Rent the Runway CEO Jennifer Hyman thinks fashion rental is inflation-proof

Rent the Runway CEO Jennifer Hyman thinks fashion rental is inflation-proof

Rent the Runway started with a pretty simple idea. It’s a clothing rental and subscription business for women, which launched in 2008. You can rent clothes one by one, or subscribe to rent a certain number of pieces depending upon which tier you pay for, or buy secondhand clothing outright.

But Rent the Runway has had a pretty intense path from its founding in 2008 to going public in 2021: the onset of the pandemic in 2020 cratered the business, as 60 percent of customers canceled or paused their subscriptions, and Jennifer was forced to make drastic cuts to survive.

Now, she says that things are swinging back as more and more people are spending their dollars going out, traveling, and generally shifting their spending from things to experiences. There’s also the post-COVID wedding boom. People need outfits, and Rent the Runway is right there for them.

Jenn and I talked about that swing in the business, but we spent most of this conversation talking about running a company that basically does really high-risk logistics: sourcing clothes; sending them to people; getting them back; cleaning them; and sending them out again. Spotify and Netflix run subscription businesses, but the products never wear out or get dirty; Jenn has to deal with red wine stains at scale. In fact, Rent the Runway runs one of the country’s biggest dry cleaning operations, which I find completely fascinating.

My favorite episodes of Decoder are the ones where simple ideas — renting clothes — turn out to be incredibly complicated to execute. This is one of those.

Okay, Jennifer Hyman, co-founder and CEO of Rent the Runway. Here we go.

This transcript has been lightly edited for clarity.

Jennifer Hyman is the CEO and co-founder of Rent the Runway. Welcome to Decoder.

Thanks for having me.

There is quite a lot to talk about, but let’s start with some basics. Rent the Runway is a simple idea that is actually a very complicated business. Can you just explain for people what Rent the Runway is and how it works?

The simple idea is that we rent clothes to women, and we do that in two ways. We started by renting designer clothing à la carte to women before special events. If a woman is going to a wedding or a holiday party, she can come to Rent the Runway, find a dress that she loves for 90 percent off the retail price, and we will send it to her — and the second size for free — before that event. She is booking the dress, just like she would book a hotel reservation.

We also offer a subscription to fashion, which has become the majority of our revenue. Users pay a monthly fee to receive access to a basically unlimited closet in the cloud of designer clothing, and they can wear that clothing on rotation. Think of it as a Spotify for fashion. It is a really popular service and our customers use it to get dressed about 80 days of the year.

We have gone far beyond renting clothing for special occasions. She is now using us for her everyday life, renting clothes to wear to work, nighttime occasions, or just to wear around the neighborhood.

I talk to so many CEOs who get pushed into recurring revenue lines, a shift to a membership model, so they have to invent something. Did you say, “We have to stabilize our revenue,” or was it, “We see this is where the customers want to go”?

The original idea for Rent the Runway was, in fact, the closet in the cloud, which was radical for 2008. When I had the initial idea for Rent the Runway, women were not renting clothes, and they were not wearing clothing that other women had worn before. Brands were certainly not participating in the sharing economy in any way. If we had launched with a membership model, we would have failed right out of the gate. We had to start with a product experience that was really easy both for the consumer to understand and for the brand to get behind.

For the consumer to understand, the initial product was “rent a dress for a special occasion,” which completely made sense to women. Every woman has been invited to some black-tie event, or to be a bridesmaid, knowing that she is going to buy something she will only wear once or twice before discarding.

From a brand perspective, dresses have always been a negative margin category. Women have effectively been renting the runway from retail stores for many decades; they buy a dress, keep the tags on, wear it, then return it to the store. Brands said, “You can take away my negative margin category and convert women who might be younger or trying this brand for the first time around this concept of rental.”

We started where we did because we thought that was the best way to actually prove there was demand for the business and generate revenue. The vision was always that 50 percent of the closet is effectively underutilized and/or dead because it is worn three times or less. That closet was what was primed for substitution with the subscription to fashion.

For many decades, we have been buying stuff that we only wear once or twice. Why? It is because the number one consumer value for men and women, when it comes to fashion, is variety. People want to use clothes to express themselves, and how you want to express yourself changes over time. You may want to wake up and feel relaxed today, while tomorrow you want to feel like a boss.

Over the last few decades, fast fashion retailers and Amazon fashion started giving us higher quantities at lower prices, and we as the consumer took them up on it. We said, “I want a new outfit every day so I am going to increase the number of units I purchase per year.” As those purchases have doubled over the last 30 years, utilization of those units has declined precipitously.

We end up in a situation where fashion is now one of the most environmentally unsustainable and financially wasteful industries out there, because we do not use 50 percent of the stuff we buy. We always knew that was the vision we would move into from a business standpoint, and it was really interesting internally figuring out when we could do so from a consumer standpoint.

What was the key for you to say, “The consumers are ready to pay a monthly membership fee to access our inventory”?

We have always had this really interesting feedback loop with our customers. They have proactively wanted to give us information, after they rent, about how the items fit or where they wore it or the experience, so that we could better personalize Rent the Runway for them and they could pay it forward for other women.

About five or six years into the business, we started hearing from our own customers in droves that they were hacking our special event product. They would rent a cocktail dress for a party on a Saturday night, then wear it with a blazer to work on Monday or Tuesday. They started telling us that while it was great we were offering them a service for their Friday and Saturday nights, the thing that was most important to them in their life was showing up at work feeling self-confident, wearing brands that made them feel powerful. Could we create a product that enabled them to get dressed the other five days of the week?

Our initial subscription product — which we launched midway through 2016 — was really just about work and special occasions. From there, we again started hearing from the customers, “Hey, I want to use this when I go out to dinner. I want to use this when I go skiing. I want to use this when I’m pregnant. I want to use this when I go on a beach vacation.”

We started expanding the assortment so that engagement with the product increased. We went from customers in 2016 using the subscription 30 to 40 days of the year, to now using the subscription over 80 days of the year. Though of course, there are cohorts of subscribers that use it far over 100 days of the year to get dressed. I think as we increase the options we hear more of, “You know what? I will actually rent jeans and a blouse from you just as much as I will rent a ballgown.”

What is the pricing model? If you are using it 100 days a year, are you paying more than if you are using it five days a year?

You are. That is one of the major shifts we made in our business model over COVID-19. Our product used to be one subscription priced at $159 a month and with that you could receive unlimited shipments. As customer engagement increased, our gross margins were decreasing because shipments were going up.

In early 2020, actually prior to the pandemic, we shifted from one plan into personalized plans where you pay for your usage. There are now three or four programs where you essentially pay for the number of items you receive per month. If you want to receive more, you pay more.

You can easily onboard into a program and personalize the subscription as you go. We find that 30 percent of our customers end up adding additional items to their subscription, personalizing on top of the program they are onboarding into, and engagement tends to go up over time. We make a higher margin off of a customer that uses us 100+ days of the year, because they are putting more items into the same shipment. We are sending a package with six articles of clothing in it at a time as opposed to four.

That margin idea is something I want to come back to several times. From the jump, this sounds like a very complicated inventory business to me. You are sending things out to people, hoping they will be treated well, and when they come back you have to clean them — I assume people are very sensitive about how clean the garments are when they receive them. You also have to match those items with other people as your customer base grows. You have to have the right inventory at the right places in the right sizes. How do you manage all that?

That is the business. In terms of our reverse logistics, technology and processes, and software, we built around the customer preferences for inventory. The data we get feeds into how we work with our brand partners to actually source those rental products.

In some ways you are right, and in some ways you are wrong. You are right in that we have done tens of millions of rentals, and processed and restored tens of millions of articles of clothing. We are now one of the world experts — if not the world expert — in how to quickly and efficiently restore a piece of luxury fashion to perfect condition, with a zero-day turnaround time in order to send it out to another customer.

That is reflective in the financials of the business. If you look at a traditional retailer — think of a department store or — their product cost as a percentage of revenue hovers around 50 percent to 55 percent. Our product cost as a percentage of revenue in 2021 was around 25 percent. We are able to get more revenue off of our product than a traditional retailer.

We have turned what most fashion businesses consider a liability into a long-term asset. This dress I am wearing is a liability, but we have proven with our 12 years of data that we can actually make money from this dress for over three years. You are right that it is complicated, but we have figured it out, and I think that has created a massive competitive moat for Rent the Runway.

Now, where you are wrong is that there are some stereotypes about the fashion industry we have effectively disproven. One of the major long-held truths in the fashion industry — that is actually completely false — is that fashion goes out of style and it goes out of style quickly. The general population believes that if a new spring item enters a store in March, three months later you need to mark it down, then a few weeks after that you have to start to clear it from your floors because no one wants it anymore. Then it may end up in an off-price channel or being jobbed out to another country, et cetera.

Why do we believe this? We believe this because this is how the retail industry has always run. We also believe it because the fashion industry has always wanted us to. Their business model does not work unless they can convince you to buy more stuff that you do not need. They are trying to convince the consumer, “That top you bought last spring is no longer in fashion. You need to buy more tops right now.”

In reality, based on 12 years of our data, we have seen that the customer actually wants to wear a new outfit every day. She has no idea whether that new outfit walked a runway two seconds ago, a year ago, two years ago. She just wants it to be new to her. “As long as this dress I receive from Rent the Runway looks like it is in brand-new condition, I have never worn it before, and it allows me to express myself differently, it feels like the high of wearing something for the first time.”

We have proven that there is a much longer tail to monetization of fashion than you would think. There are trends, by the way, but they do not seep through the US population in three months. They often take five to seven years to do so. As an example, when we launched our business in 2009, the biggest trend related to dresses was called asymmetric, which essentially meant a one-shoulder dress. That trend was basically hot and heavy for about six years. There is an arc to a trend, and based on our utilization data, we were able to see when the trend was starting to dissipate. We were able to clear out of those units with more than enough time. It died around 2015. Interestingly, that trend is back today. It’s weird that I have been doing this business enough that I am seeing trends come back into the cycle.

We have essentially proven that fashion is a longer-term asset than anyone gave it credit for. We also benefit from the fact that we have a diversity of customers all over the country. Let’s say there is a very fashionable woman who lives in New York, who follows all of the celebrities and is on social media all the time, and she wants something that walked off a runway a second ago. I am telling you that even in places like San Francisco or Dallas — both of which are fashionable cities that have high-end, educated consumers — they are not even interested in that trend until six to nine months later.

I feel like you’re wading in some dangerous New York versus San Francisco territory here. Tell me about LA.

LA and New York are probably the most similar in when they want access to newness — amongst that hyper-fashionable segment. The fact is though, some of the women who are our customers might be in Ohio, and they are not wearing a trend until two to three years after the woman in New York or LA is wearing it. We are benefiting from a long tail of geographic diversity of the asset.

Again, this is a very complicated inventory management question. You have your own distribution centers. Do you have a team that says, “All right, asymmetric dresses are over in New York, so we are moving all the stock to Ohio”?

We have a data science team and a planning team that have truly been central to our business for 13 years. Our business is about making money off of clothes over the long term, so the first C-level executive I hired at Rent the Runway was a chief data officer. We have built all of the algorithms and analytics behind understanding how to monetize our inventory over time.

It is actually simpler than you are making it out to be. We don’t have to move the inventory in warehouses. We have enough scale that we have two distribution facilities, and we can ship to Ohio out of the same facility we use to ship to New York.

I think that the core competencies of the business are the reverse logistics processes we have created to be able to rent stuff, the data we have to understand what women want and how to personalize their experience to give them a product they love that fits, and of course the brand relationships we have that enable us to access that product in interesting, innovative ways that benefit both us and our brand partners.

Is it reverse logistics because the stuff comes back to you from the customers?

Yes. The best retailer in the US is Amazon, and the only reason I know this stat is because my chief supply chain officer used to run North America fulfillment for them. At Amazon, 95 percent of their processes are built around outbound logistics. It is the pick-pack-ship process to get you the toothbrush or whatever you are ordering. Only 2 percent to 5 percent of that product ever gets returned. Amazon is actually best in class because of how low their return rates are.

A business is usually going to innovate and prioritize around the happy path of the 95 percent pick-pack-ship process. However, 98 percent of what comes into our warehouse is product we are receiving back from another customer. It is returns. The other 2 percent is direct-to-vendor, where we unpack a product for the first time and put it on our racks.

Our logistics processes are not based on the core competency of pick-pack-ship, which we think is pretty standard e-commerce. We actually design and build our software around the inbound logistics, as opposed to outbound. This is where we have developed a lot of the “special sauce” of the business. It allows us to rent a dress over multiple years, while still doing a better job over time.

We shared on a recent earnings call that between 2020 and 2021, we lowered our product deactivation rate by 30 percent. That is an enormous number. That means we are keeping inventory in like-new condition 30 percent more than we did just a year ago. You don’t make those kind of leaps overnight; you have to build a massive foundation and do tens of millions of rentals beforehand.

You mentioned your chief data officer and your chief supply chain officer, so this feels like a good time to ask the Decoder questions. How is Rent the Runway structured?

We have a president and COO who has been at Rent the Runway for 10 years. We have a chief technology officer who oversees technology and product, which is the largest corporate organization at the company. I would say that 60 to 70 percent of our corporate or salaried employees are within Larry’s [Steinberg] org.

We have a chief supply chain officer who oversees the full end-to-end customer experience — our inbound logistics, our outbound logistics, transportation, and customer service. His organization has the most people because it includes all of the hourly folks, as well as salaried folks who are developing the reverse logistics processes or managing the customer experience.

We have a chief merchant who is in charge of developing brand relationships and sourcing all of the product. She is the one who innovated the model away from wholesale into acquiring our product on consignment, where we revenue share with our partners.

We have a CFO, of course. Thank God.

One of my dreams is to get a CFO on here to be like, “What is it that you do all day?”

Our CFO has been at Rent the Runway for seven years and is my massive strategic partner, alongside my COO and general counsel.

How many people total are at Rent the Runway?

We have about 450 corporate employees and probably around 2,000 total employees.

And how many people can those 2,000 employees support? How many members do you have?

We have millions of customers. The majority of those are renting from Reserve, our à la carte business, where they come a few times a year to rent for a special event. As of the end of Q1, we had 135,000 subscribers. Every 100,000 subscribers equates to about $200 million in revenue.

That was my next question. Obviously you are a public company, so these numbers are out there already.

Yes. People spend a lot with us per year, so a very small amount of subscribers equals a lot of revenue. Our Reserve business and our subscription businesses are very complementary. People will come to Rent the Runway for prom, then for a sorority party, then a date in their 20s, and then when they are older and can afford it they join our subscription.

Let’s come back to the interesting notion that you increase the lifespan of an article of clothing by 30 percent. It seems like there is a lot of innovation needed to pull that off. What does that look like? Do people come to you and say, “We need to invest in dry cleaning in the hopes it will pay off and help us turn over more” or, “We are going to outsource tailoring”? What specifically do you do to make those numbers go up and down?

We have been vertically integrated from the beginning. We are one of the largest cleaners of clothing in the US, maybe in the world. We do wet cleaning, dry cleaning, all sorts of cleaning. I know more about cleaning than I ever thought that I would.

I actually thought at the beginning of Rent the Runway that this was going to be something we outsourced. Why would we raise venture capital dollars and then go into the dry cleaning business? That didn’t make any sense. I very quickly realized within the first year of launching Rent the Runway that most damage to clothing doesn’t come from customers. There is a myth that customers ruin clothes. No, they don’t ruin clothes. What ruins clothes is the corrosiveness of the chemicals used in the cleaning process when you put something in your washing machine and/or when you send it off to dry clean.

If we could develop intelligence around how to actually care for things, we could dramatically increase the life cycle of that clothing. When you take your button-down shirt to a local dry cleaner and say, “Clean this for me,” you probably get about six or seven turns off that shirt before it starts to look a little worn.

I don’t want any of the clothes on Rent the Runway to look worn. I want there to at least be the suspension of disbelief that you are receiving something in like-new condition, you have no idea how many times it has been worn before you use it. That is part of the magic of Rent the Runway. We shared when we IPO’d that every single article of clothing we had in our possession historically had already turned, on average, a minimum of 20 times.

We also shared that because revenues went down so precipitously during COVID-19, we chose to sell things before they were ready to be sold. We were effectively signaling that 20 turns was a conservative number. We were selling things because we had to make money during COVID-19, and we could have rented it longer.

At the most conservative end, we have tripled the lifetime of garments while still looking brand-new, compared to what you could do on your own. The longer I can keep this dress in like-new condition, the less inventory I have to buy going forward. I shared that product as a percentage of revenue in 2021 was around 26 percent. You will see that percentage could actually go down over time as we keep clothes in better condition longer. That already is a structural advantage of our model.

How many people do you have thinking about cleaning clothes every day?

About cleaning clothes?

Do you have a department of clothing restoration?

We have a garment science department, yes.

That’s what I’m getting at.

It’s not that big of a department in terms of managers in it. The garment science department has just a few people who work very closely with our data group and our tech group. They have built software that enables us to understand what is happening with every garment, so that the garment science team is able to operationalize the data.

Let me give an actual example of what I mean. We implemented RFID on all of our products at the end of 2021. Prior to implementing RFID, there was a barcode on every product that acted as a license plate. We carried data based on that barcode that told us what style a garment was, thus telling us what cleaning action we should take in order to maximize turns for it.

It was not as simple as, “Should it be dry cleaned or wet cleaned?” It was also, “How many minutes should it be in a machine? What mechanical action is needed? What temperature should it be at? What solvents are you putting in?” There are dozens of solvents you can put into a machine — all of which are green for us.

We used to do this scientific work based on the style of the garment, which we might have 500 copies of. Today we are able to utilize the data we have against the unit. If we know that this particular unit has had some sort of issue in the past — like a red wine stain — then we can funnel it into a different cleaning process than we would have before. We use automation to pre-sort our clothes into 26 different cleaning processes based on the data we have at an individual unit level.

Let’s say a competitor came about who had access to all of this data, so they knew exactly how to clean the item in order to maximize turns from the get-go — data that took us tens of millions of rentals to learn. Even if they had that, they would need the scale of doing millions of rentals per year in order to fill up enough machines to actually do 26 sorts. This is fundamentally a logistics business, in that you are trying to optimize your process flow at every single step of the operation.

One of the things I am proudest of, in terms of taking lemons and turning them into lemonade, is that I have been very open that COVID-19 sucked for Rent the Runway. There is no real customer use case for our business when you are sheltered at home, because our business is based on going somewhere: work, dinner, vacation, a show, a party. You literally need to leave your house in order to care about the clothes we rent, because we are not renting you stuff that you can lounge in on your couch.

There’s no sweatpants on Rent the Runway?

There are.

They are just high-end, athleisure sweatpants.

Yes. We did generate $157 million in revenue in 2020, but it’s not the $300 million in revenue we are going to generate this year now that people are actually leaving their home. It was just more difficult for us to generate demand and we had far fewer shipments heading through our facilities.

Our business was on fire at the start of 2020, with January and February being the two best months we ever had in the history of Rent the Runway. Then one weekend in March, when everyone in the US sheltered at home, 50 percent of our subs paused or canceled. We suddenly had warehouses that were empty or had far less volume.

After we secured the financial runway we needed to survive, we transitioned as a business to position the company, both strategically and financially, towards who we wanted to be when we came out of COVID-19. We took that white space and said, “Wow, we have these two facilities, and we have 12 years of data on how the business runs. Let’s rebuild our operation as if we were starting today, with all the knowledge we have.”

We added a massive amount of automation, process changes, data changes, and tech changes into our facilities in 2020, which resulted in a 30 percent decrease in our non-transportation costs year over year. We were basically lowering the cost of fulfillment dramatically, by utilizing the knowledge we had. In addition, we lowered the product deactivation rate by 30 percent. It happens to be weird that both of those metrics are 30 percent decreases.

That is an example of the culture of the company: not resting on any good or bad situation, but always thinking about continuous improvement and taking advantage of a situation in order to better itself. I am super proud that is evidencing itself today in our fulfillment margins and our gross margins, with all of these changes we made during what was the most difficult time we have ever had.

I think that leads into the classic Decoder question. How do you make decisions? What framework do you use?

I am a very customer-driven, vision-driven, and emotionally-driven human. I am definitely someone who is constantly thinking about and trying to understand how we live and what changes can lead to opportunities. Some people would call that a visionary sort of capability, which I think I have in terms of how I think about the world and the problem set.

Now, because I know I think about things through that big lens, I recognize it can be entirely dangerous when making decisions. I have been very intentional about surrounding myself with brains that think the opposite of how I do in every component. When I think about how I make decisions, I like making them around healthy tensions. That is why the first C-level executive I brought into the company was a chief data officer, because I wanted someone who thought about the world in the opposite way of me. I am an optimist; he was a pessimist. I was thinking about customer feedback on a very qualitative basis of having the conversations; he was looking at massive data sets to figure out if what I was saying was bullshit or not.

Who are the two most powerful people at Rent the Runway besides myself? One is Anushka [Salinas], my president and COO, who has been at Rent the Runway for 10 years. The other is Scarlett [O’Sullivan], my CFO. These two individuals are unbelievably analytical and extremely data-driven, thinking about what could go wrong before they think about what could go right.

Anushka is very much about, “Well, this might be a good idea, but how will we get this done? How is it actually going to be operationalized? What is the real ROI? What are the trade-offs? What will we not have to work on in order to do this?” I think that is the best way to make decisions. You are basically putting your biggest obstacles in front of you so that you can challenge each other and come to a better decision together.

That has always been my decision-making framework, as well as my leadership framework. When I think about building an incredible executive team that functions really well, it is about bringing people together who have both competencies and ways of thinking that are different from one another. I think that always leads to a much more strategic answer.

Put that into practice for me. I am obsessed with the dry cleaning situation, so I am going to make up a situation to go through. You have 26 ways to clean things, but the garment science team comes to you and says, “We need to line up the 27th. It is going to be $2 million of CapEx. We are making a bet that if this goes right, we will be able to turn our clothing 30 times instead of 20.” How do you make that decision?

That would be a very easy decision to make because they would just start MVPing it. They would do that in a very small way to figure out if it works, and they would have very quick data as to how it works. They would be able to model out, “If this CapEx investment costs me $2 million, then my return on this is going to take me X amount of months to break even.” It would then be turned to Anushka or Scarlett to check if it is worth it in terms of timeline to break even and timeline to ROI. That would actually be a super easy one.

When you create the right processes within your company and you have the right team on the ground, there aren’t many decisions you make that are that difficult. They are only difficult when there is no prior data. The most difficult so far being, “What do we do in March 2020? How do I lead the business through COVID-19?” I made a few decisions there that were just based on my gut instinct, not on any data, because it had never occurred in the past.

The framework I was using at that point was based on COVID-19 lasting a hell of a lot longer than everyone thought it would. I thought that this would have a massively negative impact on our business, which I was correct on. I thought that there was almost nothing we could do to drum up demand for rental or subscription during that period of time, because no one was going anywhere or had any events.

The only way for us to make money during that period of time was on resale. We had all of these people and resources, and we did do some layoffs at that time, but not many. I believed there was going to be a world after COVID-19 that could be more conducive to Rent the Runway than it ever had been before. I was making guesses around what the world would be like when we came out of COVID-19.

I actually think that a lot of those guesses were right as well. I thought that people would actually value experiences more than ownership after COVID-19. If you look at the early data from 2022, you will see that is having its best year ever, Airbnb is having its best year ever, and Live Nation is having its best year ever. People are going to more restaurants than they have ever eaten at before. All of those things are incredible leading indicators for Rent the Runway. What do people do when they go to concerts or go out to dinner or go on vacation? They Rent the Runway. The more people spend on their experiences, the better.

I also had this assumption around people thinking differently about how they spend their money because of the COVID-19 experience. We were all in this collective, two-year experience of being stuck at home, staring at all the things we had ever purchased in our life that were wasteful and didn’t make any sense, because we were only using a limited number of things at the time. I remember going into my own closet and realizing I was wearing the same freaking thing every single day. My closet was essentially a reminder of all the bad decisions I had made in the past.

That is effectively what I have been preaching for a decade, the idea that 50 percent of the closet is dead to you. We had a two-year period where most people were literally working in their bedrooms, staring at their closets and all the stuff they had purchased that they don’t have utility for. I thought that would lead to an even more geographically diverse, economically diverse, and psychographically diverse potential customer set for Rent the Runway. People that might not have considered renting a dress for a special occasion or having a subscription to fashion might consider it now because of COVID-19.

We are actually seeing that to be true from the early data we have in terms of the business bouncing back. The business is more geographically and psychographically diverse than it has ever been. I think that across every category of how we live right now, we are asking, “Is how I’m spending my money smart?” I think the recession is potentially going to galvanize that even more.

When you look at the inflation indicators and hear the rumbles of a recession, you think it is actually going to be net positive? Are people going to spend their money more wisely, and maybe not on things they would otherwise not wear?

I think that a recession makes everyone — from a consumer to a business owner — operate within constraints. It certainly makes everyone think about value in a different way, and about how you are going to spend. I don’t think there is any business that is recession-proof. I really don’t.

The recession hurts everyone, but I think we are fundamentally a business that is about delivering financial value to our consumer. We at least have a better shot at being able to continue to operate well within a recession if we execute against that value-oriented messaging. It certainly is an environment where you have to operate within constraints, ruthlessly prioritize as a leader, and really pick your bets on what you are going to execute against.

You have a very customer-focused business, mostly consumer. You do have relationships with brands, which seems very interesting as that dynamic has changed. Big brands in particular have come to embrace some of these business models as opposed to pushing against them, which they were kind of doing in the beginning.

You have mentioned Amazon several times. They are famous for building shared services for their own units, then letting other people buy those services, like Logistics or AWS. You have a bunch of these vertically integrated services, like reverse logistics, dry cleaning, et cetera. Would you ever sell those B2B to other companies?

I am really interested in adding value to brands, across fashion and potentially in categories way outside of fashion, based on customer acquisition. You mentioned we have built this very consumer-focused business and that is true. It is certainly what my initial vision and thesis for the business was. I am a consumer-led person, and I wanted to build this unlimited closet in the cloud where you could wear whatever you want without having to own it.

What I did not understand fully about the business 10 years ago is that it would be just as powerful for brands as it is for consumers. By nature of giving the customer freedom to wear whatever she wants, she actually tries a hell of a lot of new brands; 98 percent of the time she is renting a brand she has never owned before. Because she is experiencing that brand in real life by wearing it to work or to a party, and she feels confident and beautiful wearing it, 80 percent of the time, she ends up wanting to purchase from that brand in the future.

She familiarizes herself with an Ulla Johnson or a Proenza Schouler because she comes to Rent the Runway. She does not come with the intention of falling in love with those brands, but she does because she is wearing and experiencing them in her real life.

One of the reasons we have 100 percent retention of all of our brand relationships over the past 12 years is because we have become one of their most powerful marketing channels and customer acquisition engines. This two-sided discovery platform is powerful in a world where the costs of marketing have skyrocketed over the last few years due to iOS changes and the fact that multi-branded retail stores have been closing in droves.

I just want to highlight that for a minute. You said “iOS changes.” Do you specifically mean app tracking transparency killing the cookie marketplace and direct-to-consumer ads skyrocketing in price because you cannot convert against them as well as you used to?

Yes. If you are a brand, whether you are in fashion, health and wellness, or tech, your cost of acquiring a customer has doubled or tripled over the last few years. You do not have as many retail channels in which to actually introduce yourself to new customers.

Think about it this way. I am a fashion brand. How did I gain all my new customers in the past? I used to gain them through my department store customers, my wholesale accounts, but one-third of all department stores have closed in the last four years. I also used to bank on the fact that people would be introduced to my brand at Saks or Nordstrom or Net‑a‑Porter, and then I could build my own D2C business — my own stores and my own e-commerce site — by attracting those people.

Well, now the cost of bringing anyone into my own business, D2C, has doubled to tripled. My old channels of distribution are getting smaller, my new channels of distribution are more expensive, and I need a way to actually attract a new, younger customer base who can afford my brand.

Again, this is not something I expected 10 years ago, but it has certainly become one of the most powerful things about the model. We have an entire population of women who come to our platform who are young, educated, and for the most part wealthy — or on average much wealthier than the average American consumer. They are exactly the sort of customer base that a lot of these brands want.

To your question on shared services, there is no better platform than something like Amazon or Zalando — which is a huge e-commerce platform in Europe that I actually sit on the board of. One of their shared services is advertising, because both of those businesses have a massive amount of traffic. Clearly advertising makes a lot of sense, or they could build shared services around a whole host of things.

What is the core competitive advantage of Rent the Runway? It is who the customer is, the reverse logistics process, and the data that we have. That all leads to customer acquisition, not necessarily advertising. I can bring someone onto my platform, introduce them to a new brand, and have them fall in love with it.

At the very beginning of the conversation, you were talking about fashion trends and the desires of fashion brands to move those trends faster to get people to buy more stuff. Do you perceive any conflict between a huge part of the business being B2B customer acquisition — since you are introducing people to brands, which converts to purchases for said brands — and trends lasting much longer than the fashion industry wants them to?

I have really become one of the most powerful and only ways for brands to acquire new customers, and to get data that helps them change the way they manufacture clothing into something that women actually want in the first place. When I am giving them data on a trend to say, “Hey, this trend actually continues to persist,” it is actually really good for them.

The majority of how most of these brands sell is not D2C. It is through other retail channels that are clearing and promotionalizing their product. If they know that this is something that customers continue to want, they can take that information and monetize it.

The old world of fashion, where everything we bought had to be something we wore forever, does not have to be the model for the next 50 years of fashion. Part of what I have been doing with brands over the last decade is not only helping them bring their business into the circular economy, but also helping them be more consumer-driven in how they think. They have a lot more opportunities for themselves than they may have thought.

Do you get any pushback from brands? You don’t need their permission to open a clothing rental service, right? You can just buy the clothes and rent them. For a minute, some of the brands really thought you needed their permission. There were even some trademark lawsuits against other kinds of retailers that did this stuff. Now they seem wholly bought into it, and you are saying, “I, Jenn, am the most powerful agent of change for these brands.”

One of them. I never want to say I am the most powerful.

I will say it; you are doing great. What was that transition like? It seemed pretty shaky for them.

When I approached brands 13 years ago, they hated this idea. Hated, hated, hated, hated. I cannot emphasize how many doors were slammed in my face. I was face-to-face with the CEO of one of the most powerful brands in the world — who happens to be a very smart, great guy — and he said, “Hell will burn over before I work with Rent the Runway.” He said that dead set; it wasn’t a joke. It was like he was saying, “I hate you and I will never work with you.”

In reality, he is one of our most awesome partners today. He actually started working with us like 18 months after that. One of the rules I had at the very beginning of this business, which is very different from others in the secondhand economy, is that I would not put any merchandise on my platform unless I had procured it directly from a brand with their explicit permission. That is with the CEO’s permission, with the designer’s permission, and with the head of sales’ permission, because I wanted this to be a partnership with the brands.

Now, I could have done what others had. I could have procured inventory from people’s closets, or I could have bought the clothes at retail stores to put up on my platform. But I knew that if I wanted to build a sustainable business for the long term, I had to make this win-win for the customer and for the brand.

That meant in the early days of Rent the Runway, the selection was not what I would have wanted it to be. When we launched, we only did so with 28 brands, whereas now we have 800-plus brands. Even in the first few years of Rent the Runway, there were a lot of brands that said no. On average, it took me 10 to 12 meetings per brand to sign them on, and even then the brand would only agree to meet with me once every six months.

A lot of people in any industry wait until they see others doing something before they will. I had to have incredible patience and foresight that this was actually going to work. If I had just put the product that I wanted up on the platform in the early days, I knew that I would be blackballed from the industry and they would never work with me.

To this day, we are really the only secondhand player that works directly with brands. When you think about all of the other great businesses in our space — and they are great businesses, they are all undervalued — The RealReal, Poshmark, ThredUp, et cetera, source all their clothes from customers’ closets. Again, there are a lot of great things about sourcing your inventory from customers’ closets, but it does not give you the brand relationship. It does not allow you to choose your own selection.

I am choosing the product I want to be on my platform. I am choosing to have 500 of these dresses, in sizes zero to 16. I am able to actually utilize data to understand what selection I want in order to keep my customers loyal to me. I am also doing something where I am able to innovate, to the point where designers see the benefit in this model and are actually revenue sharing with me on the success of the inventory on their platform.

I didn’t do anything that was un-kosher at the beginning of the business. It may have led to the business potentially taking off slower in the early days, since we did not have the assortment that I wanted, but I think those decisions have ended up creating one of the competitive advantages of our business. That is how powerful these brand relationships are.

It seems like you have described these as partnerships. You have revenue sharing, and it seems like you collect a lot of customer data that you could share back with those partners. How does that work? What are the data policies here? It seems like a huge opportunity, but also very fraught — it is how people fit into their clothes and what they are buying.

We are not telling the brand, “This is how Jenn Hyman fits into your clothing.” We are able to aggregate hundreds of thousands, if not millions, of data points around how customers are wearing their clothes, how they fit, how the inventory quality is, and how they are manufactured. We are able to give them really concrete data as to what they need to do in order to have better-fitting clothes that last longer and that customers want more of.

This is not about the individual sources of data, it is about saying, “Okay, we now know that your product is badly manufactured in these ways and this is why you might have a high conversion rate and a very low loyalty rate.” I think the data ends up benefiting the brand tremendously, but it also benefits the customer. The more we can work with brands to ensure that they are making better product — better fitting and better manufactured — it benefits not only our customers, but theirs as well.

We are sadly out of time, even though I have 10,000 more questions about dry cleaning. What is next for Rent the Runway? You have been on kind of a bumpy ride. You have IPO’d now. You are the CEO of a public company. What does the next step look like for you?

Well, the next step is driving this business to profitability and continuing to grow the business while we do that. I think that we have always been a business that has been underestimated, for better or for worse. I tend to look at it from the positive angle that no one expects very much of us right now, so I am ready to prove everyone wrong by continuing to build a really sustainable business.

It is great that the customers love this business and the brands love this business. The people that matter are fans of what we are doing. I think continuing to deliver to the customer and the brands is really the key to us being able to drive the business to continued growth and profitability.

That is the financial thing I am focused on, but the strategic thing I am focused on is furthering this two-sided discovery platform. I want to make the experience of renting clothes even more delightful, easier for the consumer, and give the consumer more choice.

We have this challenge that renting clothes is amazing — you are getting $40,000 worth of clothes per year, which is incredible and magical — but it also is a lot of work. You have to receive the clothes, return the clothes, and pick out the new clothes that you want. The more that we invest in personalization, our search and discovery engine, and home pickup, it removes friction from the experience. I will be on a lifelong journey of continuous improvement of this customer experience, and making sure that having a subscription to fashion in the future can become as magical as having a subscription to music.

On the brand side, it is going to be about fostering an even better discovery platform for them, to ensure we are helping them acquire new customers earlier in the journey and becoming a massive partner around customer acquisition for them.

That’s great. Jenn, thank you so much for being on Decoder. I have learned a lot today. When you expand into men’s jackets over black t-shirts, I will be your first customer.

Well, thank you so much and thanks for the thoughtful questions. I really appreciate it.

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