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Rent the Runway closed on its third round of financing, raising $24.4 million.
This story first appeared in the March 11, 2013 issue of WWD. Subscribe Today.
The round was led by Advance Publications Inc., the parent company of Condé Nast and Fairchild Fashion Media, parent of WWD, and includes American Express and Novel TMT Ventures. Previous investors — Bain Capital Ventures, Highland Capital Partners and Kleiner Perkins Caufield & Byers — also participated in the latest round. Following the closing of the latest round, Rent the Runway thus far has raised an aggregate of $55.4 million.
According to Jennifer Hyman, cofounder and chief executive officer, “The business is continuing to expand very quickly. We are investing in people, marketing and scaling our operation to make sure we are delivering incredible customer experiences. Over the next year, we have plans to expand our showrooms.”
The showrooms are physical retail spaces where customers can try on dresses and accessories as well as book appointments with Rent the Runway’s stylists to discuss fit and style needs. It has one so far, at its New York City headquarters in the West Village.
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Hyman said at some point the company will need to decide whether to move out of its New Jersey warehouse and build a larger facility or have multiple distribution centers. A top priority is hiring engineers to improve operations and logistics.
It was a company engineer who had the idea for the firm’s social shopping platform launched in October that enables renters to see outfits on other women with similar height and weight measurements, Hyman said.
As for investments in logistics and technology, Scott Friend, managing director at Bain Capital, said the company has needed continued investment to grow because it is “more expensive than other start-ups. Really good systems and processes help to make the [business operations] less expensive. Rent the Runway builds its core operating systems in-house” rather than buying software off the shelf. Friend explained that expense is required because of the need to tailor the programs to the complexities of the business.
“In [this] business, 100 percent of what we send out comes back four days later on purpose. We have to make it look brand new all over again so we can ship it out again on Thursday, knowing it comes back on Monday. That involves seamstresses and dry cleaning….We’ve learned that certain materials wear and tear better than others. Certain lengths of dresses wear and tear better, helping the inventory last longer….This management team hired a guy who ran a dry cleaning chain to run their warehouse facility. He implemented processes and systems. All this takes a lot of capital to build the business the right way [in order to] scale the business,” Friend said.
Hyman said at some point an initial public offering is likely, but there’s still more to do to build the brand and platform so it continues to be a “huge marketing engine” for designer brands and retailers.
According to Hyman, the firm is really an “experiential marketing engine” for brand vendors and retailers because it allows consumers to learn about designers they’ve never heard about before.
Although customers have asked about buying the dresses they rent, so far there are no plans to allow that, requiring them instead to reach out directly to the brand or a retailer for that purchase.
The company plans to expand to new categories this year, although she declined to provide details. The firm currently rents designer dresses, jewelry and handbags.
Hyman is betting on feedback from Condé Nast, American Express and Novel TMT — each with its own expertise in three different industries — to help her firm improve on its business model and grow the operation.