Subscription Model Turns Rent the Runway into a Real “Dressflix”

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the inventory problem. We don’t want customers browsing the site and seeing that there’s hardly anything left.”

Renting dresses by subscription could help with that problem by making demand more predictable, Fleiss says. Beta users of the subscription program have tended to reserve all of their dresses for the month or the quarter right away—which gives the startup time to think ahead. “The further out people are renting the dresses, the more we can plan inventory,” Fleiss says.

And getting a handle on inventory could ultimately increase the company’s conversion rates, which have been surprisingly low so far, according to Fleiss. Some 150,000 women have signed up as Rent the Runway members, but only 2,000 of them have ever rented a dress, Fleiss says. By tracking users as they browse the website, the company can tell that the main reason members leave the site without renting is that the dresses they’ve chosen aren’t available on the dates they want.

“We’re very confident that we can get [the conversion rate] up higher; it’s entirely because of inventory being the constraining problem, as we see it,” Fleiss says. “We’re servicing those 2,000 customers with only 1,000 dresses. But the good news is that now, as we are purchasing for February, March, April, and the spring season, we have so much data about what’s renting, what sizes customers want, which designers fit best, and which things are wearing out fastest that we’re actually taking a lot less risk when we buy inventory. So in the long run, this conservative buy was really smart business, because we didn’t waste money on things we weren’t sure of.”

Rent the Runway co-founders Jennifer Hyman (left) and Jennifer Fleiss (right)Fleiss says Rent the Runway plans to quintuple its inventory to 5,000 dresses over the next three months. But that will cost money—and Fleiss says the startup is already having conversations with investors about increasing its capitalization. “It looks like we’re going to be raising our Series B in the next few months,” she says. “The model is constrained by supply, so the more money we can pump into purchasing, the more demand we think we can get from customers and the more sales we can generate.”

Bain Capital Ventures has been “a great partner, and we look forward to working with them” on additional funding, Fleiss says.

Bain, for its part, is bullish on the designer-rental concept, and on “the Jennifers” in particular. Both Fleiss and Hyman are 2009 Harvard Business School graduates, and Bain partner Scott Friend told me in November that he was impressed by the advance research they’d done even before leaving campus.

“What was super compelling to me was the effort they made, without any funding, to validate the idea for themselves,” says Friend. “Without any help from anyone they found their way into the offices of Diane von Furstenberg and signed her up as an adviser. They ran several pilot dress rental programs with sororities, to validate that women would … Next Page »

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Wade Roush is a contributing editor at Xconomy. Follow @wroush

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