When Rent the Runway began renting designer dresses in 2009, it had a powerful sales tool — wedding guest word-of-mouth.
That’s the phenomenon that occurs when a wedding guest on the dance floor shouts over the band, “You like my dress? It’s Rent the Runway. You should try them.”
As Rent the Runway executives were planning to take the company to the next level, with a subscription service to help women get dressed daily for their everyday lives, they worried those word-of-mouth endorsements would disappear if Rent the Runway became more of a routine experience and less of a special event.
“That was a real, head-popping question we had as we were thinking about going into the new field of a subscription business,” Rent the Runway chief operating officer Maureen Sullivan said at the CommerceNext conference in New York City attended by CO—.
It turned out they didn’t need to worry. Workplace word-of-mouth proved to be even more powerful than wedding guest word-of-mouth.
Rent the Runway launched its RTR Unlimited subscription program in March 2016, and added a lower-priced version, RTR Update, in October 2017. Since the launch, the subscriber base has consistently doubled year-over-year, according to the company.
Rent the Runway, as a private company, doesn’t reveal its revenues, but it has achieved “unicorn” status, valued at $1 billion after receiving $125 million in financing in its latest round of investor fundraising in March 2019.
They’re seeing women in their offices walking in with Rent the Runway bags. They’re hearing people talking about it.
Maureen Sullivan, COO, Rent the Runway
Boost sales
Rent the Runway's marketing tactics and growth rely heavily on customer referrals. Read more about word-of-mouth marketing here, along with a few other tips for boosting sales.
At the forefront of the rental trend
The brand has done such a good job of showing the fashion world the power of the rented, or shared, closet, that some of the biggest names in retail are jumping into the rental space. Bloomingdale’s will begin offering rentals in the fall, Macy’s is exploring rentals, and Ann Taylor, Urban Outfitters and Banana Republic have started or announced rental programs.
The clothing rental market in the United States has grown from $200 million in 2012 to over $1.2 billion in 2019, according to retail analytics firm GlobalData. It expects rental revenues to top $2.5 billion by 2023.
“We’ve seen younger generations, particularly Gen Z and millennials, being comfortable with renting versus owning,” Alex Fitzgerald, manager in the consumer and retail practice of A.T. Kearney, a global strategy and management consulting firm, told CO—. “We’ve seen that trend in a lot of different categories for a number of years but now it’s really taking shape within apparel,” she said.
Dana, a 27-year-old woman who works in finance in New York City, said her $160 monthly Rent the Runway membership not only has allowed her to make bolder clothing choices for work, but has also removed the burden of doing dry cleaning and laundry.
“They wash it, they do everything. I just need to send it back to them,” she said. “I always look at what my opportunity cost is,” she said. “Spending $160 a month on Rent the Runway is cheaper than going out to buy clothes, cleaning them, storing them, all of that adds up.”
Rent the Runway’s best asset, Sullivan said, has always been the willingness of women to share with other women when they find clothes they love, or find a great deal.
Back in the early days of Rent the Runway, Sullivan said, those wedding guests could have simply said thank you when complimented about their dresses. “Instead — and it makes me realize how incredible women are and how much they want to help each other — [they] turned into an infomercial,” Sullivan said.
More than 90% of Rent the Runway’s customers “come from good old-fashioned word-of-mouth,” she said.
Women in the workplace, the company discovered, were as passionate about telling colleagues about Rent the Runway as those wedding guests.
Some offices, Sullivan said, even have their own Rent the Runway Slack channels.
Subscriptions yield a reliable revenue stream
The subscription model gives Rent the Runway a reliable revenue stream that is steadier than one-time rentals, although it continues to offer those.
Subscribers pay $159 a month for RTR Unlimited, which allows them to select four items of clothing at a time, and get new pieces as they return the items they have worn. The RTR Update subscription, which offers a smaller selection of clothes, is $89 a month.
The casualization of the workplace has helped grow subscriptions, Sullivan said. Even though workplaces are more casual, it is costing more to dress for work, she said.
Women, she said, used to spend 2.5% of their take home pay getting dressed for work, before the shift to casual workplaces that began around the year 2000. “We’re now spending 6.5%,” Sullivan said. What’s more, work suits have been replaced by a larger wardrobe of separates, and have prompted the need for more variety. For women, that need complicates dressing for work, she said.
The Rent the Runway stores, and drop-off boxes at select WeWork offices, Nordstrom stores in Los Angeles and at other locations are also spreading brand awareness, Sullivan said.
The company’s “most engaged” users wear Rent the Runway clothes 120 days a year, Sullivan said.
When Rent the Runway began renting special occasion clothes 10 years ago, designers were skeptical about partnering with the startup, Sullivan said. Now, brands see the value of being part of the Rent the Runway revolving closet, as traditional department stores are on the decline.
“We’re a new distribution partner, so while their traditional distribution partners may not be headed in the right direction, we’re buying and growing,” Sullivan said. “We can help grow their business in a non-traditional way.”
Designers and fashion brand executives became more willing and eager to partner with Rent the Runway when they saw how many women in their own offices and workplaces were fans.
“They’re seeing women in their offices walking in with Rent the Runway bags,” Sullivan said. “They’re hearing people talking about it.” And that convinces brands that they need to be part of Rent the Runway, she said. It’s another example of workplace word-of-mouth paying off for Rent the Runway.
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