‘I plan to put Zara out of business’: Why fast fashion is Rent the Runway’s biggest foe

Today, it’s expanding its unlimited subscription option to include four rental items, up from three, with inventory from 500 different brands. The model works by letting members choose items to rent, with no set return date. Items, which include tops, bottoms, dresses, coats and purses, can be swapped in and out as frequently (or infrequently) as customers want. With the increase, the cost is going up from $139 a month to $159. But with the change comes a new option that  limits subscribers to a total of four rented items each month, costing $89.

“To make sure every woman can have a subscription to fashion, we needed to offer a lower-priced subscription for the million of women who couldn’t afford a price point that wasn’t under $100,” said founder and CEO Jennifer Hyman.

Rent the Runway started as a rental company for formal wear, letting women rent out a fancy dress for an event like a wedding or gala, rather than investing in one. With the unlimited plan, it added on everyday clothing, and the company reports a 125 percent year-over-year increase of its subscription business. While it doesn’t report revenue, in December of last year, it confirmed it was profitable, with over $100 million in revenue, with Unlimited subscriptions accounting for 20 percent of that. Rent the Runway is currently valued at close to $1 billion, according to the company.

How does the new, cheaper subscription model align with the customer behavior Rent the Runway’s observed? 
There was a need for us to democratize our own subscription offering for a new customer segment. [Unlimited subscribers] have reported that they’re using it for about 10-15 outfits per month. That means we’re replacing a third to half of their [looks] a month. With a lower price point, we can add millions of customers who were not customers of these designers before, while taking attention off of fast fashion. We want to make the answer to “Should I shop once a month at Zara or get designer access at Rent the Runway?” a lot easier.

You talk about the ‘closet in the cloud’ a lot, where people only own a few basics and the rest of their wardrobes are on rotation. What has to happen for that to really become a norm? 
More people have to know that we exist, for one, which is why we’re launching a brand campaign for the first time ever. Some people are ready, and I think it’s a matter of time. Eighty-nine dollars still doesn’t cover the entire United States, in terms of accessibility, so we’ll be coming to you with an even lower price point in a few years. One of the things we’re proud of is that 60 percent of our customers live outside major cities. We’re serving everyone, not only professionals in New York and LA. That means we have to have as many brands and designers as possible.

Brands are struggling with retail partners, like department stores and Amazon. What makes Rent the Runway different as a brand partner?
We give the brands a huge amount of data around what our customers are wearing and what they respond to, in a way that informs their design processes. With more items swapping in and out more frequently, there’s even more insight. We give insight all the way down into the way clothing is manufactured, because we don’t make money unless clothing rents out several times. We know when things are falling apart, or aren’t well-made, and [communicating that] results in higher-quality product.

We hope our business is helping designers become successful, not only via Rent the Runway as an important sales channel, but also in terms of creating bigger businesses with all of their other accounts. Designers have gone out of business as department store sales have declined, and Amazon is a massive threat to traditional retail. We want to be a sales and marketing channel that supports designer brands by introducing them to new customers and arming them with data. We don’t view ourselves as being competitive at all to the other retailers designers work with.

But you are competing against fast fashion.
Designers are the creators of the fashion women are wearing all over the world, but the problem today is that designers really make very little money. Retailers have put huge demands on them and squeezed their margins, but more importantly, fast-fashion and private-label players like Zara, H&M and Forever21 have been copying their designs, launching products faster and selling to tens of millions of women at a price point that designers can’t compete with. So our subscription is getting cheaper and that will continue and to do that with designer product.

Does a cheaper subscription compromise what a designer gets paid? How else can these designers help themselves to compete with fast fashion?
We’re still buying all of the inventory, so no. A cheaper subscription means we’ll actually be paying them more, because as more people join, we’ll need to be buying more and more and more inventory. We need our inventory to be as fresh and new as possible, because that’s what our customer comes to us for.

But we’re working in the same cycles as the fashion industry, and the supply chain of the fashion industry desperately needs to change — not just for Rent the Runway, but for designers and the retailers they sell to to stay in business. Everyone understands the threats that fast fashion and Amazon pose, and in a world where fast-fashion players can bring a design from idea to execution in two weeks — whereas it’s taking a designer six months — that’s a really bad position for the industry to be in. But the more informed the designers are around what the customer wants and what she’s responding to, the better off they’ll be, and that’s what we can offer them.