The last decade has seen a vast increase in the number of companies that have never made more money than they’ve spent. Companies like Uber and Airbnb swelled to billion-dollar valuations without ever seeing a profit. But now, the era of low interest rates is over and companies are scrambling for profitability.
Nuuly, the fashion rental service owned by Urban Outfitters parent company URBN, has managed to become profitable. The company reported late on Tuesday that it achieved its first profitable quarter in the third quarter of this year. While cost-cutting played a factor in the achievement, it was primarily driven by its large increase in revenue. Revenue was up 86% from the same quarter last year to reach $65 million. The number of subscribers to Nuuly — a Rent the Runway competitor — increased by 38,000, bringing the total to just under 200,000 active subscribers.
Nuuly’s service costs around $98 a month, letting users rent six items during that period. Customers can pick from over 17,000 products from 400 brands. The company bragged that Nuuly is not only acquiring new customers, but it’s also introducing people to the concept of rental for the first time. Over 65% of Nuuly subscribers have never rented before, according to the company.
Many competitors in the rental and resale spaces have been working toward profitability but have so far missed the mark. Rent the Runway still isn’t profitable despite having a 10-year headstart on Nuuly. The RealReal has been in a desperate scramble in the last year to achieve profitability, going as far as laying off employees, cutting costs and cutting unprofitable categories like home goods.
So how did Nuuly achieve what others haven’t? In a statement, Nuuly president David Hayne said that Nuuly has benefited greatly from word-of-mouth to reach the milestone of 200,000 subscribers, a goal that the company established earlier this year.
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“We often hear from new subscribers that they first learned about Nuuly from their friends or family. After a month or two of renting from us, they then become vocal advocates for renting and go on to tell all their friends about Nuuly,” Hayne said. “It is this viral word-of-mouth, paired with an attractive value proposition and strong execution, that has helped us grow quickly in our first few years of business.”
Nuuly’s profitability also comes at a time when luxury spending is on the decline. Companies like Saks Fifth Avenue and Kering are struggling with the declining demand for luxury goods. Rent the Runway and The RealReal rely on luxury sales, while Nuuly does not.
There’s also the matter of costs. A Nuuly subscription costs almost the same as Rent the Runway, which charges $100 per month for 10 items at up to $3,000 in value. While the customer may get a better deal, Nuuly’s cost structure is more favorable to the company’s bottom line, thanks to stocking non-luxury brands like Levi’s and Urban Outfitters. A $100 garment on Nuuly needs to be rented a fewer number of times for it to be paid off than a $1,000 garment on another platform at a similar price.
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Ben Hemminger, CEO of the profitable luxury resale company Fashionphile, said companies founded with profitability in mind from the beginning have it easier than others. Nuuly was created in 2019 with the goal of reaching profitability in its first few years as one of its pillars. Meanwhile, many startups that came up in the late 2000s and early 2010s were conditioned to seek growth above all.
“Those companies were given permission to focus on growth and market share over everything and figure out profitability later,” Hemminger said. “When you start with all that investor money early on and the pressure to meet growth expectations right away, that often makes you less discerning on every dollar spent.”
