Rent the Runway Inc. will add an extra item to each shipment at no additional cost to subscribers, a sign that the fashion-rental company’s recent restructuring efforts are giving it greater financial flexibility.
The additional items are a way to woo new consumers to subscribe to the monthly service even as inflation bites. “The customer is more cost-conscious than she’s ever been before,” Rent the Runway chief executive officer Jennifer Hyman said in an interview.
Executives considered cutting monthly subscription fees in response but decided instead to give consumers more for the same price, Hyman said, reasoning that it would help with both retention and appealing to potential customers. The more items that subscribers wear, the greater probability that someone will comment on their dress or sweater, accelerating word-of-mouth marketing.
“This business grows by women organically telling other women about Rent the Runway,” Hyman said. “We get a lot more bang for our buck investing into the customer experience than investing into marketing.”
Rent the Runway’s most popular plan offers subscribers eight items a month via two shipments. Under the new plan, those subscribers will receive one more item in each shipment, or two per month.
“We can make this investment into the customer with it having minimal impact on our gross margin,” Hyman said. In the past couple of years, the company has boosted its gross margin and reduced the costs to ship out and take back its rental items.
Rent the Runway shares slipped 3.4 percent at 9:48 a.m. in New York trading, trimming the stock’s year-to-date gain to about 10 percent.
The shares plunged in the year or so following its October 2021 initial public offering, then jumped late last year when the company reported stronger-than-expected quarterly results and showed progress on profitability targets. The stock remains below its IPO price.
The company is able to offer additional items at no extra expense to subscribers in part because of cost savings from the recent restructuring plan. Last year, Rent the Runway dismissed about a quarter of its non-hourly employees. That has generated cost savings of between $25 million to $27 million, Hyman said. Also, the New York-based company restructured its debt, pushing out the maturity to October 2026 from October 2024, which reduced its cash interest payments to 2 percent from 7 percent, she added.
“Our goal,” Hyman said, “is to drive Rent the Runway to free-cash-flow profitability.”
By Jeannette Neumann
After years of trial and error, rental platforms have found new ways to improve margins and acquire customers, such as focussing on niche categories. Profitability remains elusive, however.