Gone are the days when you could justify buying an expensive outfit because you will be “putting it to good use.” Thanks to our society’s shifting culture and the widespread use of Instagram and Facebook, individuals are now facing a difficult decision when deciding what to wear.
Why? Well, there are two main reasons. The first is our culture’s growing dependence on celebrity endorsements that Britney discussed in her presentation last week. Especially in today’s society, we value celebrity’s opinions even more than in the past, which often inspires us to make the most expensive (and often out of our price range) shopping decisions. Because we are so connected to our idols, we often take every recommendation to heart, and purchase a product just because they endorse it. It’s safe to say that “our culture is educating an entire population of people to aspire to a lifestyle that 99% of us can’t afford.” –Jennifer Hyman (Founder of Rent the Runway)
While this celebrity reliance is not something new, the addition of Facebook, Instagram and other social media platforms into the mix, has made these often high-priced purchases no longer worth the investment. The widespread idea that you should never wear an outfit twice has become extremely difficult to follow, thanks to living our life on a digital platform. Take a $300 dress for example. Prior to social media, you could wear the same outfit to well over 20 events with little to no one knowing. Today, if you post one picture in your outfit on Instagram, users no longer want to wear it again because their followers already saw them in it.
Because of this, individuals are stuck in a lose-lose situation: they are encouraged to buy the brand they can’t afford, and they feel as though they cannot wear it more than once. With societal trends moving faster than ever, consumers are increasingly likely to feel that they have nothing to wear, despite their growing closets and declining bank accounts.
It was this very issue that inspired Jennifer Hyman and Jennifer Fleiss, founders of the company Rent the Runway, to establish what some call “a Netflix for Dresses.” As both graduates of Harvard Business school, the two founders brought together both of the aforementioned issues, with the prominence of the sharing economy, to grow Rent the Runway to be valued at an estimated worth of $600 million dollars.
Starting in 2009, Rent the Runway began as an online company offering high-end pieces of clothing at a portion of the cost. Rather than a typical online or retail store, where consumers pay an usually high price to own a piece of clothing, Rent the Runway customers pay a significantly lower rental fee, and send back their clothing after they wear it to an event.
The typical process goes like this. Users are able to sort through a variety of trends, designers and occasions, select the size (and a backup size) that they need, and specify a timeframe that they want their outfit for. Once selected, they are recommended additional items to purchase or rent, (such as jewelry, makeup or hair accessories) that the company believes would go with their desired look. On the weekend of their event, Rent the Runway ships their outfit from their distribution center in New Jersey to the consumer. The individual then wears the outfit, that may be valued at over $1,100 dollars retail, for a very low rental fee. Once the event is over, they ship it back with no cleaning necessary.
Now, you may be wondering: how are users able to know how they will look on the day of their event if the dress only comes two days before? Or even, what provides the trust that is essential to a sharing economy centered company? This is where customer reviews come in. Rent the Runway’s customer reviews go further than the typical company, offering customers a detailed platform to share their experience with other users. After wearing an outfit, users are prompted to post pictures, information about their body-type, as well as details about how the dress made them feel. They are given a rating scale of 1-5 stars, and are able to highlight any faults, if any, in the piece(s) of clothing that they wore.
See the figure below for an example. With details such as her height, weight and body type available, users are able to compare her size with their own in order to best determine whether this outfit would be right for them.
In addition to this, Rent the Runway also offers a 100% fit guarantee, which includes a complimentary backup size and style option- making individuals even more secure in their purchase. And if this isn’t enough, they recently expanded their business model with a partnership with Neiman Marcus, and the establishment of five Rent the Runway store fronts in NYC, Chicago, LA, San Francisco and DC. At these storefronts, users can browse through same-day rentals, book personalized style appointments, and most importantly run into a store if the dress they ordered doesn’t fit like they thought it would.
In addition to the recent addition of these storefronts, Rent the Runway recently created a new subscription option to their business model, allowing women to borrow not only clothing for special occasions, but also for their everyday lives. For a fee of $159 dollars a month, users are able to rent an unlimited amount of items to keep their closets filled with the newest styles and trends. While a subscriber can only hold four pieces at a time, once a new piece is returned, a new one can be shipped.
Now you may question, like I had, which consumer would pay the high fee of $159 a month for this, but CEO Jennifer Hyman knows her company’s target market and value proposition, and it’s much stronger than you may think.
The average subscriber of Rent the Runway’s Unlimited service is between the ages of 18-42 years old, and has an average income of 100,000 dollars per year. This market is composed of over 15 million women in the United States, and there is only room to grow, as the cost for the monthly service will only decrease with increasing economies of scale. Rent the Runway has calculated that on average, an Unlimited Subscriber receives $40-50,000 worth of product for 1,600 dollars a year- a 96.8% savings that makes this service extremely appealing.
In an interview with Jennifer Hyman, she highlighted the inefficiency behind today’s typical storefronts. Because of the rise of what is called “fast-fashion” a typical store works on a three month rotation: it brings in new inventory, holds it for three months, and then puts it on sale to make room for new products. While this model meets the consumer’s demand for new products, it’s highly inefficient since “consumers care (more) about something being new to them, not necessarily to the market.” Consumers now preference discounted, short-term pieces, rather than long term, more expensive options: exactly why Rent the Runway’s business model is extremely appealing.
After looking into Rent the Runway in great detail for this blog post, I am very impressed by the amount of research that the company has done in configuring their business model. Since I haven’t highlighted every aspect of their business in this blog post, I encourage you to read this interview, for more information. From this interview alone, I can see why both Jennifer Hyman and Jennifer Fleiss were listed as a two of the Eight Women Entrepreneurs to watch by Forbes’s in 2016. In addition, this article highlights how designers can benefit from the amount of data that Rent the Runway collects on a daily basis.
Rent the Runway is one of the first clothing companies to utilize the sharing economy in their business model. In my opinion, it is not long before I envision expensive retailers, such as Bloomingdales and Saks Fifth Avenue, adding similar clothing sharing options to their operations. Where do you think the future of fashion is heading?