In industries like fitness and film, the unlimited model has proven difficult to master. The same goes for the clothing rental space, as Rent the Runway is learning firsthand.
In the last few weeks, the brand has been called out by customers on social media for missing or delayed deliveries, and long wait times to speak to a brand representative on the phone. In an interview with Recode, Rent the Runway CEO Jennifer Hyman said the disruptions many customers were experiencing were due to glitches caused by an upgrade to the brand’s warehouse system. Then, on Wednesday, the brand’s head of supply chain stepped down, per a report from Business of Fashion.
The valuation of Rent the Runway, launched in 2009, has reached $1 billion. The company does not publicly disclose subscriber numbers. Currently, its Unlimited customers pay $159 a month before taxes, for four items at a time that can be switched out as often as the customer wants. In response to growing demand for this unlimited service, Rent the Runway opened a second fulfillment center in Arlington, Texas in June to supplement the original facility in Seacaucus, New Jersey.
With 85% of members using their subscriptions weekly and the average customer wearing Rent the Runway items 120 days out of the year year, per Fast Company, that adds up to 30 returns a year, if the customer is sending all four rented pieces back at once.
Looking at other unlimited models, ClassPass, which provides members wide access to fitness studios and classes, had to pull back its $100 a month unlimited membership in 2016, after launching in 2013. Founder and chairman Payla Kadakia said in a blog post at the time that “for every class taken, we paid our studio partners. The more classes that were taken, the more we paid. As you can imagine, our business costs increased rapidly.”
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It simply couldn’t keep up with the costs and remain profitable. Now the brand offers a range of plans ranging from $19 to $199 a month.
Then came MoviePass in 2017, which offered customers the opportunity to see a movie a day, at one point for as little as $10 a month. That didn’t last, either.
While the company has been upfront with customers about its recent issues — Hyman has personally responded to customers on Twitter — the question remains whether the unlimited business model will be sustainable for the company long term.
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“What they are dealing with right now is just trying to understand this model, because it is tricky,” said Alexis DeSalva, senior research analyst at Mintel. “It’s a new model, and [Rent the Runway] are really the pioneers in this space. These models have expanded really quickly, and maybe the brand just bit off a little bit more than they can chew from a logistics perspective, and a little too quickly for their current capabilities.”
With Rent the Runway, Darin Archer, chief strategy officer at Elastic Path, said he is confident Rent the Runway can navigate some of its customer service issues and remain successful in the future.
“It comes down to: Do you have enough inventory, basic supply and demand? I think, at the end of the day, it’s less about the business model. My guess is this is just a circumstance where they had a system that served them well in the early growth of the company, and then today, with as well as they are doing, they have some different systems, new software. It seems to be more of an IT issue, a one-off, versus the business model,” said Archer.
However, over the summer, the brand was dealing with similar customer service complaints around difficulties canceling memberships and in response held a Twitter chat with the CEO to address some of those problems.
On the other hand, DeSalva said she believes the company could benefit from scaling back its unlimited model to really fix any issues before growing even more. She said one suggestion for the company is focusing the unlimited offering in markets where the brand has a physical location or that are close to a fulfillment center.
“[Rent the Runway] didn’t come from a traditional retail model like Ann Taylor or American Eagle,” she said. “They are just trying to figure out how they can expand in a way that makes the most sense for them and the customer. A more sustainable option would be to alter the plan: Either offer the Update plan only [four items a month with no swaps for $89] or have a tiered model in cities where they have a brick-and-mortar option so that only select cities like New York and Chicago offer unlimited exchanges.”
