Growth Logistics

How Rent The Runway built an $800 million business in a mom-and-pop industry

Think back to the first time you rented a piece of clothing. It might have been a dress for your cousin’s wedding or a tux for your high school prom. Either way, the experience was probably similar to that of lots of other people across the United States: You find the local clothing-rental store, the one that all your friends and family have rented from for as long as anyone can remember, and stop by for a fitting. An experienced tailor takes your measurements, asks a few questions about what you’re looking for, and disappears into a back room.

After a while, he or she returns, stock in hand, and you run through the handful of outfits you have to choose from. The entire experience is pleasant enough, but it definitely feels like something out of an episode of Happy Days.

For the past 70 years, rental clothing has remained relatively unchanged. It’s a mom-and-pop industry built around local brick-and-mortar small businesses that have a limited stock available. Rent the Runway (RTR) took that model and brought it online.

Via Flickr, Thomas Hawk.

Over the past decade, Rent the Runway has grown their eCommerce clothing company to a yearly revenue of over $100 million and a recent valuation of $800 million. They’ve done this by expanding the rental business model into high-end fashion. In doing so, they’ve changed the way that people think about the market itself. But it wasn’t always easy, Rent the Runway’s chief analytics officer, Vijay Subramanian, told Deciding by Data, “We were creating a completely new category where the customer itself is changing their behavior while we’re figuring out how to make the back-end logistics and the equations actually work.” 

By focusing on building a fulfillment and logistics process that enhanced the customer experience, collecting valuable data on their customers, and leveraging that data to create partnerships with designers, RTR has taken the rental model into high fashion. Since 2009, they’ve grown to offer a highly successful eCommerce subscription, built America’s largest dry-cleaning facility, and nailed down the logistics of providing high-end clothing at scale.

Build efficiency into every step of the process

Every item that Rent the Runway has in stock flows through a series of checks and balances to ensure it is in the best shape possible when the customer receives it. From shipping and receiving to cleaning, mending, and storing, Rent the Runway has created a logistics operation that fuels the growth of their massive rental business. They talk about their technology stack on a blog called Dress Code.

When a customer rents something from Rent the Runway, that piece goes through a multistep process in their 150,000-square-foot fulfillment center.

  • Stock: Items are bagged and bar-coded so Rent the Runway’s computer system, the Allocator, can sort stock based on whether it needs to be shipped out that day or can wait. Sixty percent of all items will go back out the door the same day they’ve been returned.
  • Inspection: Workers inspect every item for spots, rips, tears, and unusual smells. Any items that don’t meet the quality-assurance standards are sorted into bins and moved on to cleaning or repairs.
  • Stain removal: Workers, known as spotters, hand-clean any items that need special care, with the help of an internal database that recommends the best chemical cleaners for the job at hand.
  • Steam cleaning: Automated steam-cleaning machines are used for regular cleaning and steaming. In their current facility, Rent the Runway is the largest dry cleaner in the U.S.
  • Mending: Sewers and seamstresses fix tears, reattach beads, and secure straps or sequins, recording the repairs in a garment’s information file.
  • Shipping: Each order is checked, assembled, and bagged for shipment. Another computer system calculates the most cost-effective way to send the item, and then it’s back out the door.

Each customer also receives the same dress in two different sizes, so there is less room for fit problems. This ensures the best possible customer experience and gives Rent the Runway 100 percent control of their inventory at all times.

Rent the Runway maintains all of these services in-house to help streamline their shipping and fulfillment logistics. They’ve obtained patents for proprietary garment bags and submitted patent requests for their logistics-management workflow, and they consistently collect data that helps them optimize the process. By ways to scale the logistical aspects of the rental business, Rent the Runway has been able to take the one-on-one relationships of old-school clothing rental and scale them to millions of customers.

Use data to create a seamless customer experience

Customer experience is extremely important for any rental business, and the stakes are even higher for Rent the Runway. If they don’t deliver a pristine garment the first time around, they’ll lose the trust of not only their customer but also the people in that customer’s circle of influence. Because their main market is high-end, designer fashion, Rent the Runway’s clothing is typically rented for special occasions. If a dress doesn’t fit, has stains, or comes in late, that negative experience creates a ripple effect, souring potential relationships with the customer’s friends, family, and social networks.

Overall experience affects the customer’s loyalty as well. When the customer experience is bad, the likelihood of a customer trusting, recommending, or purchasing from the company decreases drastically.

Impact of customer experience on loyalty via Econsultancy.

Even okay experiences don’t really give companies a significant boost. Only a good or excellent customer experience will have an impact. Rent the Runway uses customer data to bypass potential issues and build a better overall customer experience.

Much like Stitch Fix and other eCommerce subscription businesses, when a customer first signs up at Rent the Runway, she’s asked to enter her preferences and begin building a profile. Once she has provided the basic information up front, the customer can favorite items as she browses available inventory to give Rent the Runway a better sense of the kind of items she’s looking for. This helps personalize the browsing experience by showing more “likable” items as the customer browses, and it gives Rent the Runway valuable information on general fashion trends and preferences.

Customers can also chat with stylists online or book a 45-minute consultation at one of Rent the Runway’s retail locations. Both of these services are additional upsells on the customer’s subscription package, but they build on the personalized website experience by improving the quality of each customer profile.

Through each step of the customer journey, Rent the Runway uses customer data to personalize the experience. This helps them build on the relationship with each customer by making better recommendations and informs them of shifts in fashion trends. Integrating this knowledge into their fulfillment cycle not only enhances the logistics side of the customer experience but also gives Rent the Runway a way to streamline their internal processes.

Rent the Runway CEO, Jennifer Hyman at TechCrunch Disrupt NY in 2015. Via TechCrunch.

Work with designers to keep up with current trends

High-end, designer fashion is a rapidly changing business, subject to shifting trends every few months, so Rent the Runway needs to keep their available stock as up to date as possible. They accomplish this partially by working directly with designers to feature collections that fit Rent the Runway’s customer profiles. In exchange for access to these collections, Rent the Runway provides valuable feedback back to designers based on their wealth of customer data. This information exchange helps keep Rent the Runway on top of current trends and gives the designers they work with a way to create collections that resonate with customers.

Rent the Runway also works directly with designers to create custom items for collections that don’t quite fit the customer data. This allows designers to create a more “rentable” clothing and get exposure to RTR’s huge audience and the data and feedback available to partners, even if their existing designs aren’t consumer friendly for the rental market.

Customers who choose to rent their clothing through Rent the Runway are different from the traditional high-end fashion consumer, and being able to adapt a design to their preference helps reach a wider market. Widening the designers’ markets helps increase their brands’ awareness as well.

Rent the Runway collection via Pinterest.

Building direct relationships with designers also gives Rent the Runway another way to enhance the customer experience. The more access to high-end brands and designers, the better experience a customer will have with the company. If a customer is on the lookout for a Tory Burch bag, or Diane Von Furstenberg dress, Rent the Runway can give it to them. Further, by strategically featuring sought-after designers, Rent the Runway can potentially acquire more customers, and the same goes for working with less well-known designers who cater to specific fashion niches. 

Rent the Runway has to show that they have the type of inventory that speaks to people seeking high-end, designer fashion. To stay on top of trends and keep their brand in front of customers, they’ve sought out relationships with designers at every level. Customers can find a dress by a famous fashion house or an up-and-coming designer in the same place. By working with different types of designers, Rent the Runway is widening their available customer pool, too. Their ability to stay ahead of current fashion trends, as well as offer clothing that appeals to their current customers, is the best way for the company to grow.

Key takeaways

Taking the mom-and-pop roots of the clothing rental business and building it into an eCommerce subscription juggernaut had never been done before. By focusing on scaling their logistics, collecting as much customer data as possible, and working to stay ahead of the trends, Rent the Runway has been able to take this rental model into the twenty-first century.

► Efficiency is key

If Rent the Runway hadn’t made sure that every step of their rental pipeline was as efficient as possible, they wouldn’t now be able to provide the same kind of customer experience. You need to make sure that any internal processes add value to the business as well as the customer.

► Scale your Infrastructure

Rent the Runway is able to meet their customers’ expectations by owning nearly the entire logistics and fulfillment pipeline (about the only part they don’t do is shipping/delivery). Maintaining these processes in-house gives you more insight into how well you’re able to meet the requirements of your growing customer base. It takes more work up front, but will provide benefits in the long run.

► Collect the right customer data

You need to know what kind of product the customer wants to buy or, in this case, rent. By collecting information on preference through surveys and website interaction, Rent the Runway builds detailed customer profiles. When you’re selling a product that is as subjective as fashion, it’s important to understand what drives customer trends.

► Personalize the shopping experience

With more data on the customer, you can find ways to personalize the shopping experience. Find ways to make sure that every customer interaction is tailored to specific needs. When you make it easy for the customer to find what they need, they’ll be happier.

► Stay on top of industry trends

Trends change all the time, especially in the world of fashion. By partnering with designers and fashion insiders, Rent the Runway is able to keep ahead of trends. That, coupled with their wealth of customer data, helps to provide the best possible experience for the customer.

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