Rent the Runway Sees Renewed Traction as Rentals Have a Moment

Earlier this month, PYMNTS discussed the momentum behind resale as sustainability has come to the forefront for consumers. Now the rental market, while not a new concept, is hoping for the same type of traction.

In a recent presentation to investors, Rent the Runway (RTR) shared its belief that it has barely scratched the surface of its market potential. According to the company, 56% of women surveyed plan to subscribe to fashion services within the next five years, and the potential market size for rental subscriptions among women in the U.S. is estimated to be around 44 million. This not only presents a significant opportunity for Rent the Runway but also for other players to gain more market share.

To act on this finding and further its momentum, Rent the Runway has decided to permanently add one additional item to each subscription plan, which may enhance its appeal to prospective subscribers.

See also: Resale Is Having Its Moment, but Will Rent the Runway?

Based on its most recent financial report, announced on Wednesday (April 12), the fashion rental service’s efforts are working as it concluded its fiscal year on Jan. 31 with a 10% annual increase, reaching 126,712 active subscribers.

But the team at Rent the Runway is looking to do more, as evidenced by the firm’s recent addition of 11.4% to its subscriber base, bringing it to a record high of 141,205 active subscribers.

Building off that, the subscription service is now forecasting a 25% increase in total subscribers for the year, which would bring its active subscriber count to over 158,000 by the end of 2023.

Co-founder and CEO Jennifer Hyman said achieving the anticipated increase in subscriber base by the end of the year would result in an additional $20 million in cash to fuel expansion. She said the company would reach a break-even point for cash flow maintenance at 185,000 subscribers.

To make this happen, RTR is prioritizing its data-driven, three-pronged strategy for strategic growth, which involves enhancing the user experience. The first pillar of this strategy focuses on inventory and will involve investing $69 million to $72 million in rental products.

The second pillar aims to enhance the user experience by increasing site speed and creating personalized onboarding, while the third pillar focuses on improving product discovery, highlighted by the recent launch of “Rent the Look,” allowing subscribers to rent complete outfits.

Making Changes

Last month, Rent the Runway significantly changed its subscription programs by adding an item to every shipment at no additional cost. This change affects the majority of the platform’s users, as the eight-item subscription is the most popular. Through this effort, the company aims to increase customer loyalty by encouraging existing customers to rent more items, in line with the platform’s focus on rentals for everyday utility rather than just one-off events. Rent the Runway states that in 2022, 80% of its customers used the platform for everyday use cases.

“We’re seeing really nice momentum coming out of the extra item launch,” Hyman said. “And I think if you look beyond just the metrics, we’re seeing that the customer is excited, she’s engaging more, our traffic is up. She is excited about the fact that Rent the Runway is going to be delivering more value to her throughout the year and is focused on improving her experience.”

Since the introduction of the extra item program, Rent the Runway has observed an increase in loyalty, a decline in its pause rate and a return of customers who had previously churned out. Hyman said a significant portion of churn — roughly 55% — occurs within the first three months as customers familiarize themselves with the rental process.

In September, the company underwent significant back-end changes, including a 24 percent reduction in its corporate workforce and a decrease in annual operating costs by $25 million to $27 million.

According to Hyman, Rent the Runway’s strong financial standing and efficient infrastructure in 2023 allowed the company to concentrate its resources on enhancing the customer experience. Hyman emphasized that subscriber growth is essential for achieving profitability.

Rent the Runway’s net loss in Q4 has reduced year over year, with losses declining from $39.3 million to $26.2 million. In the same period, the company’s adjusted EBITDA turned positive at $7.1 million, a significant improvement from losses of $5.5 million in Q4 of the previous year. The company also surpassed analysts’ growth expectations of 17.4%, generating $75.4 million in revenue for the period.

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