Rent the Runway arrived on Wall Street with an upsized initial public offering, a stock price that fizzled quickly, a legacy of $674 million in total losses — and, if its boosters are right, the future of fashion.
Thing is, there are quite a few companies vying for that future.
Farfetch is building a kind of operating system for the industry, Shopify is looking to become that vital à la carte e-commerce center point, Stitch Fix Inc. is personifying personalization, Amazon Inc. is restlessly chasing style in its own enigmatic way, Saks Fifth Avenue is taking a divide (itself) and conquer approach, Poshmark and ThredUp are pushing secondhand and more.
But Rent the Runway — led by chief executive officer and chair Jennifer Hyman — is offering a little something different, a kind of post-ownership spin on the fashion ecosystem with something for everyone.
The company’s more than 143,000 subscribers get an endless closet and brands get access to a younger customer base. It’s an approach to rental that’s evolved, been stress-tested by the pandemic and now, 12 years on, is going to the next level with its IPO.
Rent the Runway has gained a vote of confidence from the big investors that bought into the offering, but also a whole lot of second-guessing from industry watchers in general and a continuous reevaluation of the company’s value.
Rent the Runway certainly had a good dose of that on Wednesday.
The offering itself was strong and gave the company a fully diluted valuation of $1.56 billion. A total of 17 million Class A shares were sold at $21 each — hitting the high end of the $18 to $21 range the company projected and 2 million more shares sold than initially envisioned.
When Rent the Runway landed on the open market, there was an initial bump, with shares peaking at $24.75. But investors reversed course and shares ended down 8.1 percent at $19.29, just above the midpoint of the initial offering range.
That counts as the first day of Rent the Runway’s life on Wall Street under the “RENT” ticker symbol.
But investors are famously fickle and the scene is particularly strange right now, with a slew of offerings as companies race to tap into a hot stock market.
While Anushka Salinas, president and chief operating officer, said Rent the Runway was taking a beat to absorb the milestone, she and the company are clearly charging into the future.
“It’s a moment today certainly where we’re pausing,” Salinas said in an interview. “We have an incredible amount of pride for the past, the present and excitement about what’s next.”
(She also noted with obvious pride that Rent the Runway is the first female-founded company with a female CEO, chief operating officer and chief financial officer to go public).
Salinas said Rent the Runway restructured during the pandemic, boosting margins by tweaking the subscription program and taking more goods on consignment and through the Exclusive Designs program, which uses more capital-efficient production channels.
Together with other efforts to drive “operational efficiency,” the company in a “much stronger place going forward,” she said.
“Driving growth is a no brainer,” Salinas said.
And with $327.3 million in proceeds from the IPO, Rent the Runway has a fresh kitty of funds to fuel that growth.
“We are committed to getting toward profitability and we’re certainly on that path right now,” the executive said. “We’re in the early innings of our subscriber count. Yes, we will certainly be focused on growth, but profitability is important as well and that is certainly within reach.”
While the pandemic still has many women working from home, Rent the Runway has gotten back to 97 percent of the number of subscribers it had at the end of 2019. Today orders are almost split evenly between casual looks and styles for work or evening.
In a filing with the Securities and Exchange Commission tied to the offering, the company noted: “We are seeing a pent-up demand for self-expression within our customer base favoring bold, colorful, fashion-forward styles across every use case. We have also continued to see diversification in our subscriber base from a geographic perspective, with more subscribers joining from noncoastal cities, smaller metros or suburbs in the South, Southeast and Midwest.”
On average, the firm rents out an individual item about 20 times. With an average upfront cost of $90 to buy the look, that works out to lifetime revenues of $536 and lifetime profits of $324 — in theory without the other costs the company is carrying.
Now, the mission is to make the math work out better while continuing to connect customers and brands, giving something more to both.
“We are a company that provides an important value to brands beyond just the check that we write them to purchase their inventory,” Salinas said, pointing to the data Rent the Runway shares.
On the other side of the equation, she said: “We offer the best option out there for women who are looking for variety, flexibility and the ability to dress to be the woman she wants to be on any given day and any situation and we give it to them at incredible value and sustainably.”
To get to where it is, Rent the Runway has had to win over a lot of hearts and minds, bringing consumers into rental and convincing brands to try a new channel.
Now, there’s a new set to win over on Wall Street.
“There’s a huge opportunity and not everyone gets that,” Salinas said. “To me, that’s a great challenge.”
Rent the Runway’s ROI
|The rental pioneer has hit on a formula that is potentially strong on return on investment, but it is still scaling and has yet to actually make money.|
|Average Upfront Cost Per Unit||$90|
|Revenue Per Turn||$27|
|Profit (Excluding Upfront Cost) Per Turn||$16|
|Profit Margin||60 percent|
|Lifetime Turns Per Unit||20|
|Product ROI – Revenue||5.9-times|
|Product ROI – Profit||3.6-times|
|Source: Rent the Runway Securities and Exchange Commission disclosure.|
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