As consumers increasingly prioritize mindful consumption across various facets of their lives, rentals have emerged as a popular means of accessing new styles without the burden of commitment and excessive consumption of items that might only be used once or twice. This mindset has proven advantageous for Rent the Runway. However, when there is a surge in demand for a service, it becomes crucial to effectively meet that demand — a challenge the rental service company struggled with in the current quarter.
“We learned a lot in Q2 about the criticality of inventory depth to the customer experience,” said cofounder and CEO Jennifer Hyman during the company’s second quarter investor conference with analysts on Friday (Sept 8).
During the call, Hyman highlighted the inventory depth and its impact on the business. In the second quarter, the company recognized the significance of maintaining a robust inventory to enhance the customer experience. Despite beginning the quarter with a record number of subscribers and the introduction of extra item plans in April, there was an issue with inventory depth, particularly in new styles. This resulted in a 17% decrease in in-season in-stock rates compared to the same period in the previous year.
Furthermore, the inventory depth problem had been the primary factor contributing to lower early-term subscriber retention and, consequently, a reduction in active subscriber counts.
It’s worth highlighting that Rent the Runway had transitioned from unlimited swap programs to fixed swap plans in 2021 and had been operating under more typical conditions in 2022, as customers returned to offices and attended events. In response, the company shifted its strategy from breadth to depth in the fixed swap programs, with inventory availability becoming a central strategic focus for 2023.
Central to that strategy was a significant investment in expanding the range of styles and brands that customers desired, ensuring a higher level of in-stock availability. Building on the lessons learned in 2022, Rent the Runway adjusted its buying approach for Q3 and Q4 of 2023, placing a greater emphasis on depth. This adjustment was reflected in the fall 2023 assortment.
Although Rent the Runway had initially expected the customer impact to synchronize with this timeline, an unexpected delay in the customer experience occurred because of the time gap between inventory purchase and its availability on the website.
“In a fashion rental business, availability changes moment to moment, and we have observed that new customers are more likely to be disappointed by lower in-stock rates because they expect to see the items they got excited about while browsing as a prospect,” said Hyman.
However, Hyman believes that this issue is temporary in nature. The inventory depth for the second half of 2023 is expected to be approximately 1.7 times greater than the first half of the year. This increase in depth is projected to boost in-stock rates significantly, by 700 to 1,000 basis points, offering a more consistent and satisfying experience to customers.
Hyman notes that retention among long-time customers remains strong, as they have come to trust that items they desire will become available for rent in due course. Rent the Runway remains committed to addressing these challenges and enhancing the overall customer experience.
Rent the Runway by the numbers
In the second quarter of 2023, Rent the Runway reported revenue slightly decreased by 1.0% to $75.7 million, the company experienced significant subscriber growth. Ending active subscribers increased by 11% to 137,566, with average active subscribers growing by 9% to 141,393. Total subscribers also rose by 6% to 184,389.
The company improved profitability, with a 2.5% increase in gross profit to $33.2 million and a gross margin of 43.9%. Additionally, Rent the Runway reduced its net loss to $(26.8) million, with net loss as a percentage of revenue decreasing to (35.4)%.
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