Fashion trends can be fleeting, confusing, and highly subjective. Which is why Rent the Runway has always relied on hard data rather than stylistic influences to guide its operational strategy.
Launched in 2009 with the mission to democratize fashion, the online platform where people can buy or rent clothing has evolved significantly since its inception. Making those adaptations possible is the company’s heavy focus on data: customer data including style preference, size changes, or major life events; data from processing orders and repairing clothing in their warehouse; data from the in-house dry cleaning business the company has built up to be one of the largest in the country; data that goes back to the designers that informs of any improvements that can be made to the manufacturing; and the all-important data about how people are actually using the product.
All of that information has enabled Rent the Runway to adapt to major shifts not only the types of clothing people want or the designers they are seeking out, but the changes to the retail and e-commerce industries overall. The company, which went public in 2021, today works with hundreds of designers.
“Traditionally, if you run a fashion business, you might have the privilege – if you’re a great fashion business – to interact with your customer three to four times a year. We’re interacting with our customers on our app three to four times a week,” says Rent the Runway CEO and co-founder Jennifer Hyman, adding that the two-way discovery platform for designers and customers is among the company’s most valuable asset. “The link between us being able to be vertically integrated on the logistics and also be a true partner in terms of customer acquisition to our brand partners is data.”
Hyman joined us as part of Greylock’s Iconversations series to discuss the strategy behind the company’s data-driven, online marketplace where people can rent or buy clothing.
Hi, everyone. Welcome to Greylock’s “Iconversations.” I’m Reid Hoffman, general partner of Greylock.
Today, I’m thrilled to welcome Jennifer Hyman, the CEO and co-founder of Rent the Runway. Rent the Runway launched in 2009 with the mission to democratize fashion. Over the years, the company has evolved significantly, keeping up with the many major shifts to the retail and e-commerce industries overall.
From the rise of mobile and the increasingly outside influence of social media on shopping, to changes in consumer preferences from subscription models or in-person experiences, and, of course the multifaceted impact of the pandemic on shopping, Rent the Runway has continuously adapted. Rent the Runway went public in 2021 and today works with hundreds of designers. The company offers several different options for users to rent or buy clothing from high fashion to everyday wear. Along the way, the company has also built up one of the largest dry cleaning businesses in the country.
Throughout the Rent the Runway’s lifetime, Jennifer stood out for her quick decision-making, foresight and seriously bold tactics, which we will discuss in more detail. In many cases, her actions are those of a natural entrepreneur and leader. And all of this from someone who didn’t even set out to become an entrepreneur. Lots to discuss.
Jennifer, thanks so much for being here today.
Hi, Reid, how are you?
Good. It’s good to see you. So Rent the Runway is known for its adaptability, and for as long as the company’s been open for business, you’ve been constantly iterating and experimenting with new products. That’s been through several major tech transformations, shifts in consumer behavior, and economic conditions. We’re going to take a closer look at each stage, but where’s Rent the Runway at today? How do you define the business?
So at the simplest level, Rent the Runway rents designer clothing. We believe that not every article of clothing that you wear has to be something that you own forever. And we rent clothes in two ways: a-la-carte (so if you have a one off occasion, like you’re attending a wedding, or you’re going to a holiday party, you can come to Rent the Runway and rent a dress or accessories, just like you would rent a hotel reservation, a hotel room). And then we also offer a subscription to fashion, which you pay a monthly fee, you get a set number of items per month for that price point. And you have that kind of closet in the cloud on rotation. And what we’re trying to replace is we’re trying to replace the over 50% of the American closet that’s worn three times or less, and replace that with rental as opposed to ownership.
So the consumer value proposition is about providing this unlimited closet. But to actually provide an unlimited closet, we are in the business of receiving back millions of individual SKUs of clothing, restoring that clothing to perfect condition, and then turning it around to a new customer often with a zero-day turnaround time.
So what we’ve done is we’ve taken what is traditionally in the retail business, the biggest liability – which is inventory – and turned that into a long term asset that we monetize over three plus years at Rent the Runway. So that’s kind of the crux of our business model, but we are reliant on that business model on vertically integrated operations.
The second component of the business, which is not exactly understood from the forefront, is we are a discovery platform, not only for customers, but most importantly, for brands to discover new customers. So over the past few decades brands have been disrupted. I mentioned that 50% of the closet is worn three times or less. That’s because the primary way that we purchase clothing actually all over the world is via fast fashion or mass fashion. So fast fashion are businesses like Shein, like Zara, like H&M, Amazon Fashion, Target Fashion, any places that are convincing the consumer to buy high quantities at low cost.
So what we’re doing is we’re providing designer brands with the ability to access entirely new customers, give them an experience in that product, have them organically fall in love with that product. And a lot of them, almost 80% of them, convert into long term purchasers of that brand. So we’ve become one of the most powerful customer acquisition engines for the brands that we work with. So it’s really a two-sided platform that we’ve created.
Now, the link between us being able to be vertically integrated on the logistics end and us being able to be a true partner in terms of customer acquisition to our brand partners is data. And it’s the data that we are capturing every time that our customers are renting the runway, which our subscribers use us on average about 80 days of the year. It’s the data that we capture in our warehouses, as we actually process and repair the clothing that we’re able to deliver back to the brand so that they could improve the way they manufacture clothing in the first place. And it’s the data that we capture from our customers in terms of how they actually utilize the product.
Traditionally, if you run a fashion business, you might have the privilege (if you’re a great fashion business) to interact with your customer three to four times a year. We’re interacting with our customers on our app three to four times a week. She’s using us 80 days of the year. So it’s more of a utility for her than a fashion business traditionally is. And therefore we know a lot about her. We know when she gets pregnant, we know when she’s changed her job. We know when she’s changed her size or her style, we know what she’s doing this weekend. And that enables us to deliver great personalization to the user. But also it enables us to give important data back to our brands that helps them make more money.
One of the things [I want to discuss] before we kick off into some of the details, people naturally assume that everyone who becomes successful at entrepreneurship as you have been, is either like, “I grew up wanting to be an entrepreneur,” and like, “I love my product area.” Like in this case, it’d be, “I love fashion.” Neither of those are how you actually got here. So say a little bit about how you got here.
Well, oh my God, I’m in the camp of, I am super passionate about this vision that we have to disrupt the way that people get dressed and actually build out this unlimited closet in the cloud.
Now, why am I so passionate about this vision? I’m passionate because, A, I think that fashion is power. I think that how you choose to express yourself to the world is one of the first things that people see about you. How people are judged is so based on how they’re presenting themselves to the world and self-expression. I think that this industry has often been shut out from 99.9% of the population who couldn’t otherwise afford to express themselves the way they want. I think so much of female self-confidence is trapped up in self-expression and I think it’s ludicrous how much money we spend on this category when so much of it is being wasted.
It’s not only environmentally unsustainable, but this is really an industry that is financially unsustainable, where in order for brands or retailers to make money, they have to convince the consumer to irrationally purchase things that those consumers don’t need. Like that is insane.
And so many other businesses have evolved to the point where you have a choice. You have a choice in the world of mobility, of how you’re going to get from point A to point B. You don’t have to buy a car for every trip that you’re taking from point A to point B, you can Uber, you can bike ride, you can rent a car, you can Zipcar, you can share a car. Like when it comes to wearing clothes before Rent the Runway, you’ve really had one choice. And that one choice is buy something new and wear it forever, or you don’t get to use it.
And so I think that I had this vision for Rent the Runway. And the way that that vision came about is I’ve actually been someone who’s always had a pulse on major sociological kinds of trends that were happening. So I spent my time in college, as a journalist kind of observing what was going on in campus, what was changing, what was cool, what was interesting? How were those different changes affecting how we live? I also spent a lot of time thinking about women in particular, but also how millennials, which was kind of my generation, how they were experiencing the world differently.
So I remember my first job out of college was actually in the travel industry. I started working at Starwood Hotels right after September 11th. The hospitality industry had essentially just crashed because no one was traveling. And I started thinking about how younger people were going to value experiences over ownership, and that travel both for business and leisure was going to be a major part of how they wanted to spend their money and how the travel industry actually had to evolve to meet the needs of a consumer base that was completely changing. So this has always been like a part of me that I’ve been obsessed with observing other people and having a vision for how the world is changing.
Now, I didn’t actually ever think that that is what entrepreneurship is until I got to business school. You want to implement that idea, but my first experience of getting a taste of entrepreneurship was in this first job at Starwood, where I saw that – where I had a belief – that we were entering the experience economy, that people were getting married later, that they didn’t want pots and pans anymore when they got married and came up with this idea for the first honeymoon registry in the world where couples can register for their honeymoon and their friends and family could give them like a room night or a massage or a scuba diving trip and built basically a wedding business for Starwood over the three and a half years that I was there.
And what I loved about that was building something new in the process of building and creating. But what I also loved about it was I was some 22-year-old person who, no one reported to me. And I had to influence a team of hundreds of people around me to A, believe in this vision enough to want to spend their time working on this, because none of them were [inaudible 00:12:34] against this and B, to like me enough to give me the time of day to actually make this happen. Because even if I had the idea and my boss had given me the funding, both of which were true, I couldn’t do this on my own. I needed a huge team. And I think that the process of building and the process of actually creating a team and at that time, that team didn’t report to me. So it was a team via influence, versus a team via authority.
Those two things became seeds of when I connected, “Oh, what I really like to do is entrepreneurial things.”
"So much of female self-confidence is trapped up in self-expression and I think it's ludicrous how much money we spend on this category when so much of it is being wasted. It's not only environmentally unsustainable, but this is really an industry that is financially unsustainable."
Well, it was, actually in fact, I think, most, one of the ways to think about entrepreneurship is that it’s kind of a form of predictive anthropology, like your background and studying people and being a journalist.
Talk a little bit about the co-founder dynamics between you and Jenny and how you kind of fastened on the idea and then launched.
Yeah. So I had this idea with my sister over Thanksgiving break in 2008. I was at HBS at the time, came back to HBS on Monday, had lunch with Jenny who was a close friend of mine in my section, we always used to talk about entrepreneurial ideas. So this was not the first idea that I had pitched to Jenny. But when I pitched this idea to Jenny, she was like, “This sounds fun. Let’s just start working on it.” And both of us were just kind of galvanized around this because it was a problem both of us had – like we were solving our own personal problem.
And so we had enough gumption that day to send a cold email to DVF, who’s a famous fashion designer. And that really got the ball rolling.
Now, in reality, when I look back on this dynamic with Jenny, I think there’s a lot of things that Jenny and I have in common that made us great co-founders and there’s a lot of things that were very complimentary about our relationship.
Now, what is essential, I think for a co-founder relationship is that you actually like each other, that you actually have fun with one another, because this is a lifelong pursuit. One of the things about Jenny and I is we’re both very fast-paced. We’re both very ambitious and aggressive and we both are problem solvers. We’re both always trying to take the hard problem and break it up into steps and think about how we can find some scrappy solution that gives us more data and information.
Now how we were very different is, I’m certainly much more of the visionary, much more of the strategist, much more of the team builder, more of the person who both understood the two customers we had, which were customers, women, who we wanted them to rent clothes. And then of course the brands who became customers of Rent the Runway. I think Jenny was very much like “How do we actually go from zero to one and operate this thing? So how do we set up our first warehouse in the scrappiest way possible? How do we set up the first kind of QuickBooks for Rent the Runway and figure out what we’re spending and what the financial model of the business is going to be?” And so in every component of making it happen on the back end of the business, she was one of the best people I’ve ever seen in moving from zero to one and making sure that we were being very quick and smart in how we used our resources.
One of the things that people constantly say in business is listen to your customer, and obviously listen to your individual customer where she goes, “look, I would actually like to have some variability. I’d like to not have the expense.” And kind of dealing with these questions about buying something, or buying it and returning it and so forth, that makes a huge amount of sense. But your initial feedback from brands was, I think, maybe something equivalent to “Hell, no,” right?
Say something a little bit about how you listen to them and then how you ended up getting them to realize that this was a much better value proposition for them, and how actually engaging here was a great future for them.
Yeah. So first things first, you have to understand the dynamics of the industry that you are trying to break into and you have to respect those dynamics. So most people, when you decide to work in fashion, you are working in fashion for your entire career. Those people are obsessed with fashion, with the art of fashion. It is a very relationship-oriented business in every way possible. So this is an industry where it’s still based on a handshake. Someone can get blackballed from the entire industry. If they do something wrong, the industry has a very, very long memory. So you realize here that if you enter this industry in the wrong way, you will never have the trust of any of the brands. How you treat those initial partners and doing right by those initial partners is either going to give you massive permission with everyone to become their partner, or you will get shut off.
So I think that first and foremost, I understood the industry. Now, how did I understand the industry (because I had never worked in fashion)? Well, I started meeting with people in the industry. I cold-called them. I asked them to meet with me and I listened to them. I asked for their advice. I actually, then at the end of every meeting I would have, asked them to introduce me to two or three other people that I should also get to know. I also didn’t limit myself to meeting with CEOs. Sometimes the most senior person is not actually going to be the person who is going to provide you the real deal on how this brand or how this industry functions and what’s f’d up about it and what’s great about it.
And we basically had this philosophy at the very beginning of Rent the Runway to never turn down a meeting. I think that we probably ended up meeting with 500 to a 1,000, customers, real women, before we launched Rent the Runway. But we also probably met with hundreds of people who worked in every aspect of the fashion industry as well.
Now at a certain point, those listening conversations kind of turn into sales-related conversations because you quickly figure out, “Okay, my place in this industry and the value that I’m going to bring is going to be in customer acquisition. I know that this is a problem that these brands all have, their wholesale accounts are going bankrupt or closing. Their customer is aging. They have competition from fast fashion, who’s stealing away younger customers.” So then you’re quickly turning the non-threatening listening session into a little bit more of a relationship-building sales conversation.
Third aspect, never expect that the sale is going to happen overnight. So these were kind of a long term relationship-building process that I knew (in an industry that is based on trust) that I needed to build trust and trust is not built in this industry overnight. So how do you build trust if you don’t have a reputation in the industry? Well, it’s very simple. You do what you say you’re going to do. And you demonstrate that you were going to do that over and over and over again.
So I would have an initial meeting with someone. It would be my first conversation with them, and they would have no interest. I would not be pitching them on Rent the Runway at this point, but in that first conversation with them, I want them to trust me as a human being. And so I would say, “You know what, the next time we meet, I’m going to give you some information about X,” and then I would actually follow up and come back and give them information about X, even if they had not asked me. It’s almost like you have to create a reason for that second follow up. In the same way, I’m sure, Reid, people do this with you. Like people want just more interactions with you. So they’re almost creating a reason for the second date and the third date. That’s what I had to do. I had to get them to want to spend more time with me so that more trust could be built so that we could actually eventually partner on Rent the Runway.
Now, one of the things that I’m proudest of is, it’s now 13 years later, we have partnered with 800 brands. We have a 100% retention of those brand relationships. Every single brand that we have ever partnered with has continued to want to partner with us. This is in an industry where the average brand turns over about 25% of their distribution every single year. So it is extremely unusual to have this kind of loyalty with your brand partners. And I think that’s because we actually are delivering value to these brands. And as a result, we’ve really been able to innovate with them over time.
"How do you build trust if you don't have a reputation in the industry? Well, it's very simple. You do what you say you're going to do. And you demonstrate that you are going to do that over and over and over again."
As you scaled, what were some of the key junctures and changes?
Yeah. So like on the customer journey, the original vision for Rent the Runway was always about building this closet in the cloud. And it was always about providing women with unlimited access to whatever they wanted to wear whenever they wanted to wear it. I really believed that vision was too big for 2009 when we launched the company and that we were still in a phase where no one rented clothes, where wearing clothing that other people had worn before was considered disgusting, where brands thought that I could potentially cannibalize all their sales.
So I needed to start with a product where the customer value proposition was just simple and made sense. And the brand value proposition was really simple and made sense: rent a dress for a special occasion. And the reason why it made sense for customers is because every single woman has been invited to some party, some to be a bridesmaid, to some gala where she bought a dress she knew she was only going to wear once.
And on the brand side, it made sense because dresses have always been a negative margin category for brands because women have actually been renting the runway for decades. They’ve been buying dresses, keeping the tags on, and then returning those dresses. So it was really easy to kind of start there, learn, get not only product-market-fit with the customer, but product-market-fit with the brand partners. Actually, building a reservation system around renting clothes is far harder to do operationally than the subscription side of the business. And so we actually had to build the hardest logistics, we had to solve the hardest logistics challenges first, which ended up being very good. And then from there, I think the next evolution was moving into subscriptions.
So we heard from our customers that they wanted to rent clothes more than just for Friday or Saturday nights. And the most important use case that they wanted to rent clothes for was work because they wanted to show up at the office looking and feeling great and dressing for the job they wanted to have. And so initially we launched a subscription product that was one-size-fits-all product, one price, unlimited shipments, simple, and it was only really around special occasion wear and work wear. What ended up happening was over the next few years, that product took off and had much higher engagement than we ever could have anticipated. So in 2016, customers were using that product about 40 days of the year. By 2019, they were using that product over 80 days of the year. And because it was a one-size-fits-all product, the more she used it, great, because she was very happy, but also the more she used it, the more it reduced our gross margins.
So we had to evolve the product to be one, a set of subscription programs that the customer was paying for their usage and could personalize from there. So now you’re entering into a program where you are paying for eight items a month and you’re capped at two shipments a month. And you can decide that you want to have more shipments or have more items, but you’re paying for those additional items or shipments. As we saw some increased engagement, so we had to change the dynamics of the subscription program so that we could kind of double the contribution margins of the business.
What are some of the key things about moving into the data company? How does that inform your business and what would be some of what you think are the key lessons or takeaways that you’ve done by building an obsessively data-driven company?
So I think first you have to realize in your business, what are the metrics through which you actually make money? So in my business, it’s actually really simple. I make money off of my inventory and I make money off of my customers. I need my dresses or blouses or jeans that I have on my platform to turn as many times as possible. And I need my customers to stay with me as long as possible.
Now in a world without data – let’s talk about clothing first – you could clean an article of clothing five or six times before it starts looking a little worn and I needed to dramatically up the utility of all of those items so that I could turn items dozens of times. And so I actually needed to capture data on how items basically decayed over time and how I could actually preserve those items in like new condition for as long as possible.
So that was kind of a real financial use case for data. And I realized this through capturing data from my customers (because we required all of our customers to give us data every single time they returned an item to Rent the Runway) and also capturing data in our warehouses. You learn that most inventory damage actually does not come from customer usage, which is the myth, right? Like every investor at the early days of Rent the Runway was like, “Well, what happens when all these sorority girls go out and they stain the dresses and they come back in disrepair?” Well, we learned through the data that actually that’s not a problem. The problem is all of the corrosive chemicals that are used in a cleaning process, whether you’re cleaning something in a washing machine at home or your dry cleaning it, that’s really what leads to inventory longevity.
So that was kind of a clear use case of data. And now it’s turned out that we can turn units upwards of 20 times a unit and actually many cohorts, much more than that. And that helps us to have very high ROI on our inventory.
On the customer front, we understood that customer loyalty was going to be how we made money and we needed to understand a lot about the customer and kind of matching the customer with the inventory that’s going to keep her loyal. Through focusing data on this area, we’ve been able to disprove, I think, a lot of the biggest myths in the fashion industry and that’s been to our advantage as well.
I think that when you’re building a data organization, [you have to ask] what is that data organization actually going to do? So it’s not data for data itself – like there’s a financial use case for why you would actually want to build data algorithms as it relates to personalization. Not every business needs personalization. Our business actually does need personalization because it ups her engagement, because it ups the long tail of inventory that we’re able to put in front of the customer to up ROI.
As we were building the organization, the other thing that informed the data organization was I spent a lot of time with the founding team of Netflix in the early days of Rent the Runway. And I learned a lot about how they use data as it relates to their queue to give people. And this was in the days before they were a digital business, when they were sending out physical DVDs, how they actually utilize data to understand, “Ok, what items should I give to this customer so that they stay with me longer?” And then I just learned from other businesses that do a similar thing, but in a different industry. You are able to mimic the very best of other businesses.
Yep. Those are some of the great things.
Last, little data question, just because I have curiosity about this. Is there anything on the data side that you’ve noticed that’s been surprising on the self-expression side?
Well, I think that when you give women the freedom to actually wear what they want without having to make all of those rational decisions of, “Is it worth it? How many times am I actually going to wear this? Will this go out of style?” When you remove the rationality, women are much more willing to make bold choices than they would’ve before. They literally dress and want to live in color. They want to live in a world where variety is the name of the game in the sense that they want to express themselves one way today and tomorrow they want to express themselves another way. And it really has shown me that we’ve really been living in a box before this because the rationality behind, “You know what, I really love this dress, but yellow doesn’t make sense to own. I’m just going to buy it in black.”
We’ve always kind of been cutting ourselves down and therefore not fully able to express ourselves the way that we want.
So one of the interesting things is I found that Rent the Runway not only is providing like a smarter, more efficient way for people to get dressed, but it is changing our customer’s relationship with fashion where people who use Rent the Runway end up loving fashion more in the same way that people who have a subscription to Spotify end up deepening their love of music because they come in like liking one or two genres of music and then they realize, “you know what? I want to make music an omnipresent part of my life.”
And so that’s what we’re doing with customers as well. So I think that there’s so many halo effects to the business that have really been rewarding.
Yep. I think that’s very insightful and makes total sense with my kind of theory of human nature and how we fit within tribes and packs in some way.
So let’s go at a different angle. One of the things I think you guys have also innovated very well on is that most often tech companies are considered to be, broadly speaking, trying to kind of commodify their employees, maybe not engineers, but other folks.
And one of the things that you did in 2018 was that you announced that all employees would receive the same benefits regardless of income level. Say a little bit about the kind of the realization that got you there, the management philosophy, and how this is an important lens that many other companies that might also be employing thousands of people might also approach.
So Rent the Runway has two types of employees. We have salaried employees who are the people that are our engineers, or our merchandisers, our data scientists. And then we have a lot of hourly employees, and actually, the hourly employees outnumber the salaried employees. Those hourly employees are the folks that work in our warehouses. They work on our customer service team. And it became kind of abundantly clear to me that we were treating our hourly employees entirely differently than our salaried employees. There were different policies.
For example, we had a sabbatical policy for salaried employees. We didn’t have one for hourly employees. We didn’t have bereavement leave. We didn’t have paid family sick leave. And we made a decision that to have differentiated benefits essentially is stating that you think that the salaried employees lives are more important than the hourly employees lives. And that was just not our belief set or our intention at all. We thought we were living in a world where we’re already distinguishing between someone’s importance to the company based on their salary. We didn’t have to distinguish between the importance of their humanity.
So we equalized all of our benefits throughout the company across job type, across gender. So men who work in my warehouse get the same parental leave that I do. And we found that having this kind of equalization of benefits led to higher employee loyalty, employee happiness levels, really feeling like the company was doing the right thing, protecting you.
Interestingly, it positively impacted salaried employees in some cases more than the hourly employees. The hourly employees, I remember announcing this in the warehouses, and I think that there was a lot of shock and disbelief for a while. It took them probably a year to realize that they can really take these benefits. So when I announced it they were happy, but it was like a soft clap. This is because they’d never been treated that way before in their lives at any company. So there was a huge amount of resistance. When we announced this to the salaried employees, [it was one of those moments where] you realize the types of people that are drawn to and work at VC backed tech companies, like this was something that really created pride and allegiance in the employee base.
Yep. No, it makes total sense. And I think it’s a good lantern model, a lens for others to think about as well, because our companies are defined by kind of the talent and the energy and the belief in the mission and the belief in kind of like what we’re doing in the world. And I think that’s a really important thing to do as part of it. Let’s talk a little bit about leadership and how your beliefs impact it.
I think every company has an ability to really live their own values. And I remember that one of the things that inspired me to do this. I had always looked up to Marc Benioff and really considered him one of my business heroes from afar. And I remember that when Indiana was restricting rights for LGBTQIA individuals, Marc Benioff took a stand and he was like, “You know what? If you do that, I’m going to move our company’s offices out of Indiana.”
And you realize that even though Salesforce didn’t even have that many employees in Indiana, the fact that he was going to stand up and do that… I want to be a leader like that. And even if it’s in a small pond that you’re in, I think that it really does make a difference.
Yep. I 100% agree.
You’re one of the well-known, highly successful women founders and leaders. And obviously we’re having a good and robust conversation about what we need to be doing about having diversity amongst our leaders. Where do you think (in the business world), we are on the topic of being smart about gender and inclusiveness?And what’s working and what’s not working? What do we need to improve?
So I think that we are in the exact same place that we were in 13 years ago when I came into the industry. It’s still the case that only 2% of funding goes to women and that metric hasn’t changed. So I think what’s so interesting is that the media has painted this whole picture over the last decade as if we were in some glory days or heyday as it relates to female CEOs and female founders. But the data doesn’t actually tell that story.
So as a data-driven founder, I’ve always felt like it’s anomalous when women get funded and when they certainly receive funding over multiple rounds, where people continue to believe in them. Because the thing about entrepreneurship is you need long-term believers. A seed round, or a seed check is one thing, but someone who really believes that you have what it takes… I think until you’re really at a series C, people are betting on the person. They’re not necessarily betting as much on the concept. And we need to have as much belief that female founders are going to be able to take their businesses to the finish line and build successful businesses and continue to invest in them.
So I’m very appreciative and very lucky that I was able to raise a few hundred million dollars before we IPOed. But I was only able to raise a few hundred million dollars. I was not able to raise billions of dollars. We’re operating in an industry that is a $270 billion industry in the U.S. alone. It’s a big industry. And if you think about other disruptive companies in this sharing economy space, whether it’s an Uber or a Lyft or an Airbnb or a Spotify or a Peloton or a Netflix, all of those businesses received prior to IPO, 10 to 50X, the amount of funding that Rent the Runway has received to disrupt the industry.
So what that means is that if you have more money, you can make very different decisions. You can hire better people from the very get go. Those better people that you hire are going to come in. And maybe some of those people have been there, done that before. So they are able to get you to the next phase quicker. You’re able to make bigger mistakes and more mistakes, because you have more chances up at bat, you’re able to spend money on acquiring customers and actually buy growth.
I think the very best companies in the country right now are run by the best leaders. [For example] Tony from DoorDash, you think about how right now, their business is printing cash, but it took a huge amount of investment and a huge amount of loss leading to actually build the marketplace to now get there.
So I think a lot of the time women are operating on such a tight, tight rope that of course they’re going to fail, because they’re set up to fail from the very beginning. Because they don’t have the kind of capital that they need to bring the business to the right place. I would say that the biggest problem that Rent the Runway has had over the past decade is being capital constrained, especially in a business that is capital intensive. We have to have clothing in order to make money. We have to set up the reverse logistics and actually have an operation. So this wasn’t a business where it was just about software. And of course we had to build a lot of software because the software didn’t exist on the shelf. So we needed a lot of expensive engineers to do that. This is systemically beyond more money.
And I do think that more diverse teams at VC firms lead to more diverse founders being funded, especially when that happens at the pinnacle. You need to have the Greylocks and Sequoias and Andreessens; the firms that have the most prestige. Those have to be the firms that are most diverse, that invest in diverse founders because everyone else is just going to be a follower.
So I think even in VC, there are people that are followed. People like you have outsize influence, Reid. So it really matters what you do. I think from a founder perspective, I very early on decided the only thing that I want to do is keep moving, keep my head down, keep building my business, put one foot in front of the other, not spend my time thinking about, “Oh, I wish I could have had more funding. Oh, I wish…” It’s like, I’m just going to be as scrappy as possible. Be as aggressive as possible. Build my business. Hopefully bring my business to as big of an outcome as I can and be grateful that I’m here because there’s nothing else that I can do about it, beyond just having all the work ethic and doing whatever I can.
"The thing about entrepreneurship is you need long-term believers. And we need to have as much belief that female founders are going to be able to take their businesses to the finish line and continue to invest in them."
Well, pragmatism, the grit, and the drive are part of what make you a really great entrepreneur. You have built a great business today. You’ve also been building a great business as you get into the pandemic. The pandemic is naturally a high-impact, gale-force hurricane storm for your business. Say a little bit about how you encountered it and how you navigated it.
Yeah. So the pandemic was the worst thing that could have ever happened to Rent the Runway because my business is based on people leaving their homes. If you don’t leave your house, you do not care about what you look like. And you certainly don’t care about what you’re wearing and you don’t need variety in your wardrobe. So the whole kind of thesis behind why people would Rent the Runway just died very quickly over COVID. And so we had much lower demand. You couldn’t actually manufacture the demand. That was what was so sad. It was like, I couldn’t even give the product away for free over periods of COVID where we were sheltered at home because people just didn’t care. They’re like,”I’m in my pajamas.”
And like, that’s cool. And by the way, I was in my pajamas. As the founder of this business, someone with access to my closet in the cloud, like I was wearing pajamas, so it was bad.
So we had to cut an enormous amount of cost. We had to restructure aspects of the business, We were able to focus the majority of the pandemic on who we wanted to be when we came out of the pandemic – because I had a set of beliefs of how the world might actually be even more conducive to Rent the Runway when we came out of the pandemic; that people had actually been trapped in their homes for two years, staring at all the stuff they had purchased that really, they didn’t need and they didn’t use. Like maybe that would incentivize even more people to consider renting clothes and having a subscription to clothing. Maybe people would value experiences even more because you weren’t able to have any over that two year period. You’d want to travel more. You’d want to date more, you’d want to go to more parties. If someone invited you to something you probably weren’t going to say no.
So all of those things have proven to be things that have really helped us recover. And we were able to make a huge amount of financial changes to the business and strategic changes to the business that enabled us not only to recover and have more revenue than we had in 2019, but to be generating that revenue at much higher margins and at a lower cost structure.
Part of it obviously was to survive the storm, right? Because demand evaporates, there’s simply no demand, exactly as you mentioned. Was there anything other than like, “Look, okay, survive and get yourself to the right strength for when the market returns?”
I mean, I think that you’ve got to keep your team. And no one who’s very smart wants to play to survive. People want to play to win. And so even though we were in the mode of deep survival, I had to simultaneously inspire the team around how we were going to use this time to transform and how we could turn the lemons of Covid into lemonade.
An example of that is how we had very few shipments going through our facilities during Covid. Prior to Covid, we didn’t even have a minute to think about how to change the processes in our warehouses to make them more efficient. Now we had all the time in the world to add automation into the warehouses, to add even more data and even more technology to change the process flow in the facilities, to make them more efficient. And we’ve been able to reduce our labor costs in the facilities as a result by 30% from pre-Covid to now because of those opportunities that we were able to seize.
So I think that even in difficult times, you cannot just focus on the here and now. You have to provide the vision for where we are going and why you should continue to be excited, why you should continue to believe even if today’s circumstances are difficult.
And in terms of the return of the demand, the return of the consumer, are there any patterns?
I mean, everything is very different from 2019. I could actually have a full podcast with you about how we can use fashion data to predict how consumers are living their lives completely differently now.
First of all, social life is a much more important part of people’s lives now than it ever was before. So all aspects of social life from going out to dinner, to going on a date, to going to a party, to going on vacation. I think that this recession is going to look a hell of a lot different than the recession in 2008, 2009.
So for example, I’ve continued to double down on my Airbnb stock because I don’t think that people are going to stop traveling. I think that dating is going to be on fire, people are going to continue to go to restaurants, they might trade down to restaurants that are less expensive, but their social lives are the center of their lives and their focus. And I’m not just talking about people in their ’20s. I’m talking about [the fact that] Covid created a mindset shift for everyone where they’re like, “What am I living for, if not for the relationships that I have and me being able to live my life and have fun, et cetera?”
My business prior to Covid very simply was 50% of the use case was about work and 50% was about social life. Right now, a little bit less than 25% of the use case is about work. And all the rest of it is about all forms of social life. Now going skiing is part of social life and going on a beach trip is part of social life, but it’s crazy that we’ve been able to recover to above 2019 levels without work being a bigger part of the business.
Now work is a whole other category of change. I don’t know how it’s going to shake out, because I think in this recession, a lot of CEOs are going to be demanding that people come back to offices this fall, which could be great for Rent the Runway. But in the meantime work wear is completely different than it was in 2019. And it’s not completely different in that everyone’s just wearing a T-shirt and jeans. So it’s not casualized in the way that you might stereotype. What it is there’s not as much of a bifurcation between work and life now.
People are like, “Hey, we were just on Zoom for two years. And you saw me with my kids and you saw me with my dog and like, we’re good. So now I can wear the things I want to wear to work. I don’t have to dress the way I think you want me to dress. Like I can be more self-expressive. I could wear something to work that I therefore am able to wear out to dinner afterwards.”
And that’s created more freedom around what work wear really means. So the work wear of the past is dead. There’s an entirely new form of work wear that we’re seeing in our business. And I do hope that people go back to offices
Well, we only have a couple minutes left. So that’s a great segue to our final question, which is what is the path forward for Rent the Runway? What will the next couple years look like?
So the next couple of years for Rent the Runway are about getting the business to profitability. And not only bringing the business to profitability on a break-even basis, but really proving to the world what the true EBITA margins of this business are over time, how we can build a long term sustainable company. I think that after everything that I’ve gone through over the last 12 or 13 years, I will do anything and everything to prove out the business model that I know is a great one to the world.
So as the world continues to change in front of us, we’re going to continue to be nimble and stay on our toes and not be locked in, necessarily, the cost structure that we have today and not be locked into experimenting with new things. Because what we do know is that women love renting clothes, and that women love this subscription to fashion. And this will be much bigger in the future than it is today.
But I just want to say one thing to all of your founders who might be watching this: Covid was my recession. This was a period of time for Rent the Runway where things were incredibly difficult. And what I would say to anyone who now is starting to see, or starting to go through your own recession, is to live in reality.
Well, thank you definitely for the wake up call among other things. We’re at the end of our time. Jennifer, as always. Thank you so much for joining us today.
Thank you so much. I enjoyed it.