Open Q&A about Rent the Runway | CEO of Rent The Runway Jennifer Hyman

That initial conversation with Diane von Furstenberg we had gave us this really critical piece of insight that the primary customer of designer fashion is a woman in her 50s or 60s, and that designer fashion is lacking a younger generation of women to consume her product. So we understood via Rent the Runway that we had the power to open up the total addressable market for fashion. The second thing we learned is that a lot of designer fashion is consumed primarily in major metros, in some of the New Yorks and LAs and San Franciscos of the world. But in secondary or tertiary markets where there aren't as many retail stores, especially luxury retail stores, designers are able to sell less there. Because there's more of a risk in trying brands that you've never known, worn before, seen in real life. So we understood that we would be able to bring geographic diversity to the fashion industry as well. The most important thing that we did though when launching Rent the Runway is we followed the philosophy that I was telling you about of show, not tell. We knew that That people would really be fearful of this concept unless the customer was young. So we launched photo reviews on Rent the Runway, where after your experience, you can upload a photo of yourself from the event. You'll tell us your height, your weight, your chest size, and tell the story of the night that you rented the runway. And 1 in every 4 of our customers has uploaded a photo.

Wow.

So we have hundreds of thousands of photos on our site of young women celebrating their lives, renting the runway, and designers can see for themselves that this is a new customer base. And those photo reviews were really the clincher in having designers feel comfortable working with us. Yeah.

Why do you have to care if they feel comfortable working with you?

Because I needed to to actually be able to make money. And if I were to procure the inventory from a retail store, I would be paying double if not triple the amount, and I wouldn't be able to control what I got or the quantities of what I got. So I needed to be able to buy wholesale and to be able to have full control over my supply. Yeah.

Yes?

OK.

I love your products.

I love your business. It's great that you talked to the point that you didn't have experience in it. You just love the passion of fashion. My question is in regards to the insurance policy. How difficult was it for you to get an insurance company on board that was willing to kind of not know what was going to happen to the dresses? I know you said surprisingly people appreciated the product.

We actually don't have an insurance company. So we charge you $5 insurance. And we use that $5 insurance from your rental to self-insure Against the damage that may happen. So we figured out what percentage of our inventory might come back with wear and tear, stains, or damage. And we figured out then, therefore, what do we need to charge everyone for an insurance fee to make this economically viable?

Thanks for coming again.

Let's see, so 2 questions. I know my first one I asked you earlier was like personal, but these ones are two personal ones for you. One of them, the first one's regarding the past, second one's regarding the future for Rent the Runway. So the past, I know you used to work at Starwood Hotels prior to going to HBS. So what, was there any experience there that was super influential to or super helpful to your experiences now leading a company? And then the second one, for the future, there are all these— not all these companies, but there are some startups coming up that are also in the shared economy space about sharing clothes with your neighbors. So like StyleAway or WearAway. What are your thoughts on them as competitors or just— I know Rent the Room is kind of on its own space, but your thoughts on that.

So there certainly were things from my experience at Starwood that have informed the creation of Rent the Runway. When I was at Starwood Hotels, I started working there as a 21-year-old, and it was right after September 11th. And the travel industry was going through a really rough time after September 11th because no one was traveling. So the environment at Starwood was very chaotic at the time and therefore very entrepreneurial. They were open to any idea that would help them improve their business, and they weren't paying that much attention to ambitious young people who had an idea. They were like, yeah, yeah, go out and do it. So I actually had the opportunity there to start a business inside the company, and I started a wedding business for Starwood with one of the core tenets of that wedding business being the first honeymoon registry in the country. Because I had had this thesis that people were getting married later. We had entered the experience economy. People already own pots and pans, and maybe they would register for a trip for a honeymoon and have their friends and family buy them hotel nights or scuba diving or experiences, as opposed to buying them plates for their wedding from Crate and Barrel. And it was so interesting that I was already in 2001, 2002 thinking about the experience economy and seeing my own friends and my own generation, you know, living their life differently, having different values than my parents' generation had had. If you rewind, you know, 20 or 30 years ago, when you graduated from college, you started saving to buy a house. You potentially were going to get married within the next 1 to 2 years after graduating. You might move to the suburbs a year or 2 later. You would start to buy furniture. You would buy a car. That just doesn't happen anymore. I mean, people are getting married 5 to 8 years later than they were 15 years ago. We're not buying homes or cars to the same degree that we were. We're spending our disposable income on experiences like trips and clothing that we love wearing or— Travel. You know, things going to a cool new restaurant, and I had had this thesis at the time. Like why? Why do we care more about experiences than we care about owning actual things? It's partly because of, I think, social media and Facebook. A part of all of us right now, we're all in the personal branding business. If you have a Facebook page, you have an Instagram profile. You're untagging yourself from Facebook photos where you don't look good. You're only tweeting the smartest, wittiest version of yourself. You're only Instagramming from cool places. So you're creating this kind of mock version of you, this idealized version of you that's your brand, that isn't exactly on target with who you are. And so what are you going to be using to brand yourself You're going to be using experiences. You're not going to show people, oh, I just bought this new carpet. You're going to be showing people you went to this cool new restaurant, or you just went to St. Barts, or you just were in Paris. So I think that social media has really created, in a sense, the need for the experience economy and has totally changed our value set. And now that we can actually access whatever we want whenever we want it, You don't have to own a home. You don't have to own a car anymore because of Uber. It has really changed the game in that way. As to just the— what do we think about the collaborative consumption space? So businesses where you effectively can sell things from your own closet or buy things from other people's closets. I think it's fantastic because any business that's making you think about your closet differently creates a boom for Rent the Runway and makes what we're doing bigger. The closet is like the last bastion in your home that hasn't been innovated. If you think of every single part of your home, it's fundamentally different than it was 5 to 10 years ago. So your kitchen, you might be using Blue Apron now, or Seamless, or Munchery, or Instacart to get your food. Your streaming your Spotify via a Sonos speaker, you're using Roku or Netflix to consume your entertainment content, your closet fundamentally looks like your grandfather or your grandmother's closet looked. You have a lot of stuff in it, most of it you don't wear, you push stuff to the back of your closet, which is effectively rental, right? Whenever you push something to the back of your closet, You're making this mental delineation that you don't need this right now or you don't need it anymore. That's renting. It's just we're the first company to make that possible for you to actually rent your clothes and to actually build out the logistics and the infrastructure to make that possible. So often I view other platforms potential competitors in the space as being great. Coke wouldn't be Coke had there not been a Pepsi. You need a competitor in order to actually build the market.

Yes?

Quick question. So what is your physical presence like right now? And if you don't really have one, are you looking into having a more physical presence beyond the online scheme?

We have started to open physical physical retail stores throughout the US right now. We now have stores in New York, Chicago, DC, and Vegas. And the mission behind the stores is both to really introduce the brand in the most beautiful way possible and get the brand out there to that entire market. So it's the most efficient use of marketing dollars. But more importantly, it provides a customer experience guarantee to everyone who lives in the market. So what I mean is we run clothes. There's a certain percentage of the time where you're gonna receive an order from us and maybe you're not gonna like the way it looks on you. Now that I have a store in Chicago, within 20 minutes I can courier you more inventory from the store. So I could actually guarantee you a perfect experience. Or another example is it snows a lot in Chicago and UPS stops operating in the snow. But people still have weddings to attend and interviews to go on and dates to go on even in a snowstorm. So now if UPS completely shuts down, I can use my store as a mini warehouse and actually get people their— the inventory that they want and they need. So we will be opening very soon in kind of major cities throughout the country.

That's really interesting to me because my product, what we do is we're basically non-invasive kind of a way to highlight the fun of what happens in a venue or in an area, space. We're dabbling into beauty and stuff as well, but it's almost like a video booth experience where people can dive in front of and, you know, have their fun and post to social media and allow the venues to get, you know, demographic information and also branding opportunities as well. So we are working with Starlight as well, and like SBE and those other kind of venues as well, and nightlife, but We're diving into beauty, so it's cool to see you guys are doing stores and stuff, and I'd love for you eventually to see our product and get an opinion on what you think as a beauty insider.

Well, I'm definitely not a beauty insider. You should definitely talk to Katya from Birchbox, and she's the— I think the best innovator in beauty. I'd love to think—

I'd love to know what you think as a business owner in beauty though, and in fashion and stuff. stuff like that. We are trying to dive into fashion shows and all that kind of New York Fashion Week and stuff, so it would be interesting.

Yes.

Well, 8% of all VC money goes to women, and you are—

Less than 8%, actually.

Less than 8%.

And you are a prime example that women can run, build a successful company. What message do you have for VCs today about the role of women in startups? Because we are just as hungry, just as determined, and we work just as hard as our male counterparts. So what would you tell them today?

Well, I again think you show rather than tell. We're building a multi-billion-dollar company that's founded by and led by women. 75% of my employees and 80% of my executive team are women. And I think that when you build a an amazing culture, an amazing company that is run by women. You can show people that when you invest in people that don't necessarily look the part, you can make fabulous and fantastic returns. So I'm all about also showcasing a diversity of leadership and a diversity of what it means to be a woman at work. So for instance, we have Lots of women at Rent the Runway who are moms, who are single, who are tough, who are warm, who are bubbly, who are divorced, who are all different kinds of female leaders. And I think that one of the problems for women at work in the past has been that it was very bifurcated. In order to be successful in most corporations, you had to either act like a man, act very masculine, and kind of have this command and control approach, or women took a very fluffy, feminine, kind of more vacuous approach and didn't really get anywhere. And I think that what we're seeing today by lots of amazing women who have received great funding and have built amazing businesses, so people like Katrina Lake at Stitch Stitch Fix, or Katya Beauchamp at Birchbox, or Alexa von Tobel at LearnVest. There's amazing women, and they're showing that you could just be yourself, and you could be warm, and you could be authentic, and a lot of people are going to want to work for you. One of the main things that I've heard that's a challenge is VCs understand that fundamentally we're building a technology and logistics company, which means that a lot of male engineers have to want to work for a company called Rent the Runway? I'm like, you know what, a lot of men want to work at a company that's really warm and that's a great place to work and where their leader has vision and where they're going to build a multibillion-dollar company that's changing an industry. No one's ever asked, well, would a woman want to work for a man at a company that's primarily serving men? There are a lot of women that work at video game companies, whereas the primary consumer of video games as men. So it's like, let's just— I think that younger generations today are a lot more open to understanding that they just want to change an industry and build a business. Like, who really cares if the product is fundamentally for men or for women? As long as you're having fun and the culture of the company is awesome, you're given entrepreneurial opportunities there, it's going to be great. So I just think that women spend a little bit too much time fighting the fight and talking the talk instead of walking the walk. And if we put all of our energy into just building awesome companies and showing that, you know, confident women can change the world, those ratios are going to change.

Yes?

Yes.

So I actually run a software as a service company. So my question for you is, kind of like, what's the lifetime value of your customer? Who is your customer? How do you keep churn as low as possible?

Well, my customer is who I call the go-getter girl. She has— she's really smart. She's professional. She's renting because it's a luxurious convenience for her to rent, and then it's much smarter to rent a hot pink dress or to rent something she knows she's only gonna wear once or twice as opposed to buy it. And she's renting for multiple types of occasions, everything from a date to a partying to a wedding to a black-tie affair. And then we also have a cohort of customers who is subscribing and renting every day to go to work or to wear clothing on the weekends. So we really think about how do we make sure that we have the right merchandise for all of the different use cases that she could potentially have. Because the lifetime value of our customer could potentially be— we have no idea what it's going to be. Someone who is 15 has a rationale for Rent the Runway. They might be using us for prom or for homecoming. Someone who's 55 still has a rationale for Rent the Runway. So it's really providing her an amazing experience every single time so that as she evolves in her life, She thinks about us for every single kind of use case that comes up. So one thing that's been really important for us is actually pregnancy. When women get pregnant, obviously their body changes. They don't like to buy clothes because they know that what their size is when they're 3 or 4 months pregnant is not their real size, and they are wasting money on those clothes. So actually, a lot of women start renting The Runway when they get pregnant. And they see that they can use this throughout this transition in their life. So understanding what are those key moments in time when you can potentially acquire a customer and give her this amazing experience that's so much better than what she ever dreamed of, that has been really important for us.

Very important.

Thanks.

Yes, Billy.

Hi. So I'm involved in a beer company. I think it's one of the most prominent brands. But I've got 2 questions. The simpler one is, are you planning to branch out to males soon? And I guess the more deeper question is, whenever I think of Rent the Runway, I always think that, are you worried about that there might be a dilution of exclusivity? Because what you're offering is that you're offering accessibility to high fashion items, which means that these are items in which people are interested because Because there's a certain level of inaccessibility, right? And you're giving accessibility, and is there like a spiral that you worry about?

Well, I think those are great questions. As to whether we're going to do it for men, I think you have to stay laser-focused on what your objective is and who the customer is until you're so profitable that you could take lots of other bets. So until we are a Until we're at a different stage of our growth, we are staying focused on women. And I think that we're also very honest that a lot of the reason why women buy 64 new articles of clothing per year, regardless of their income, is because there's a lot more stress for women to look a certain way, Because women are evaluated for the way they look a lot more than men are. You know, men might be evaluated for how much money you make or for how funny you are, but from the time that women are young, you're evaluated for what you wear and how pretty you are, etc. So it's a huge stress point for women. So there's something that's really important to me about just giving women this ability to feel awesome about themselves.

Themselves.

And that— if we live in a culture where I put on a designer dress and I suddenly feel empowered and I feel like I can rock that interview or, you know, have an amazing date with the guy that I'm falling in love with, then that's awesome that I'm able to unlock that for my customer. Yes, we are democratizing an industry that has actually been based based around exclusivity. And I think that I have a general belief that we are educating a global population of people to aspire to a life that 99% of us can't afford. If Nicki Minaj is going to rap about Alexander McQueen and Balmain in her songs, and everyone's going to know what these brands are, But no one is ever going to be able to wear them. What does that say to the average person? It says you're not good enough for the real thing, all you can have is some schlocky imitation from H&M. I don't think that we should be in a world where your, your wedding is less important than this rich person's wedding because this rich person's wedding, because they have more I think we should live in a world where the events in your life are just as meaningful and just as important as anyone else's. And that is really the kind of revolutionary ethos of Rent the Runway, that I don't think that beautiful high fashion should be reserved for the top 0.1% of society.

Yeah, I have a question.

I'm probably a You're not as far off from your target market than you think. And that's what my question is about. The US market seems to be the perfect launch market for your company because they really care about reputation and how they look. And the US is, at least from a European standpoint, famous for spending a lot of money on that. How do you look at other markets, for example in Europe? Can you roll out the same model there, or do you need to tweak it? And how are you planning on doing that?

We definitely know that Rent the Runway has global applications, and fortunately we live in a world that these brands are well known globally. And women around the world want to look and feel great. And I think that the question is less, does this have application in other markets? It's more, which will be the market that you go into next? Because there are a lot of pros and cons to various decisions. So for example, it would be really easy for us to launch in the UK, which has a huge similarity to their designer preferences, obviously Speaks— they speak English, huge market, very easy to launch there, sophisticated logistics in that country. But the market size may not be as attractive as going to a place like Brazil or going to a place like India. So we are evaluating kind of the risk-reward of what— how we kind of go global. And because we're primarily a logistics company, right, we're not just renting fashion. Like, all this fashion is coming back to us. We have a 160,000-square-foot warehouse where we built out all the technology to run just-in-time reverse logistics. I operate the largest dry cleaning operation in the US out of my warehouse. And we— it's like a Willy Wonka land of fashion. When we go into another market, it takes a huge there's a huge expense in setting up that operational capability in that market. So we also need to understand not just where we can make the most money, where the customer demand is going to be there, but also where can we— where are the logistical systems going to be ready? So what market has shipping systems that we can plug into and rely on. So, you know, various places in India might not be as great for us as going to Germany, where we know that if you ship something and you— they say it's going to be there tomorrow, it's going to be there tomorrow, because so much of our business is based around the time sensitivity of that event. So there are a lot of questions to think about, and obviously there's no right answer. So wherever we go next, I think it's going to be just a weighing of Pros and cons.

Last question.

Last question? Oh my God, I know, I know, I know. I'm gonna do, I'm gonna do 2 questions, 2 last questions. Okay, I'm gonna go with you.

So how do you compete with other online retailers? For example, I have a prom and I need a dress, so I buy a dress online.

It's illegal to rent dresses.

Yeah, so you are bringing up one of the biggest rationales for Rent the Runway. We had learned from the owners of retail stores that over 50% of people who buy dresses from their stores return them to the stores having been worn. So people have been renting the runway illegally for decades. And effectively, one of the things that we're doing Rent the Runway is we're taking away the worst customers from some of these department stores and monetizing them. Because it's not good for anyone if someone is renting the runway from a department store and returning a worn dress to their store because they could never sell it again and they need to write that inventory off. So we really think about how can we be synergistic with retail. Again, we don't sell things, and we certainly don't sell things that are brand new. So after someone rents the runway, a lot of the time they fall in love with that brand that they just tried for the first time, and they actually want to purchase something from that brand. Well, we're directing them right back to the brands that we work with or right back to retailers to purchase this. So again, I really see Rent the Runway as majorly competitive to an H&M or a Zara and actually really helpful to designer fashion and to department stores.