At the start of the pandemic, Katherine Simpson put her Rent the Runway subscription on hiatus. But the San Francisco-based labor union communications specialist recently relaunched the service, which lets her rent up to eight outfits and accessories for $144 a month. “Living in a city, my wife and I have very little closet space, so being able to return items that take up a lot of space, like outerwear, is really helpful for us,” she explains.
Rent the Runway needs it. By the end of 2020, nearly two-thirds of its 134,000 customers had abandoned its monthly rental service, forcing the company to cut costs by 51 percent and lay off or lay off half of its staff. The 13-year-old company’s stock is currently trading around $5.34, down from its October initial public offering price of $21 a share.
After being billed as a fast-fashion disruptor — “I plan to put Zara out of business,” chief executive Jennifer Hyman told online trade publication Glossy in 2017 — Rent the Runway is part of a group of companies that have launched about a decade ago billed as another Gap (Everlane), LensCrafters owner EssilorLuxottica (Warby Parker), Estée Lauder (Glossier) or eBay for designer luxury (The RealReal). With a great brand and an ability to recruit new customers on social media, these native online businesses were treated – and financed – like technology companies, promising large audiences, rapid growth and lower operational costs than operators current loaded with expensive shops and “middle men”. .
A decade later and a slew of IPOs later – luxury online consignment website RealReal went public in June 2019, followed by peer resale platforms Poshmark and ThredUp, stylish eyewear maker Warby Parker, Rent the Runway and sustainability – shoe brand Allbirds in 2021 – this vision has yet to materialize and investors are increasingly unsure that it will ever happen.
“The big question is how did so many people believe their story?” says Sucharita Kodali, principal analyst at Forrester. “People wanted to believe that Goliath could be broken and that all it took was a little money from Silicon Valley to break Goliath.”
It turns out that disrupting Goliath requires a lot of expensive infrastructure. Early on, Everlane and Warby Parker realized that the very cost they promised to cut — stores — would be necessary to reach the masses: Even during the height of the pandemic in 2020, only 14 percent of adults bought glasses online, according to The Vision . Council, and the vast majority of clothes are still bought offline. To make its rental model work, Rent the Runway became the world’s largest dry cleaner. And though it only has a handful of stores, RealReal has spent millions on warehouse space to house, photograph and ship the luxury second-hand goods it sells online. Meanwhile, the cost of acquiring new customers through social networks has increased greatly. As a result, none of these companies are profitable – and, for most, their losses are widening.
The numbers have improved at Rent the Runway, which reported a record 134,998 active subscribers in its most recent quarter. But with less than 0.08 percent of American women subscribing to its service, the company is falling far short of the claim on its LinkedIn page that “women everywhere will soon have a fashion subscription.” Many customers don’t see the value in paying for clothes they can’t wear; a former customer complained about the logistics involved in returning rental parts.
RealReal founder Julie Wainwright, who was replaced as chief executive in June © Getty Images for Vanity Fair
Warby Parker founders Dave Gilboa and Neil Blumenthal © Getty Images
It’s a similar story at Warby Parker, which launched in 2010 promising to take on EssilorLuxottica with mid-cost prescription frames (originally priced at around $95) sold “direct to consumer” online. The company, which raised more than half a billion dollars from investors before going public and now offers eye exams and contact lenses in its 160 stores, has captured 1 percent of the market share according to the S-1 filing; EssilorLuxottica has 20 percent. Warby Parker announced this month that it would lay off 15 percent of its corporate workforce and cut marketing costs as its losses deepened to $32.2 million on revenue of $149.6 million in the latest quarter. The proposed solution? Expand its retail footprint to 900 stores.
Merino wool sneaker maker Allbirds, whose shares traded at less than a fifth of $28.64 a share at the close of its first day of trading, announced layoffs and the closure of its activewear line this month as net losses widened. to 18.1 million dollars. Profits have also proved elusive at The RealReal despite growth in the overall second-hand luxury market, leading to the replacement of founder Julie Wainwright as chief executive in June. (Glossier founder Emily Weiss stepped down as the beauty brand’s chief executive in May.)
Apart from Rent the Runway, most of these companies got a boost during the Covid-19 lockdowns – after all, they are very good at selling online. But these gains have not proved sustainable, and as their market values slide and profitability remains elusive, they no longer provide the disruptive potential they once seemed. “They’re just digital-first retail stores,” says Forrester’s Kodali.
As long as these companies can continue to pay rent, they will survive the economic slowdown in the US. One of their peers, online direct-to-consumer mattress company Casper, offers a cautionary tale — after two years of public trading, it was bought by a private equity firm for just over half its IPO price in November. For now, the rulers can rest easy.
Lauren Indvik is fashion editor of the FT
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