The sharing economy, once billed as a throwback to American thrift, is moving upmarket.
Rent the Runway, one of the first startups to see an opportunity in aspirational sharing, today unveils a new product called "Unlimited" that allows women to rent high-end clothes and accessories for a monthly fee of $139. The inventory is a mix of statement pieces and instant outfits, all designed to complement the standard basics (jeans, white blouse, LBD) in a professional woman’s closet.
"Subscription provides exponential options to the wardrobe that you already own," says Jennifer Hyman, cofounder and CEO. She sees Unlimited as a way to expand beyond the handful of special occasions per year that Rent the Runway had been serving. "You have many more everyday occasions than you have special occasions." In the near future, she posits, there will be "a portion of your wardrobe that you don’t own forever."
Beta subscribers have been paying to try out the service since last summer; as of last fall, there were more than 40,000 women on the waitlist. Even if more than half of those prospective customers lose interest, Hyman could still meet her 2016 goal of growing Unlimited to a point where it represents 20% of revenue. (In 2015, the startup's revenues were in the ballpark of $70 to $90 million.)
Rent the Runway needs the kind of revenue growth that Unlimited could provide, particularly after raising an additional $70 million in venture capital last year. In exchange for access to three designer items at a time, loyal Unlimited customers will provide the company with predictable revenue streams worth $1,668 per year. That cash flow reliability could position Rent the Runway for a valuation roughly in line with that of a SaaS business, rather than the lower valuation commensurate with a clothing retailer.
To a prospective acquirer, the economics of the existing event business are not nearly as attractive. Special occasion customers require higher-touch customer service, yet spend a fraction of the dollars (the average special occasion dress rents for $97.85, based on prices Fast Company scraped from company’s website).
"Fit is much easier for everyday clothing," Hyman says. "You tend to know what your size is in a blazer, and if it’s 90% of the way there, it works." She adds: "What’s great is that we’ve perfected the high-stakes occasion, so it’s easy to service the low-stakes occasion."
Indeed, Rent the Runway has built a reputation for going the extra mile with its customers. But internally, customer service has been a source of contention.
Reviews on Glassdoor, many from former employees who worked in customer service, lambast the company for its catty management culture and "sweatshop" atmosphere. In November Fortune reported that the issues were pervasive, and linked the recent departures of seven executives to a corporate culture that the magazine described as "unwelcoming, stressful, and occasionally hostile."
Interviews with investors and consultants who have worked with Rent the Runway suggest that employee discontent may have been concentrated within the customer service team, and largely unrelated to Hyman’s strategic changing of the guard at the top. Venture capitalist Dan O’Keefe, a general partner at Technology Crossover Ventures, defends Hyman. "That was not an atypical cycle," he says of the leadership turnover. "What was very atypical for me was for it to be characterized as a 'mean girl’ atmosphere."
Dan Maccarone, cofounder of product-design studio Charming Robot, consulted on Rent the Runway’s user experience in the company’s early years. "The thing I’ve been most impressed with over the years is how they’ve grown as leaders," he says of the founding team. He describes Hyman as well-intentioned, if at times a "hard" personality. "She will push you to be a better you, and sometimes that can be challenging. But I think it’s coming from a positive place."
Hyman, during an interview at the company's West SoHo headquarters, deflects a question about what, if anything, she has learned over the past year. "Our team is in the strongest place it’s ever been in," she says. "That’s just what being a startup is: You’re iterating your business and you’re iterating your team for different stages of growth."
Based on my own experience with Unlimited, it remains unclear whether the product will deliver the growth that Hyman seeks. There were times when Unlimited gave my closet the kind of "exponential power" that Hyman envisions. For a black tie wedding in London, Unlimited had exactly the right Lulu Frost earrings to pair with a lavender dress from my favorite consignment store. For a Palm Sunday reading at church, I felt relaxed but polished in a patterned Joie jacket with white leather trim. And for day-to-night, I turned repeatedly to the stylish ease of Diane von Furstenberg’s classic black wrap dress.
But the product had its hiccups, and its drawbacks. One Tory Burch dress arrived with a faint but unmistakable body odor. A See by Chloe top, with lacy sleeves, looked nothing like its picture. And perhaps most perplexing of all, I often felt the wince of unearned affluence, as I saw my designer-clad self through the eyes of female friends and coworkers. This isn’t really me, I wanted to say, as they appraised my cute blouse, my quilted sheath. I found a new appreciation during my beta trial for the Twitter parody account, @manwhohasitall.
It placed in sharp relief the absurdity of the expectations we place on women, and my own discomfort in perpetuating them. In the no-win battle for perfection, I was "cheating."
And yet—part of me wanted to continue my subscription. I thought of the events coming up on my calendar, and realized how convenient it would be to have a stylish and appropriate look arrive on my doorstep.
For Hyman, these seemingly impossible expectations function as a business opportunity. "Women started spending more [on clothes] when offices became business casual," she says. "It was no longer appropriate to wear a black Elie Tahari suit to work every day, and change out your blouse. It became more expensive for women to look sophisticated and professional and dress for the career they wanted to have." Paying $139 per month for Unlimited, in her view, is a bargain: "The fact that dry cleaning is included, it’s almost a wash."
When Rent the Runway released the first version of Unlimited, last July, it was accessories-only and cost $75, allowing the company to utilize latent inventory. Next, the team added dresses—still relying on existing inventory—and made a discovery. "People were using dresses that might have been appropriate to wear for a party or a wedding, and they were putting a black blazer over it so they could wear it to work," Hyman says. That insight has informed all the design decisions that have followed. "We’ve tested the inventory over the last year, and we’ve found that she wants the most printed, colorful, editorial, trendy pieces." Case in point: the most popular Equipment blouse on Unlimited isn’t a neutral solid, but rather an alligator print. It's fun, but it's also office-friendly.
For Unlimited to succeed, Rent the Runway needs to be able to predict which eye-catching—and potentially divisive—styles will have broad appeal. At the moment, the mix includes sequined blazers, red lace rompers, fur vests, and rose gold accessories—all of which would raise eyebrows in my Brooklyn neighborhood. But for Hyman—customer no. 1—there is no turning back.
"It’s absolutely transformative—I don’t shop anymore," she says. "I had this dream at 16 to create the Clueless closet, and we brought it to life. I've never been prouder of anything we've done."