Rent the Runway plans for profitability following pandemic setback

“We’re focused on improving the customer experience quarter-over-quarter,” Hyman says. The idea is to make the improvements feel “tangible and obvious” so the customer feels like they’re getting an increase in value. 

To this end, last month, Rent the Runway permanently added an extra item to every shipment of its subscription programmes without a price change. Consumers who received eight items a month now receive 10 (one in each of two shipments). As the most popular subscription, this impacts the majority of the platform’s users, Hyman says. The aim is to boost loyalty by encouraging existing customers to rent more items. This is in keeping with the platform’s focus on rentals for everyday utility, rather than one-off events. In 2022, 80 per cent of customers used Rent the Runway for everyday use cases, the company says.

Most churn in the business (55 per cent) happens in the first three months as consumers learn the rental ropes, Hyman says. With more items, there’s more wear, and a higher probability consumers will like the items they receive — and come back for more. “Retention, in our business, drives organic growth,” Hyman says.

There’s been an uptick in the first quarter. As of 8 April, Rent the Runway reached 141,000 active subscribers, its highest to date, following the extra item programme launch. “We’re seeing the benefits come in an improvement in our loyalty rate, in customers who had formally churned rejoining our programmes and a reduction in our pause rate,” Hyman says. 

Looking forward, for fiscal year 2023, Rent the Runway expects to achieve revenues in the range of $320 to $330 million, and grow subscriber count by a minimum of 25 per cent. “Our growth margins are healthy, the cost structure is right-size, this is really the time to focus on growth,” Hyman says. This subscriber growth would bring the total to approximately 176,250 — just shy of the 185,000 Hyman says are needed to reach free cash flow and break even.

“The company is at this inflection point right now where that is well within reach. We believe that our strategies, which are all about delivering improvement to the customer experience, are the very strategies that will bring us from the 141,000 subscribers we have today to 185,000 subs.” 

The company isn’t providing a concrete timeline for reaching profitability. Instead, it says it is highlighting the consumer experience-focused tools for the investment community to understand how the company plans to get there — whenever it may be. “[Today], I’ve given more information and financial transparency than we have since our IPO,” Hyman says. The company plans to cut cash consumption by at least half. “We’re showing people how the 25 per cent subscriber growth is translating into a business that is driving towards being self-funding.” 

“We feel that the strategy of investment into customer experience and innovation will drive growth in our business and bring [it] to free cash flow profitability.”

Correction: 44 percent refers to gross margins, not growth margins. 

Clarification: Distinguishes between the 2022 layoffs and 2020 subscription pauses and cancellations. 

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