with a free backup size and free returns. Pricing for RTR Reserve is based on the rental length and the retail value of the clothing rented.

Complimentary service RTR Kids is also offered to outfit children for special events. It also reduces the costs of clothing children as they constantly grow out of sizes. Prices range from $30 to $125 depending on the piece and rental time.

Revenue Model:

  • Subscription Fees: Rent The Runway offers subscription-based plans that allow customers to rent a certain number of items each month for a fixed monthly fee. Subscription tiers typically include options for a set number of rentals per month, with higher-tier plans offering more flexibility and access to premium items. Subscription fees provide a recurring revenue stream for the company and encourage customer loyalty and repeat usage.
  • Rental Fees: In addition to subscription plans, Rent The Runway generates revenue through a la carte rentals, where customers pay individual rental fees for specific items on a per-use basis. Rental fees vary depending on the retail value of the item, its popularity, and the duration of the rental period. A la carte rentals allow customers to rent items for special occasions or one-time wear without committing to a subscription plan.
  • Late Fees and Damage Fees: Rent The Runway may charge late fees or damage fees to customers who return items late or damaged beyond normal wear and tear. These fees serve as a source of additional revenue and help offset the costs associated with managing inventory, cleaning, and repairing items.
  • Accessories and Add-Ons: The platform may offer accessories, styling services, and add-ons such as insurance or expedited shipping for an additional fee. These upsell opportunities provide customers with added value and convenience while generating incremental revenue for Rent The Runway.
  • Brand Partnerships and Collaborations: Rent The Runway may collaborate with fashion brands and designers to offer exclusive collections, limited-edition items, or co-branded products. These partnerships can drive customer engagement, attract new users, and generate revenue through joint marketing efforts, licensing agreements, or revenue-sharing arrangements.

Key takeaways:

  • Rent the Runway is a North American clothing rental service founded by Harvard Business School graduates Jenn Hyman and Jennifer Fleiss. The idea for the service came after Fleiss overheard her sister complaining about having a lack of outfits.
  • Rent the Runway makes money by offering three paid subscriptions. Each plan offers a distinct number of monthly shipments per month, with the two most expensive plans giving access to premium workwear and designer brands.
  • Rent the Runway Reserve offers clothing to those who need an outfit for a one-off special event. Additional service RTR Kids helps parents ease the financial burden of replacing children’s clothing as they grow.

Read Also: Zara Business Model, How Does Farfetch Make Money, How Does Vinted Make Money, How Does Zalando Make Money, Wish Mobile E-commerce Platform Business model.

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