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When Rent the Runway first entered the spotlight in light of the rise of eco-conscious consumers, the fashion rental company was touted as the innovative and cool way of dressing up sustainability without having to worry about the garments ending up in landfills.
However, since its 2021 IPO of 17.25 USD per share, the Rent the Runway stock has plummeted by almost 96% to a price of 0.58 USD as of the publishing of this article. This significant drop prompts the question: What caused the Rent the Runway stock to crash?
Despite impressive numbers such as an expected annual revenue of $320 million to $330 million and achieving a record 141,205 active subscribers since its founding back in 2009, the company has yet to make a profit, with a reported loss of $138.7 million for the fiscal year 2022.
Rent the Runway CEO Jennifer Hyman emphasizes that expanding the subscriber base stands as the pivotal factor driving the company’s path towards profitability. This subscriber growth may prove more difficult given a myriad of reasons.
Increasing Competition
Although Rent the Runway is touted as the world’s first and largest shared designer closet, it’s no longer the only fashion rental company on the block. Notable competitors include ThredUp and The RealReal, both of which have suffered roughly a 90% stock price decline since their IPOs.
A new entry is By Rotation, a UK-based clothing rental app. Launched in 2019 by Eshita Kabra-Davies with 330,000 registered users, the app allows for peer-to-peer rentals similar to Airbnb and Uber.
Another big name looking to get a cut of the pie is Urban Outfitters, which launched a clothing rental subscription service called Nuuly that offers garments from Urban Outfitters, Free People, Anthropologie, and 400 other brands and designers. With 198,000 subscribers as of Nov 3, 2023, Nuuly is expected to become profitable in its third or fourth fiscal quarter of 2023.
Is It Actually Cheaper?
Renting clothing over the long term can seem cost-effective initially due to the lower upfront expenses and access to a variety of high-end items. However, when considering extended periods, the cumulative cost of rental fees can surpass the price of purchasing similar clothing items.
When renting clothing, there’s also often a risk of damage or accidental wear and tear to the garments. In many rental agreements, users can be held liable for any damages beyond normal wear and tear. This means that if the rented clothing gets stained, torn, or damaged in any way, the individual renting it may be responsible for covering the cost of repairs or even the full retail value of the item.
The potential for added costs and liabilities might discourage customers from renting and lead them to prefer outright purchases instead.
Sustainable Or Not?
Fashion rental’s sustainability remains a topic of debate due to complex factors influencing its environmental impact. Various studies and perspectives contribute contrasting viewpoints.
On one hand, fashion rental services are lauded for reducing clothing waste by providing access to trendy pieces without necessitating permanent ownership. Proponents argue that this curbs excessive consumption and minimizes closet overflow, ultimately reducing the demand for new clothing production.
However, conflicting opinions arise. Some studies, like a 2021 Finnish study, suggest that clothing rental might have a higher environmental footprint compared to other practices like resale, recycling, or even short-term clothing ownership. Factors contributing to this include transportation logistics, garment care (like dry cleaning), and packaging materials used for each rental cycle.
Critics point out specific issues, such as the environmental cost of frequent transportation associated with deliveries and returns, single-use packaging materials, and the necessity for dry cleaning between rental uses. These practices might counteract the positive aspects of clothing reuse and sharing.
Despite the contrasting views, some rental companies make efforts to offset their environmental impact. Rent the Runway claims to offset transportation emissions and has a public sustainability policy, attempting to mitigate its ecological footprint. This, of course, costs money to the detriment of shareholders.
