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Preparing for a public offering: Rent the Runway seeks to enter stock market

Rental clothing platform struggles financially yet attributes a surge in customer preference for eco-friendly and pre-owned apparel as a key driver for expansion.

Preparing for a public offering: Rent the Runway seeks to go public
Preparing for a public offering: Rent the Runway seeks to go public

Preparing for a public offering: Rent the Runway seeks to enter stock market

Digital-first apparel rental retailer Rent the Runway is preparing for a public offering, aiming to drive growth and improve subscriber retention through a strategic pivot centred around aggressive inventory expansion and enhanced customer engagement.

The company, which currently boasts 126,841 active or paused subscribers as of July 31, 2021, plans to significantly increase its inventory by 134% year-over-year by 2025. This ambitious move will add over 40 new brands and thousands of new styles, aiming to address a major customer pain point—product availability—by reducing out-of-stock issues and expanding choice.

To improve the customer experience and retention, Rent the Runway is enhancing the onboarding process. This includes offering "white glove service," such as direct stylist calls to new members (which expanded from 50% to 100% of new subscribers), a 60-day satisfaction promise, and new product features like back-in-stock notifications. These efforts have seen high engagement rates and have contributed to subscriber retention reaching its strongest level in four years, with add-on purchases from existing customers increasing 11% year-over-year.

The company is also driving engagement through brand collaborations and social media, expanding its offerings with key partnerships and boosting social media interactions by 163%. This strategy has helped to build customer loyalty and community.

However, Rent the Runway faces financial challenges as it scales up its inventory. Despite a 1% growth in active subscribers to over 147,000 in Q1 2022 and strong subscriber retention, revenue declined by 7.2% year-over-year in Q1 2022, while net loss widened from $22 million to $26 million. Adjusted EBITDA turned negative, and the company projects continuing losses and a negative free cash flow of $30-40 million for the full year.

The key question is whether these aggressive investments will translate to sustainable growth and profitability as Rent the Runway prepares for its public offering. The near-term financial picture remains challenging, with revenue in Q2 2022 expected between $76 million and $80 million and adjusted EBITDA margins close to breakeven.

The fashion industry's vagaries and continued pandemic-related pressures also pose challenges to Rent the Runway's prospects. The pandemic has caused a decrease in the company's active subscribers and has posed challenges to its growth. In 2020, Rent the Runway reported a net loss of $171.1 million, up from $153.9 million in 2019.

Despite these challenges, Rent the Runway identifies several factors in its favour. These include consumers' interest in sustainability, the normalization of secondhand clothing, and the growth of e-commerce. This year, the company opened its secondhand clothing online sales to nonsubscribers and has launched more affordable and flexible subscription tiers.

Rent the Runway has also filed a Form S-1 registration statement with the U.S. Securities and Exchange Commission for an initial public offering. The company's stock will be listed on the Nasdaq Global Select Market under the ticker symbol "RENT".

In addition to its digital offerings, Rent the Runway has partnered with hotels on delivery for travelers and with Nordstrom and WeWork to establish physical locations for pickup and dropoff. The company's "closet in the cloud" concept, which involves owning apparel but making it accessible to subscribers, offers over 18,000 styles by over 750 designer brands.

Despite dropping its "unlimited" plans, Rent the Runway continues to innovate and adapt to meet the needs of its customers. With its strategic pivot and expansion plans, the company is positioning itself for a strong future in the ever-evolving world of fashion rental and retail.

  1. As Rent the Runway prepares for its public offering, it aims to expand its inventory by 134% year-over-year by 2025, adding over 40 new brands and thousands of new styles to address product availability and increase customer choice.
  2. To improve subscriber retention, Rent the Runway is enhancing the onboarding process, including offering white glove service, a 60-day satisfaction promise, and new product features like back-in-stock notifications, which have contributed to high engagement rates.
  3. The company is leveraging AI and technology to drive engagement through brand collaborations, social media, and partnerships, boosting social media interactions by 163% and building customer loyalty and community.
  4. In the midst of financial challenges, including a decline in revenue and widened net loss, Rent the Runway is preparing for a public offering, listing its stock on the Nasdaq Global Select Market under the ticker symbol "RENT."
  5. The ongoing pandemic remains a challenge for the fashion industry and has caused a decrease in Rent the Runway's active subscribers, posing growth challenges for the company. However, the company sees potential in consumers' interest in sustainability, the normalization of secondhand clothing, and the growth of e-commerce.

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