Jennifer Hyman said Rent the Runway Inc.’s moment of existential doubt — if it had one — passed when the company tweaked its credit facility in January, pushing back its maturity date two years to October 2026.
Now with that extra bit of breathing room, Hyman, cofounder and chief executive officer, said she is finally ready to put together the pieces of the business model puzzle she and her team have been working on for years.
“We want 2023 to be a year where we are investing deeply into our customer experience and thinking about the ways that we can drive even more customer love of this subscription,” Hyman told WWD in an interview.
That starts by just giving subscribers more Rent the Runway — a 25 percent increase for the majority of subscribers, who will now be able to rent 10 looks a month instead of eight for the same price.
“We wanted to start the year up with a bang,” Hyman said. “There’s really strategic value in giving her more fashion from us because fundamentally, when she wears more from Rent the Runway, she’s more loyal to us. We have historically seen that her retention rate is very much correlated to her wear rate and if she has more items at home, she wears more from Rent the Runway.”
To ease the way — and keep giving subscribers more — Rent the Runway is also helping users choose pieces, for instance, by adding an often-requested rent the look feature.
This is a big moment for the Brooklyn-based company, which helped create the modern rental market when it was founded in 2009, but has yet to turn a profit.
Over the years, Rent the Runway has racked up losses of more than $913 million and, since its 2021 initial public offering, has struggled under the glare of Wall Street along with many of its tech-savvy cohort. Shares of Rent the Runway rose 0.9 percent on Friday to close at $3.49 — a far cry from the $21 IPO price.
But Hyman said the company’s hard work over the course of the pandemic is about to pay off and that it is in a much stronger financial position.
“We’ve transformed our business over the past three years and it’s led to step changes in our financial profile,” she said.
In addition to the debt adjustments, which cut cash interest payments by more than $20 million over the next two years, Rent the Runway has:
- Relied more on consignment and exclusives, buying only 40 percent of the looks it rents via wholesale last year, reducing product costs to around 30 percent of revenues.
- Strengthened operations with automation and data, reducing fulfillment costs to around 30 percent of revenues, down from 46 percent three years ago.
- And streamlined, laying off 24 percent of its corporate workforce in September in a restructuring that will reduce annual operating costs by $25 million to $27 million.
Hyman and Rent the Runway are clearly on the move.
“Our number-one goal is to drive Rent the Runway to free cash flow profitability,” she said. “And the thing that drives us there is growth. And our conviction is that growth actually comes from investment into the customer experience.”
With the company’s cash burn set to improve by $50 million this year from the recent changes, it’s time to build by giving renters more — specifically an extra couple pieces via subscription each month.
“We’ve found that when she has extra spots [in her rental package], not only does her loyalty increase to Rent the Runway, but the diversity of how she uses us also goes up,” the CEO said. “She feels more comfortable using Rent the Runway in her everyday life, renting more casual clothing. And because she’s now wearing us more frequently, we think that there’s a halo impact that happens from that, where she ends up sharing Rent the Runway with more friends. She ends up buying more inventory from us because she now has more at home to fall in love with.”
Pushing out more looks to subscribers also makes Rent the Runway a better vehicle for brands to connect with more potential buyers, which helps keep the whole machine running.
Rent the Runway might just be coming of age with the sector it helped kick off.
“What was an idea 10 years ago is now a market, millions of women want to subscribe to fashion every year,” said Hyman, noting the company is now positioned to take advantage of that.
“We’ve now put the business into the strongest position we’ve ever been in financially, the closest we’ve ever been to profitability,” she said.