Over the course of the last few weeks and weeks ahead, the company is implementing significant changes to its operation, revealed in an e-mail from chief executive officer and cofounder Jenn Hyman. One of these is a “significant software transformation” in its fulfillment operation.
In a follow-up e-mail sent Friday, Rent the Runway said the string of order delays being seen by customers were due to “unforeseen issues” that were associated with the software update and to expect delays of up to two to three days until Oct. 15.
Until its operational upgrades are made, Rent the Runway will not be taking on new subscribers or new event rental orders from existing subscribers, according to the e-mail. Across social media and through customer service channels, consumers demanded to know what was happening.
“The rental business has gone from zero to 100 miles per hour over the past 12 to 18 months,” Stacey Widlitz, chief international store hunter of SW Retail Advisors, told WWD.
Rent the Runway was founded in 2009 as a technology company first — not an apparel retailer — but many have followed since. In July, Urban Outfitters took rental in-house with its Nuuly subscription box offering and logistics platform, while even traditional retailers such as Bloomingdale’s and Banana Republic are partnering with rental tech and logistics platform CaaStle to drive new customer acquisition.
For the subscription-rental business, the challenge is delivering great customer value while minimizing costs, which include variable costs associated with garment exchange (postage, packaging, cleaning), while capturing garment utility within the right margins. It’s all part of a larger drive for more circular consumption.
Bespoke Technology Is Challenging to Create
Citing the recent momentum of circular business models, Andy Ruben, ceo and founder of Yerdle, a reverse logistics and technology platform for resale, said that single-stockkeeping-unit logistics is still a “relatively new area given the growth in resale and rental.”
Although considered a “unicorn” in the clothing subscription-rental market with a $1 billion valuation, Rent the Runway is no exception to growing pains. Although unfortunate, issues that displace customers can occasionally arise when fast-growing businesses need to upgrade existing systems and infrastructure.
Rent the Runway operates on “bespoke technical architecture,” as Ruben is familiar with, having built the proprietary resale platforms for brands such as Patagonia, Eileen Fisher and others.
And it’s “incredibly complex at scale,” with rental posing the added complexity of two transactions for every use (the outbound and the return).
Handle Consumers With Care
While in consensus that “accelerated growth puts strains on the platform and people,” Keval Desai, general partner at InterWest Partners (which has invested in companies such as The RealReal, Cuyana, Canva and Optimizely) commended Hyman in her “very proactive” customer outreach.
Despite delivery days disappointing customers who were expecting to wear rented clothing for their recent occasions and longer waiting time for the most in-demand sku’s, Widlitz also commended Rent the Runway on its transparency despite the “logistics and technology hiccups.”
“If you have a differentiated offering, the consumer has a short memory,” said Widlitz, who pointed to Target’s payment outage last week and the outages in stores during back-to-school shopping as non-crippling to the company. In fact, “Target recently reported its best two-year stack same-store sales number in more than a decade,” said Widlitz.
With the total market size of the subscription e-commerce market estimated to be around $12 billion to $15 billion, according to a McKinsey analysis of Internet Retailer’s 2019 database, some industry experts fear whether customers are beginning to become “over-subscribed” to services.
As stated in The Future of Circular Fashion report created in partnership with Accenture and Fashion for Good, the financial viability of the subscription-rental model is also “highly dependent on attracting new customers who underutilize this option.” Are too many actively utilizing their $159 unlimited memberships?
“For a category-leading business like Rent the Runway that is clearly serving a huge unmet need, there is no such thing as ‘too many subscribers,’” said Desai. “As long as the company has sound unit economics and produced positive contribution margin for each subscriber, adding new subscribers is good for the overall health of the business because eventually all of that positive contribution margin will cover their fixed costs and lead to cash flow profitability.”
Looking at the way the company is handling its scale, “[Rent the Runway] will ultimately be valued by their ability to provide useful data to brands and speed to the consumer,” said Widlitz.
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