Rent the Runway: Case Study Helen Lu IE 352- Strategies of Innovation and Entrepreneurship March 22, 2016

Qualitative Analysis Customer Value Proposition: Venture initially targets older female population that can afford designer dresses before shifting to younger group (ages 15-30) that would otherwise not be able to purchase fancy gowns (however, many older women are also actively using the website) Benefit: Rent the Runway aims to give every girl the “Cinderella” feeling (founders state that a girl should feel beautiful and special in the sparkly, glowing gown rather than turning to the traditional little black dress for every affair) Addresses the gap between designers who want to build brand loyalty and younger females who want to wear designer clothing but don’t want to drop $1000+ on buying one-time wear dresses Lean startup methodology: Hyman and Fleiss tested out the RTR concept in in-person trial runs at Harvard and Yale before running an online beta test with 5000 invited members as the minimum viable product Technology and Operations Management: Developed sleek, elegant, and easy-to-navigate website that attracted a more mature crowd (compared to the first design, which was dubbed “too girly and teenybopper”) Go To Market Plan: Built a reliable brand name by offering to ship the same dress in a different size for no additional cost along with a second dress style for an additional $25 in case the first dress did not fit Distribution channels: relied on organic, word-of-mouth referrals, online advertising and publicity through Facebook ads/ search engine optimization, recruitment of college ambassadors/ sorority sisters that would bring RTR to their campuses Profit Formula: Revenue stream: Charged 10-15% of the retail price of the dress for renting Had different prices for length of dress rental Charged usually between $50-$300 for dresses, in addition to $13 delivery fee+ $5 insurance fee

Quantitative Analysis Cost coverage and Customer Acquisition: Customer acquisition: Two months after launch, Rent the Runway had 12.5% customers ordering more than once; in same time frame, customer base had grown from 5,000  150,000 In-house production/storage/delivery model: Not only promoted long-term cost reduction, but also made the process easier of convincing designers and retailers to jump on board $1.75M raised in seed funding to purchase dresses and other formal wear Problem: $1.75M in seed funding proved to be not nearly enough, as during busy times of the year (New Years, other holidays), RTR often ran out of inventory and had extremely long waitlists Cost of technology: $45,000 initially + even more later as RTR aimed for a more attractive and easy-to-use design  worth the investment, as shown by massive returns/ 30,000% growth in customer base Profit maximization: In late 2000s, fashion industry was a $149B market, with dresses accounting for $80B alone There is a lot of room for Rent the Runway to expand and take up space in that market as long as it solves its inventory backup (lack of clothing) problem Projected annual growth of market; projected increase of profit margins with greater efficiency and experience Expansion to accessory space and offering a broader range of clothing choices could further boost profits Revenue Stream: Purchase of dresses even lower than wholesale price (40-50% retail price) charge for delivery and rental fee (approximately 10-15% retail price); accounting for cleaning/laundry costs, that means that after 4+ rentals, the dress cost would be covered

Recommendation Rent the Runway should accelerate fundraising and raise more capital in order to purchase more dresses and accessories. With high growth rate, high customer retention rate, and referral/ feedback system in place, Rent the Runway business model is sustainable and scalable After launch, 98% of people purchased brands they had never owned, and 90% indicated that they were interested in buying the brand, meaning that the RTR model is working well Management team/ board members and partners are really invested, meaning that there is strong foundation in the organization Steps to growth: Research  getting experienced advisors on board  shifting target population to include younger women who could otherwise not afford fancy dresses  testing at Harvard, Yale before online beta test  building a better website to attract more users, improve marketing  now what? (next step is to expand inventory) Customer need: demographically diverse population, heavy demand from women of all ages Huge demand proven with beta-test; During the holiday season, the waitlist for formal dresses had over thousands of names on it The biggest barrier to the exponential growth Rent the Runway was experiencing was the lack of inventory (at any given time, over 60% inventory was checked out, and even more for holiday season) Founders should have done more research to realize the inventory problem beforehand, but it is something that can be solved In order to generate more sales, Rent the Runway should increase inventory to expand its reach to a greater segment of the population and have product diversification Competitors such as Wear Today, Gone Tomorrow and Bag Borrow or Steal already offer rentals of a greater range of products (though charging at unfavorable amounts), so RTR should expand in order to stay competitive and capture that segment of the market with lower prices and more efficient “hotel-reservation”-like system While this would put a lot of pressure on the growth of RTR and not give the business enough time to completely cover costs and straighten out operations, RTR must address the booming demand before other competitors come; also there has been enough evidence to prove that revenue will cover costs in long run RTR’s mission is to please the customers as a brand built on customer-satisfaction and referrals, so it is extremely important to address their needs