Why Alibaba’s Jack Ma and Joe Tsai are injecting $ 20 million into Rent the Runway
Recode’s Code Commerce conferences are a treasure trove of revelations. Tonight in Las Vegas in March, two of the brightest interviewers in our industry – Kara swisher, executive editor of Recode, and Jason Del Rey, Senior commerce editor, spoke with Jennifer hyman, the co-founder and CEO of Rent the Runway, each wedged on Recode’s iconic little red leather armchairs, guaranteeing a frank and uncalculated dialogue.
And because it is so at Recode, open and high level, the first to raise his hand at the end, during questions from the audience, was none other than Andy Dunn, the founder of Bonobos, a men’s clothing eTailer bought by Walmart, who is now Vice President, Digital Consumer Brands at Walmart, and who has recruited… Jenny Fleiss, the other co-founder of Rent The Runway to set up… But this is another story. Here is a summary for you of the essentials to remember from the Commercial Code Conference:
- Rent The Runway (RTR), far from being a simple clothing rental company, is by turns the world’s largest dry cleaning company, a logistician, style consultant, subscription service and technology company
- Its ‘buy less’ value proposition is the opposite of retailers, who seek to buy more
- RTR is a turnkey acquisition channel that brings revenue, new customers and data to brands
- For 2 years, RTR has gone from a business used a few days a year, to a business used 150 days a year
- It offers its logistics rental service to other clothing brands.
The start Rent the Runway
For 8 and a half years, Rent the Runway has been known as the place where women rent lavish designer dresses for special occasions, weddings, gala events.
A wardrobe in the Cloud – In 2009, the vision of the two co-founders was to transport women’s wardrobes to the Cloud, on the assumption that more than 50% of clothes are not intended to be kept forever. Women are familiar with this feeling of opening your closet and seeing, with sorrow, all these clothes worn only once.
Since its inception, Rent the Runway has served 8.5 million customers and raised $ 210 million (recently $ 20 million from the investment firm of Jack Ma and Joe Tsai of Alibaba, and Blue Pool Capital which values the company at $ 800 million. According to Recode, the company is profitable on a Ebitda.
RTR has 5 stores in the United States, including one at Neiman Marcus. The ambition is not to open stores en masse, perhaps 20 to 25 at most in the future.
Logistics reversed – The strength of the model? The speed of rental. An item returned by one customer is available to another customer within 12 hours. This feat is possible thanks to a proprietary tool which required more than 7 years of development and optimization. Because RTR has this unique feature in retail of having a 100% return rate!
“We’re in the 100 percent return business”
Jennifer Hyman, CEO Rent the Runway
While the “Pick, Pack and Ship” procedure is quite similar to other major brands, the dry cleaning (RTR is the world’s leading dry cleaning company) and product quality process phases are unique. This is the virtue of the model.
Today’s Rent the Runway
Let’s call this rotate.
:: Pivoting # 1 – Make the proprietary tool of Reverse Logistics profitable
RTR wondered how to best leverage its proprietary reverse logistics tool. The idea of subscription quickly arose. Thus, two years ago, RTR launched a first subscription offer, the results of which exceeded its expectations.
For $ 89 per month, the customer receives a selection of 4 items of clothing that she keeps or returns. Along with pivot # 2 (see below), the response from subscribers was immediate: ” Submit me more articles per month, more often “.
RTR then launched the unlimited subscription: for $ 159 per month, subscribers can rent as often as they want, four rooms at a time. An article received does not please? The member returns it and a new item will be returned immediately. Access to an unlimited cloakroom while having the levers in hand. If a subscriber wants to keep a jacket for 4 weeks, she can. Just like she can wear a dress once and send it back the next day.
The subscription business is growing at a rate of more than 100% per year and will represent more than half of its annual turnover in 2018. The clientele is very diversified in terms of age and income. In total 8.5M customers, of which one in two lives in urban areas.
:: Pivoting # 2 – Not just for weddings
RTR listened to their clients. They thought it was great to be able to rent a dress for a wedding, but they also told RTR, “ Most of my time – 5 days a week – is spent at work. It is a huge financial burden for me to dress for the office. Can you make this subscription model ALSO solve my professional outfits problem? ? RTW then integrated outfits for the office and the model completely changed. Instead of serving a client 4 times a year, RTR serves her 150 days a year. 150 is in fact the average annual number of uses by subscribers.
:: Pivoting # 3 – Think about retailer friends
This year, Rent The Runway is opening its platform to other retailers to allow them to use it to generate a new source of income. Simply put: the brand places a “Rent our clothes” button on its site and RTR takes care of everything. The proprietary tool of reverse logistics, which benefits from 7 years of know-how, would be difficult to create from scratch by a retailer whose rental is not the core business. 98% of customers rent clothes from brands they didn’t know before. ” We tell retailers that they have a new source of revenue, but also new customers and data. »Explains Jennifer Hyman.
WHY THE MODEL WORKS?
Fast Fashion is a rental business
Jennifer Hyman, CEO Rent the Runway
A new way to buy clothes
Jennifer Hyman considers that the concept of rental is already present in new shopping habits. According to her, women will always continue to buy important pieces of their wardrobe, in which they invest and which they will keep for years. And if Jennifer Hyman readily recognizes the power of fast fashion, she sees it as a form of rental. ” When you buy something for $ 9.99 and know it won’t hold up after you’ve worn it once or twice, you step into that shopping experience knowing that you are renting. What we do [chez Rent The Runway] is to make the rental process more efficient “. And the subscription was the missing piece.
Rent The Runaway try to get customers by less stuff.
That is the value set of this businness is
Rent the Runway CEO Jennifer Hyman
For the CEO, luxury buying and selling sites such as The Realreal, Thredup or Poshmark are a form of rental too, the only difference being that the rental lasts longer. ” When I buy a bag and sell it a year later on Thredup, it is as if I had rented it for a year ”.
A good reason to subscribe
The subscription simplifies rental. What subscribers love is that they can wear something new, every day, and have 6,000 different styles to choose from. ” Renting brings the self-confidence that comes from wearing a new item of clothing »Explains Jennifer Hyman, who observes, with supporting figures, a tendency to favor quantity over quality. ” In 1990, the American bought an average of 40 articles of clothing per year; in 2017, this figure rose to 68 »She notes.
Recurring income for brands
RTR works with 550 brands. They use RTR in multiple ways, beyond the original idea of being able to lease their inventory. Because by sharing data with these brands, RTR helps them:
- inform their assortment decisions
- test new collections before investing heavily
- offer certain models for hire before considering discounting them. In the latter case, the retailer can get a better ROI from a leased inventory, instead of immediately deciding to discount it.
- The most important indicator: subscriber growth. Currently, the subscription is growing at 100% per year since launching two years ago.
- The other indicator: the number of days used in the year, a figure that RTR will work to increase over the months. Already Rent The Runway subscribers claim that they spend 80% less elsewhere since taking out their subscription.
A MODEL DOPED BY ARTIFICIAL INTELLIGENCE
At a certain point in the exchange, Jason Del Rey asks the question of the lack of relevance in the selection received, a regret which appears on reading some customer reviews. Jennifer Hyman then defends her model, which makes it possible to acquire data ” that no other retailer is able to know: what the customer buys, what she likes in a garment, what she does not like, in what context she makes this rental “.
For the co-founder, Artificial Intelligence is an overused word, and she is not quite sure what it means. RTR has always used data to know what people want to wear (styles, designers) but also in what context and for what moments of life. As the activity now spans 150 days per year on average, the predictive models will become more accurate. RTR knows when the client is pregnant, or lives in Vegas, and is heading to Miami for the weekend. Clients give this type of personal information because they want the most accurate selection possible. And they don’t want to waste time on the site. Two minutes on the site is already too long for them.
In support Q&A, when Andy Dunn, the founder CEO of Bonobos, but also Senior Vice President Digital Consumer Brands at Walmart, asks him what is the biggest difficulty encountered in the last two years, Jennifer Hyman answers “the team”. ” It is often said that the team is the most important factor when starting a start up. But in fact, it’s just as important for a 1,200 employees ”.
A team that has sensed a new behavior with respect to clothing, and intends to change this behavior forever.
The correspondant :
Laurence Faguer is a marketer and entrepreneur “go-between” France and USA, founder of Customer Insight.
At the request of French companies, she identifies in person innovations in Digital, Mobile and Retail in the United States, before they are known in France, then helps them to successfully transpose these successful strategies in the US
Laurence is US expert for FrenchWeb who resumes from time to time the publication of articles on her blog.