Subscription Model Turns Rent the Runway into a Real “Dressflix”
“Netflix for designer dresses” is the elevator pitch that everyone uses to describe Rent the Runway, the New York City startup that launched in November with Series A funding from Boston-based Bain Capital Ventures. The company buys dresses from top fashion designers, then lets customers reserve them online for a four- or eight-day rental period. When the time comes, Rent the Runway ships out the dresses (in two sizes, just in case) along with a handy pre-paid return shipping package. They even handle the dry cleaning.
But the Netflix comparison isn’t quite accurate. Netflix customers don’t have to pay for each individual DVD rental. The beauty of the model is that you just pay your $9 to $24 per month, and then you watch as many DVDs as you want, limited only by the number of discs your plan allows you to rent simultaneously.
But Rent the Runway members have to rent each dress separately. Or they used to, anyway. Starting today, Rent the Runway is offering its own subscription-based pricing option: for $350, members can now rent as many dresses as they can wear in the course of a single month (with a limit of four dresses out at once). For $900, they’ll get unlimited rentals through January, February, and March.
As before, members can still rent individual dresses, at prices ranging from $50 to $200—the more haute the couture, the higher the one-time-rental cost. But Jennifer Fleiss, Rent the Runway’s co-founder and president, says customers were demanding a more economical way to rent lots of dresses in succession. “We’re seeing a lot of our really loyal customers renting a few times in one month, so they’re spending a lot of money,” Fleiss says. “We’re trying to find a way to enable that in a more cost-effective way.”
Put another way, Rent the Runway is trying to make the decision to reserve a dress as hassle-free as possible. Just as Netflix members don’t have to worry about whether to add a new DVD to their queue, subscription members at Rent the Runway can pick out as many dresses as they want without worrying about the incremental cost. They also don’t have to worry about whether the dress they’re reserving is a $75 Diane von Furstenberg or a $200 Herve Leger—they’re all covered under the flat subscription fee.
“This is our first bold step to really try to change user behavior,” says Fleiss. “Our belief is that you should rent anything that’s not a basic. For your basic black dress, you should absolutely buy that. But for anything that’s seasonal or just once or twice, you should rent—the job interview, the date next week, the meet-the-parents dinner, the special night out. There is no occasion too small to have fun and pick out a special dress.”
But there are several other reasons behind the subscription program—reasons that relate as much to logistics and finances as they do to marketing, and that reveal a lot about Rent the Runway’s business model.
First off, there’s the seasonal nature of the fashion business. January, February, and March are traditionally the slowest months of the year for clothing retailers and design studios, so any program that boosts business during those months will help to smooth out Rent the Runway’s revenue stream, Fleiss says. (The startup will probably continue the subscription plan past the end of March, but may tweak the pricing and other details, she says. For example, during the high season—meaning the Halloween-through-New Year’s holiday rush—Rent the Runway might need to charge more for subscriptions to avoid losing money.)
Second, there’s the inventory issue. It’s been two months since the company’s November 9 launch, which has given Fleiss and her co-founder Jennifer Hyman time to learn that the biggest constraint in their business model is the supply of dresses. Rent the Runway has only 1,000 dresses in its warehouse, and 750 of them were out on rental on New Year’s Eve, Fleiss says.
“It was crazy,” she says. “It’s a great problem to have that there is so much demand. But we do have a wait list to join the site, and it’s mostly because of … Next Page »