As technology evolves, it spawns new business models and even new social norms. Over the last decade, for example, a combination of more capable and pervasive mobile devices, huge volumes of user data, artificial intelligence, and network effects have enabled a "sharing economy" that is disrupting traditional businesses across the world. Ride-sharing, home sharing, co-working spaces, peer-to-peer lending, and other sharing services have created a business model shift from ownership to access.
When it comes to retail and the sharing economy, high-fashion rental company Rent the Runway has led the way. By stitching together a deep understanding of customers with new, technology-enabled experiences and business models, the company has successfully disrupted the fashion industry and created a multimillion-dollar enterprise.
We spent time with CEO Jennifer Hyman to discuss how using customer data to drive a seamless experience has been key to her company’s success.
We’re seeing a shift right now from an ownership economy into an access economy, across many sectors — from transportation to music, fitness, entertainment, travel, and more. When I came up with the concept for Rent the Runway 10 years ago, that whole approach was still in its infancy. Because technology had enabled entirely new business models like peer-to-peer platforms, we were able to take the rising trend we were seeing around sharing resources and apply it to retail.
Back then, the idea that you could look at your mobile phone, figure out what you wanted to wear the next day, pull that item down from the cloud, and actually have it show up at your doorstep was pretty revolutionary. But the success of Rent the Runway has shown that prioritizing experience over ownership is just as compelling for customers in the apparel industry as it is in any other area. Today, offering people unlimited options via a ‘closet in the cloud’ is the bread-and-butter of our business.
Technology is also vital to the logistics of Rent the Runway. Most warehouse technology systems focus on outbound shipping, but our entire business model relies on ensuring that products customers return to us in the morning can be ready to ship to a new customer that same evening. This involves dry cleaning the majority of returned items within hours before they are sent back out — that’s thousands of items per hour.
So, technology has helped us create systems that can both overcome our operational challenges and deliver an experience to our customers that’s as frictionless and easy to use as their own closets.
Our average subscriber wears Rent the Runway 120 days a year, and on every one of those days, she’s giving us data on what she wore, whether she liked it, and how it fits. We can also use that data to recognize a wealth of other things — that a subscriber is in her second trimester of pregnancy, for example, along with her style preferences, what kind of office she works in, and what events are coming up in her life.
All these data points help us understand the kinds of clothing that person needs, and how to personalize her experience. By marrying up tens of millions of data points on our users, and even more on our inventory, we can help members pick the next item they want quicker, with a higher likelihood that the item will both fit them and be something they love. That’s what helps us offer a better experience to our customer, and what makes us stand out from other fashion companies.
We also use data to help us build a more efficient and profitable business. For example, our system helps us to understand the lifetime return on investment of every single item in our inventory. By analyzing quality, fit, and fabric, we can predict how many turns any particular unit is going to get in its lifetime. That way, we know more accurately how to price it, as well as whether to replace it in the future or work with the designer to modify it for better usage.
We’re certainly seeing major changes in the industry. Our customers are telling us that they don’t want to spend as much as they used to — they want more items and more variety, but at a much lower price. I think we’re going to continue to see the fast-fashion retailers — the Amazons of the world — eat away at the market share of the more traditional players offering full-priced apparel in offline stores. And if those established retail players can’t deliver what consumers value, there’s a good chance they are going to be out of business in the next 10 to 15 years.
I believe there’s no shortcut to building a long-lasting, disruptive company. Simply put, the price-value equation of what you’re offering has to go up, and the friction behind the experience has to go down.
My advice for retailers is to focus on building systems that can help them do both these things — they need to be digital-first, in other words. That’s going to be even more important in the future, as technology-enabled customer experiences get more sophisticated. Technologies like artificial intelligence are going to make it much easier for customers to interact with companies across new platforms.
For example, at Rent the Runway, I foresee a shift from people ordering via an app or website to using voice technology or text messaging systems. I’d be able to say: “I have a date tomorrow night. Send me an outfit!” and the system would know so much about the context of my life — my style preferences, how I like things to fit, and what’s most likely to work for that event — that it will radically simplify the whole ordering process.
So, the competitive landscape is changing fast, and companies need a whole new mindset to understand and take advantage of that. What has sustained you in the past won’t necessarily work in the future.
We spend a lot of time thinking about how to attract a modern workforce. For me, a big part of that lies with creating the kind of culture where we show that we care about every member of our team equally.
That’s why I decided a few months ago to equalize benefits across hourly and salaried employees. Now, all staff members have the same parental leave, the same paid family sick leave, the same bereavement policies, and the same sabbatical policies, regardless of job function. That has increased overall employee loyalty because people want to work for companies that actually walk the walk when it comes to their values.
Additionally, we place a high value on empowering women, who represent 70% of Rent the Runway’s workforce. We help employees have the balance that can allow them to be a great mom in addition to being a great employee. We actually have a 100% return-to-work rate for women after having children.
A big part of our mission at Rent the Runway is diversifying entrepreneurship overall. We want to prove that a diverse team of leaders, both in terms of women and people of color, is going to make a more positive impact not just in our organization but in our community and wider society as well.
I think innovative companies lead with values. Employees today — especially Millennial and Generation Z employees — expect that their leaders are not just going to focus on the bottom line. They also expect that they’ll focus on their moral responsibility to society. What else is that company doing beyond just making money?
I want Rent the Runway to be an example of what a modern workplace should be — a leader in creating a more humane workplace, one that correlates with my own values too.
For more, see Jennifer Hyman on the Dreamforce '18 "Future of Retail" panel, or get insights from other CEOs: