Alibaba founders bet on US subscription clothing pioneer

Source: https://asia.nikkei.com

NEW YORK — Seated in a padded armchair at Rent the Runway’s flagship store near New York City’s Union Square, Abby holds an armful of dresses, waiting to try them on. If she likes them, she will rent them as part of her $159 monthly subscription to the company’s “Unlimited” service, which allows her to keep up to four items at a time indefinitely.

But Abby will not keep her picks for too long. After wearing them to go out with friends, she will be back in a week or so to select a new outfit. “If you have to go to a lot of events, it’s cheaper than buying clothes,” she said. “I’ve gone to three or four weddings this year.”

Founded by then-Harvard Business School students Jennifer Hyman and Jennifer Fleiss in 2009, Rent the Runway is now valued by analysts at around $800 million. There are five stores in the U.S. where members can try on and rent items, although the bulk of exchanges occur through e-commerce, with members ordering items online or through an app, and receiving or returning them via a courier delivery service.

In early March, Alibaba Group Holding Chairman Jack Ma Yun and co-founder Joseph Tsai invested $20 million in Rent the Runway via their Blue Pool Capital fund, underlining the potential they see in taking the New York company’s concept to Asia and beyond.

“It was a really interesting business model innovation that hadn’t been seen in apparel,” said Jeremy Sporn, a New York-based retail partner at Oliver Wyman, a management consultancy. “Apparel used to be a product you would buy and own. They created a new commercial model to rent that product.”

Recalling the day when Hyman and Fleiss described their idea to him, Harvard digital marketing professor Sunil Gupta said the students had an intimate awareness of the needs of their target demographic. Many young women, they told Gupta, faced a wardrobe dilemma. Due to the rising popularity of social media, they did not want to be seen in the same outfit twice. On the other hand, they could not afford to buy new clothes every time they attended a party or event.

The idea struck a chord with consumers, proving so successful that the founders expanded beyond individually priced formal dress rentals. Now members can use their monthly subscriptions to rent everyday clothes, bags and jewelry. Since the company launched its Unlimited option in 2016 its subscriber rate has increased 150% year-on-year.

While the company’s flagship store is in New York, subscribers are located across the U.S., and half live outside major metropolitan areas. Later this year the company will open its second 28,000-sq.-meter warehouse facility in Texas.

“Why they are successful is very simple in my mind,” Gupta said. “There is a very powerful value proposition. There’s a strong sense among consumers that they’re solving a problem. Any business that solves a very real consumer problem is likely to be successful.”

Facing a growing sea of imitators in the U.S. — from standalone companies like Gwynnie Bee to retailers such as Ann Taylor that are experimenting with the subscription model — Rent the Runway appears to be setting its long-term sights overseas. The Blue Pool investment kicks off what Hyman called the company’s “biggest growth stage yet,” and the addition of the Alibaba executives places it in a good spot for eventual Asian expansion.



Categories: Apparel, Business, Retail, USA

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