Transcription

• Speaker #0

  Welcome to this flight of the Retail Pilot. I'm Ken Pilot, former CEO and current brand advisor, investor, and board member. I'm thrilled to share with you some of the insights from retail's leaders and legends, as well as my perspective on retail today. This podcast is sponsored by the following. PredictSpring is a global point of sale platform live in 22 countries. The platform includes mobile POS, endless aisle, fulfillment, inventory management and clienteling, creating a true omni-experience for customers and associates. BrickSpring powers, Suit Supply, Converse, Lovesac, Deciem, Janie and Jack, and Bouclair. On this week's Flight of the Retail Pilot, I am joined by Jennifer Hyman, CEO and co-founder of Rent the Runway, a company that is disrupting the trillion-dollar fashion industry with the world's first... and largest shared designer closet. She has led the company for 15 years through all stages of growth, from inception in 2009 to a scale of more than 3 million lifetime customers. Jennifer took the company public in 2021, making her the first woman ever to IPO a company with an all-female executive suite and the 30th woman ever to IPO a company. She has been honored on the Time Top 100 Most Influential People list. and the CNBC Disruptor List for five out of 10 years. She also serves on the board of directors of the Estee Lauder Companies and Zalando. Jen Hyman, good to see you and welcome to today's flight.

• Speaker #1

  I'm so excited to be here. This feels like 15 years in the making.

• Speaker #0

  We did meet 15 years ago. I think I was at Harvard doing a presentation on a startup that I'd invested my time in. I think it was Roleback Galaxy. And I do recall that following the presentation, you approached me and actually asked me about this concept of renting women clothing. And you took me through it. I was totally impressed by you, but I was mortified about how onerous the operational aspect of what it was that you wanted to do.

• Speaker #1

  And you were right from the very beginning. It has been onerous, the operational aspects, but I think that... You know, the hard things about creating a business create the competitive modes of that business and actually create the opportunities to deliver kind of customer excellence. If you think about Rent the Runway, we were ushering in a completely new industry, a new way of thinking about getting dressed. And part of how we thought we were going to break down the stigma of wearing secondhand clothing. was to ensure that we were presenting the customer with an article of clothing that was in like-new condition, that had been quality controlled, that had been restored to perfect condition. And I think that was a prerequisite to actually us being able to launch, both from a designer standpoint, because they wanted us to represent their brands appropriately, and also from a customer standpoint in terms of ensuring that they were renting something that they felt was clean and aspirational.

• Speaker #0

  Great from a customer point of view. I mean, being able to go online and select products that I might not necessarily be able to afford, but I can look like a million dollars. But from a retailer or a brand point of view, I really can't imagine the pushback that you must have received early on when approaching a company and saying, hey, I got an idea. I'm going to borrow or use some of your clothing. So customers can rent it and then return it to me and we'll have a revenue share. What do you think? I think one of your first, you approached Diane von Furstenberg very early on. And maybe was she the first person, the first brand that you ran this by?

• Speaker #1

  Yeah, she was the first person within the fashion industry that I ran this by. I approached her about 48 hours after having the idea. So in a sense, we were kind of co-creating what Rent the Runway was together. which I actually think is the name of the game in startups. I'm of the point of view that you have to be humble enough to constantly iterate your own idea and you iterate it with your customer. And in the case of Rent the Runway, the meeting with Diane Van Furstamer convinced me that we had two sets of customers. We had the customer who would be renting clothes, and we also had the customer being the designer brand. And I learned from Diane super early on that though The concept of rental was terrifying for designers like her because she was scared about brand dilution. She was scared about cannibalization. It could, if positioned appropriately. be a major source of customer acquisition for them. And that was their primary problem 15 years ago. It continues to be their primary problem today. But Rent the Runway has now become one of the most powerful marketing engines on behalf of the designer fashion industry. And that's why we've been able to rent about $5 billion worth of designer clothing annually through our platform. So we're really introducing millions of new customers to these brands for the first time.

• Speaker #0

  So $5 billion worth of GMV, that's a ton of product. As we discussed earlier, it's more in some cases than department stores do annually. It's a huge number and you represent more than a thousand designers as well. So you're able to take this pitch, which I'm sure was met with a lot of no early on and run it over 15 years to an incredibly large business.

• Speaker #1

  So it was met with... not only an incredible amount of no's, which I think are normal, like when a business is starting out, you know, it's infrequent that someone wants to be the first adopter. Like even now, companies pitch me, you know, various technologies, et cetera. And I'm like, you know what, go sample it on someone else. And then when it's more mainstream, we will adopt it on RTR. So I get that. It wasn't about the no's. It was about like people thought that I had three heads. Like they thought that this was absolutely insane that who would ever buy clothes ever again if you had the option to rent it for a fraction of the retail price at the exact same time that it was being sold current season online or in stores. And I was convinced that designers were thinking about the industry wrong. They were thinking that their competition was their fellow designer brand. And I actually felt that the competition at that time was fast fashion. It was kind of this creeping force within the fashion industry that was convincing women to buy cheap, buy quantity, access what they actually wanted, which was variety in their wardrobe, and to do it in a way that made brand less important than ever before. And so I thought, you know what, this younger generation of women is not shopping in these traditional department stores. They're not developing that brand affinity. They're not coveting your brand in the same way that the 30-year-old of yesteryear was. And it's critical to actually give these customers an experience wearing incredible designer product. And then they could determine organically that, you know what, it is different. to wear designer clothing than to wear H&M. And therefore, I want to incorporate this into my wardrobe and I want to make this kind of a part of how I get dressed every single day. So I think that the thing I'm actually the most proud of, and it's the least understood part of Red the Runway, is the brand value proposition. The fact that over 15 years, we've had 100% brand retention. meaning that there has never been a brand that Rent the Runway has started working with who has elected to stop working with us, which has simply meant like we're a great partner. We're actually doing something that is good and positive for these companies. Otherwise, they wouldn't continue to work with us and they wouldn't continue to work with us in these really, really innovative ways that comprise kind of the majority of how we acquire inventory today. So we've kind of come a full circle. From where we started, which was, you know, we started in fear. We started with no one really wanting to work with us. We now work with most of the brands in the industry. And not only are we working with them like a traditional retailer, but we're actually aligning incentives and in most cases, revenue sharing with them on the success of their inventory on the Rent the Runway platform.

• Speaker #0

  To get the business to where it is today, I think we mentioned over $300 million in revenue. That's actually what you realize from the over $5 billion worth of GMV. But to get the business to where it is today, it's been expensive. So with the great growth that you've experienced over 15 years, the key challenge in front of you remains profitability. As you operate one of the largest dry cleaning businesses in the country, if not the largest, getting to profitability has been probably one of your key goals for... I don't know how many years, but certainly investors want to see that now. Well, you're too far along the way of out of a startup. that it's acceptable to not be profitable. So how do you get to profitability and how do you continue to grow your customer file?

• Speaker #1

  Yeah, well, we shared in our earnings calls this year that our goal was to reach free cash flow break even. And fundamentally, we have spent the last few years at significantly changing our margin structure. So we've more than doubled our margins over the last few years. And we've done that by nature of operational excellence. So our fulfillment expenses as a percentage of revenue are close to 27, 28 percent, which is actually like for a company that ships things both ways. It is extremely operationally efficient to have kind of gotten our fulfillment expenses there. And that speaks to the power of the technology and the automation. that really power our kind of reverse logistics, you know, competency. We've spent a lot of time at becoming a capital light model. So today, the majority of the inventory that we acquire on our platform is inventory that we select from our hundreds of brand partners, but we don't pay for that inventory up front. We revenue share with our designer partners every single time that inventory is rented. What that means is that if the inventory doesn't work, we don't pay for it. And we kind of levy no financial risk and no fashion risk associated with it. And when it does work, it aligns the incentives between us and the brands to replenish that inventory quickly and make as much money from it as possible. And the third thing we've done is we've restructured the company and reduced our SG&A to levels that are more appropriate for the size of our revenue. So we were... part of a generation of startups that launched out of Silicon Valley in 2009 with an enormous amount of growth capital and kind of momentum around this kind of concept of grow, grow, grow, and don't worry about your expenses. And I think that was to our detriment because we never had the forcing function of someone external coming into our business and saying, hey, look at your P&L and evaluate yourself like any other apparel retailer and understand what is awesome about your P&L and what sucks about your P&L. And that's actually what the public markets have enabled me to do. They've enabled me to stop thinking about Rent the Runway, a special snowflake, which is what the private markets encourage you to do. Like when you fundraise on Sand Hill Road, what you're effectively doing, no matter what your company is, is you are saying, I'm a disruptor. I am special. My business model is different than everything that came before me. And therefore, my P&L is going to look different. And that is what private capital raising effectively is. So that private investors don't challenge you to look at your P&L and say, hey, Jen, yeah, you might have a different take on apparel, but fundamentally, you're an apparel company. And your P&L shouldn't look totally different than every other great public apparel company. So one of the very best hours that I spent in the past few years was I was actually interviewing my current CFO for a role here. And my current CFO had been a public market investor for 20 years. And he came in with a document. that had the P&L structures of every apparel company that was a public company when they were around $300 million in revenue. And what we saw when we looked at companies like ASOS and Zalando and J.Crew and Amazon and eBay and name your company, what was special about Rent the Runway was that our inventory as a percentage of revenue only cost us around 30%. That was amazing. And that shows that we make a ton of money from our inventory. What was horrible about Run the Runway was our SG&A costs as a percentage of revenue were just totally out of whack. We had too many people that were here for the size of the business because we were always over-investing in whatever the concept was going to be that we were building out for four or five years from now. The simple answer of how we've got into profitability is we've taken advantage of the things that are strategic to our business, which is our inventory model, move the business capital light, which is our operational excellence. you know, reducing kind of our expenses there. And we have become much more streamlined in the talent composition of the company and ensured that every single person that we have at this company is focusing on growth. And so we feel very, very confident in our trajectory. And we actually think that because we had been so unprofitable for so long, that it's led investors to not fully understand how great our unit economics actually are and how cash generative this business can become as it continues to grow. So we're really excited to kind of cross the first hurdle of break even and then continue to generate cash and show people like, hey, you thought that this business model sucks because, yeah, we were losing a lot of money, but we were losing a lot of money not because of the unit economics, not because of the margins. We were losing a lot of money because we just had come out of a world of... private capital where we just had too much SG&A.

• Speaker #0

  I wonder, I can't help but think how difficult for you going through COVID must have been. I mean, here's a business focused on helping women look great, going out and celebrating fun events, parties, one-time moments in life. And yet that ended. It got completely shut down. And as we talked about earlier, I guess the only people you could talk to to feel a little bit better. might be someone who's performing on Broadway or in concert, but you were pretty much out of business. How did that period help you think about, focus on cost-cutting and running a leaner, smarter business? Is there a silver lining coming out of what was, what had to have been the most challenging point of your career?

• Speaker #1

  I think the silver lining coming out of COVID was the resilience that I have as a leader. There is nothing that... would have been more difficult for Rend the Runway, which, as you mentioned, is a business that's primarily about women getting dressed for work and for special events and 100% women getting dressed for things that occur outside of their home. There was nothing more difficult than that period of time, which when we started COVID, we thought was going to be potentially a three or four month blip. And actually, it completely changed patterns of work and patterns of behavior for many years. And it was really only over the last few months that those patterns of behavior began to kind of assume a new normal. But what it did is in those moments that are the most difficult in our lives, and you put one foot in front of the other and you realize like, I will continue to lead this organization and inspire this organization to get through this. Like if I could go through that, I could deal with anything. It gave me kind of this tough skin to understand that, like to understand myself more and my own motivations where COVID destroyed a lot of the value on paper that Rent the Runway had had for many years. And I think for a lot of founders, they associate entrepreneurship or a piece of what encourages them to build is some dream of some pot of. of gold at the end of the rainbow. And when it was very clear that like that pot of gold was either not there or going to be much harder to attain, you start to ask yourself like, why am I doing this? And for me, the answer was so easy. It was that I am doing this because of the mission that I have had from the very, very beginning, which is to empower women to feel amazing about themselves every single day. I'm doing this because I believe that Rent the Runway has ushered in an entirely new part of the fashion industry and that I actually love it. I love even during COVID, I loved waking up every single day and working with a team of people that I believe in on a mission that I believe in. And that fundamentally, like that's. privilege. That's the most fun part of life that I get to spend my time actually building something that I think has real meaning and that I love. And so it kind of clarified for me that my priorities actually were the right priorities. And it gave me this resilience to understand like I am much tougher than I thought I was.

• Speaker #0

  Well, I just, again, as I said earlier, can't even think of what it was like to go through that period. One is a retailer, but let alone. with the brand Rent the Runway, and you made it through, and you took yourself public not too far after. Tell me about what it was like to ring the bell.

• Speaker #1

  It was one of the best days of my life. I went up to ring the bell with seven women who had really made the biggest impact in building this company. I was holding hands with my two daughters, who were four and two at the time. We were the first company in history to have a female leadership team to take a company public. And I was at NASDAQ. I had invited our entire 50-person founding team to the bell ringing. I had invited our current leadership team, and I had invited... my family, and all of my best friends who kind of came in from all over the world. And it was a celebration of actually community. So it felt like the first moment in my life where it's like, well, we did this together. When you think about the most celebratory moments in your own life, your wedding, a day that your children get born, those days are either like private moments of elation or at your own wedding there's a few people that are like as joyful as you are but like fundamentally like everyone else is kind of there as a guest and what was so different about this IPO was there was a team of thousands of people who were there actually we'd invited all of our alumni to come to the IPO and many many many hundreds of them showed up in the middle of COVID and this feeling like we did this together. This was a real team effort and the joy of defying everyone's expectations and of having done something that we all care about. So I had throughout the day, all of these people coming up to me, some of whom hadn't worked at Rent the Runway in 10 years, who were like, this job changed my life. This job changed how We have this core value at Rent the Runway called dream big and go after it. And to me, that is somewhat about work. Like dream big, have a big idea, big vision and go after it. But even more so for my own employees, it's about like dream big for your life and go after it. And the promise that I've always tried to make to team members since the beginning of Rent the Runway is come here. It's going to be tough. I'm going to challenge you. But I promise you that you are going to develop a confidence in yourself working here that's going to be transformative to your life and to your career. And what I know about myself is that my one superpower has always been to be able to recognize the superpowers of other people. And even the things that you don't, I can see the strengths in you that you don't see in yourself. And I felt. on that day of the IPO that I saw that people had gone off post-Rent the Runway with confidence to kind of change their lives, change the world, that this company had had this massive impact on not only millions of our customers'lives and the fashion industry, but the thousands of people who had built the company. And to me, that was the most fulfilling, magical experience that I've ever had. And I don't think I'll ever feel that way. Again, the pride of like the pride of feeling pride alongside thousands of other people is just so incredibly powerful. So that was incredible. And the other thing that I'll say is that, you know, I remember leaving the bell ringing and like the Times Square celebration several hours afterwards and kind of driving home with my husband. and my two daughters and my older daughter at the time was like, Mommy, why, you know, are there boy companies? Like, she was so living in this world in the first four years of her life where she genuinely felt like the only people that build companies are girls. And a reporter had come to my house prior to the IPO, and she had, you know, asked. Aurora like, oh, do you know what your mommy does? And Aurora was like, yeah, like she works at Rent the Runway. And the reporter was like, well, what does Rent the Runway do? And Aurora said, well, it's girls, girls who run the world. And it was amazing that like I had created this alternate universe for my kids where they thought that being a woman leading an organization was a normality. And I thought that that was incredibly special that I was able for just a brief period of time to let them live in that incredible delusion that. this was a normality. And it gave me a lot of also resilience that the other part of my mission to kind of continue to put one foot in front of the other and to continue building is that I want their vision that girls run the world. I want that to be closer to a reality than it is today. And the only way to get it to be closer to reality is to just keep going. Like my fundamental philosophy is like, you only win by staying in the game. the person that stays in the game the longest wins. And you got to just have the resilience to keep on reinventing yourself and the humility to keep on going and stay in the freaking game. And that is kind of the other commitment that I made to myself and to my daughters that I don't want them to wake up 15 years from now and realize, oh, wait, the Rent the Runway IPO was totally anomalous. I want there to be hundreds or thousands of more IPOs like ours. so that it's more normalized to start a company as a woman and to continue to build that company.

• Speaker #0

  Your daughters couldn't have a better role model. And certainly your perseverance, your tenacity, your resilience speaks to where the business is today and the success that you've experienced. Speaking of that, you still have this energy about you that's very refreshing. And I was at Shop Talk a few weeks ago in Chicago and heard you refer to yourself as a refounder. Tell us more about your perspective today, where you are in your journey.

• Speaker #1

  So I think two things. One is the world has changed so much over the last 15 years since I started Rent the Runway that the only way for me to be an effective CEO for this organization today is to rehire myself and to come into the business in 2024. as if I was brand new, with fresh eyes, and be able to see where does this company have opportunity for improvement? Where do we have strengths? Where do we have pockets where we need to invest in new and innovative talent or new and innovative ideas? And I think sometimes you run the risk, if you are a longtime CEO, of starting to accept things as normal that you shouldn't accept as normal. And so I think in order for us to continue to win and continue to succeed, I had to rehire myself and almost refound the company. Especially, it was critical to do that this year, not only because of this fact that I felt everything around us had fundamentally changed. And so we're refounding Rent the Runway for kind of the new age of what the next 15 years is going to be. But second. Because we knew that we would actually bring the business to free cash flow break even this year. And therefore, the only thing that was going to be important over the next five to 10 years was achieving tremendous growth and scale. So we had to shift our business from what we've been over the last few years, which was really about a focus on profitability, a focus on cost cutting, a focus on margins. And there's a certain type of talent. that thrives in that kind of environment that enabled us to get to a place where we were going to break even. It's a totally different talent set for the most part that can now focus on, okay, how do we go from a $300 million business revenue-wise to a billion dollars to $5 billion? And so it's different cultural rituals. It's a different mindset. It's a different way of setting up and organizing the organization. than how you would have done it and how I did do it, you know, for the three years prior when we were focused on getting to break even. So we needed to, for the own health of our business, financially, like actually reorganize from the top down of how we were going to now focus solely on growth. The second part, which I think is applicable to everyone, no matter what your role is, no matter if you are a founder or you're just a employee of a company. Every few years, you should be asking yourself, do I still want to work here? It is very important for you to have that conversation with yourself. And fundamentally, I believe that there are only two reasons why someone leaves a job. The first is you don't believe in him. And that's almost impossible to get over. If you don't believe in where your company is going, in the vision that you have, in the opportunity that you have, like you should leave. The second reason why people leave jobs is they're tired.

• Speaker #0

  And fortunately, being a CEO, I have the opportunity to recognize when I'm tired and to adjust things in my day to day or in the culture of the company to re-energize me again. And so in refounding the business, because the last few years of getting through COVID, of bringing the business to profitability, of doing restructurings within the business, honestly, like they were not fun for me. They were very difficult and very emotionally draining and challenging. And in 2023, I was just like, oh my God, this has just felt so hard for the past few years. And I had this conversation with myself. I was like, do I still want to do this? And when I asked myself, do I still believe? I was like, weirdly, I believe in this business more than ever. This thing that I invented in my head with my fingers crossed behind my back. when I went to designers in the past of like, hey, we're going to have a rental industry and people are going to wear clothes and fall in love with those clothes and buy your brands. That's actually real now. Millions of women rent clothes every single year. This industry is actually doubling every single year. So it's like, I believe more than ever in Rent the Rent. And then the second question, am I tired? Yes, I was tired, but I was tired because we had enabled the company to be in this kind of culture of cost-cutting as opposed to this culture of growth and innovation. And I realized, wait, I'm the CEO. How could change this? Like I have the power to bring this company back to, you know, and refound it with the same entrepreneurial spirit and the same spirit of innovation and disruption that we had for the first decade plus of our business. So that's really what I've been doing in 2024. And I'm having more fun than I've had in many years. It's like. I just come into work every single day and we're doing things that are really exciting, really fun, really fast paced again. And it feels like the early days in money ways, but we're now just in a different world.

• Speaker #1

  What are you doing now to address the young market, the younger market that, you know, 18 to 24 year old who wants to own nothing and have everything? How do you get that? Because I know that's like your tagline. Is that your mantra? own everything.

• Speaker #0

  That has been my mantra from the very beginning, which is like, I believe that people actually can have it all. And I think in particular, women can have it all. And it's my mantra, not only on fashion by nature of building an unlimited closet, but like, I told my own example of being able to build and run a company that I love and have a great marriage and have the family and have all of this. I think this myth that women can't have it all is total BS. And that's just part of my own personal mantra. But okay, how do we address young women? So luckily, young women care about the very things that this brand is all about. They want variety in their wardrobe every single day. They care deeply about self-expression and fashion actually fuels that self-expression. They care about sustainability. This is one of the most sustainable ways to think about your wardrobe. what our customer base really proves to us is that rental has now become so mainstream with lots of different competitors in the space that what Rent the Runway needs to own is like, what is our aesthetic? How is our aesthetic from a fashion standpoint different than the aesthetics of the other kind of rental platforms? Which is actually this amazing place to be in that like... Now, how we're distinguishing ourselves is actually through the fashion as opposed to just through the business model of what we're doing. And so we actually have customers who really range in age from 15 to, you know, being in their 50s. But our customer has a aesthetic that is definitely more polished, is definitely more sophisticated, is definitely more feminine. We don't have... as much of the edgy or kind of bohemian kind of aesthetic. And so we're really leaning in to who this woman is, whether she's 18 or whether she's 48, because she actually kind of likes the same brands. I was just with a woman this week who I found out when we were sitting next to each other was like a tremendous Red the Runway subscriber. And I asked her if I could see her hearts list on her app. And this woman was in her late 20s. So she's, you know, 15 plus years younger than me. And she is still kind of going out and not married. And, you know, she has a very different lifestyle than I have. And I thought what was really interesting when I looked at her hearts list is like, it felt very similar to all of the styles that are in our top styles on our platform. Like recognizing like who our customer base is from an aesthetic standpoint has been so critical and interesting. And you will see us invest tremendously in fashion over the next few years in terms of of the amount of inventory that we're bringing onto our platform, the types of collaborations that we're doing, how we're going to distinguish ourselves through the fashion on our platform itself, as opposed to just through the business model. The other thing that really matters about our customer base, and I think, again, this appeals to younger women and women who are millennials and Gen X, is that this is a platform that is more about designer brands. It's more about luxury service. Our customers expect a different level of personalization, a different level of styling, a different level of customer service than they would expect if we had a lower price point and if we had fewer designer brands. So we kind of focus on those two pillars of like, you know, luxury platform and who our aesthetic is. So to answer your question, the younger consumer is already there. There's nothing I need to do to specifically get her to start renting because she is already renting secondhand. She's buying secondhand. She's invested in peer-to-peer platforms. This is the exact consumer that is already spending 50 plus percent of her closet in the secondhand economy. What I need to do to get her is make sure that I have the most appealing styles and brands on my platform and that they're available to her. I think that there are going to be many, many winners in the rental space, but I want to own designer. I want to own polished. I want to own feminine. I want to own the aesthetics that are organic to us.

• Speaker #1

  Looking at growing the model as top of mind, you've got to continue to grow every year. Wall Street expects it. You expect it. You want it. How do you continue to reach new customers? What's your marketing venue and or? We'll pivot to stores, but I want to talk about physical retail because you were there once in a bigger way, but want to really understand how you get the brand outside of the site.

• Speaker #0

  So during this period of cost cutting and restructuring at Rent the Runway, we made a big mistake, which was that we moved our marketing dollars really down bottom of the funnel. And it looks good to. have ads on Meta or Google that have high ROAS that you think are driving conversion. But fundamentally, you're talking to a universe of people who already know about you. And unless you invest in storytelling and in creating emotion behind your brand and in selling new people on entering the ecosystem of your brand, and that's going to be done by top of funnel and mid funnel activities like you're going to have a rapidly declining base of customers. And so another part of this refounding of the business in 2024 was to completely disrupt marketing and to bring back the creative energy and creative spirit back to RTR. And we have started doing a lot of really innovative things in marketing this year that we're going to just continue to build on for many years to come. So... One of the things that we just brought front and center again in honor of our 15-year anniversary is kind of bringing our own customers back to the forefront of our story. And we've always seen with our brand that our customers are our most authentic ambassadors. They are the ones who have driven this incredible virality of RTR. And coming up with... 2024 ideas to how to leverage our community in order to grow Rent the Runway and how to do that in an organic, authentic way. We've started to tap into stylists and styling, and we have a styling service that we now offer as a benefit to all of our subscribers where they could text back and forth with a real human who can help them put together their look. and figure out what they want to rent this month. And what we have found is that she wants, yes, the styling advice from us, but she also wants to save time. And so again, like we're investing in marketing that is about reinforcing this kind of luxury proposition that we have, which is like, we're also going to put the outfits together for you so that we're saving you. And we're aligning with women who resonate with our community, who have actually a point of view on fashion and who are taking our, you know, millions of units and creating their own, you know, edits and creating their assortment. So we've launched something called icons where we feature a different interesting woman every single month who gives her take on the collection. So we did one last month with Alison Bornstein, the stylist, and it was amazing. Like she put together. her edit of a few hundred of our styles and we saw that the hearts on those styles went up exponentially people wanted to rent them like that we were really providing a point of view on how to actually put the looks together and we've also started to go deep into in real life again like lots of different events lots of community events going back on the road in terms of a college tour like we are just doing Everything that thinks about our customers in terms of who are the segments of our customers, how do we get that professional woman back onto the platform and how do we expand the amount of professional women we have? How do we get the wedding guest and the bride to come back onto the platform? How do we get the college girl to come back onto the platform? And I think there's different marketing tactics for all of those women.

• Speaker #1

  You, for a while, you dabbled with physical retail. You had a few locations. You also partnered with Saxo. 5th and I believe Nordstrom Rack. Where is physical retail on your roadmap? Does it exist?

• Speaker #0

  It does exist. We opened our New York City store and we're going to be testing out a lot of different kinds of concepts in the New York City store. I have a really, really big idea as it relates to physical retail and just physical locations for Rent the Runway that I hope to launch at some point in 2025 or 2026. But we are becoming very streamlined and edited in how we actually organize the company so that we could put many resources on very few priorities and actually do an incredible job at transforming the business towards growth. So that's why I said, I don't know if this is going to happen in 2025 or 2026, but very big concept for how physical locations. will be a fueling function of a subscription to fashion.

• Speaker #1

  I was trying to think earlier, like if I were in your shoes, who would be the perfect partner who I wouldn't be a threat to, that I could bring this great traffic and this energy to? It's almost like it's a floor of a department store, but then why would a department store necessarily want to have someone that could rent what they're trying to sell?

• Speaker #0

  This is where the department stores are completely like, off base. When someone rents from Rent the Runway, like, yes, they're renting ALC and Veronica Beard and Nola Johnson and many of the same brands that are kind of the bread and butter brands of those department stores. However, what they rent from us is very different than what they are buying from, let's take Veronica Beard. Veronica Beard is one of the top brands at Saks. But at Saks, what is Veronica Beard selling? She's selling a lot of her navy blazers, a lot of her black. blazers. That's not what's working on Rent the Runway with Veronica Beard. If you're going to rent from us with Veronica Beard, you're renting color, you're renting print, you're renting the very things that are potentially not as rational for you to own because you feel like if you wear this thing more than two or three times, it's just you've already been seen in it. So it's about taking the most editorial pieces from a designer's collection. and the most fashion forward pieces. And those are the things that we rent on our platform. Why? Because we're actually taking the stuff that has the most marketing appeal.

• Speaker #1

  But to that end, and I hear you and I look at how, you know, whether it's Saks or Neiman's or some of these better departments sort of just continue to struggle. Where is this conversation? You must've had this conversation, whether it's with, you know, Mark Metrick or Pete Nordstrom about, hey, is there room for us to coexist? You know, I'm bringing... a customer into the store.

• Speaker #0

  No, let me tell you where I really want to be.

• Speaker #1

  Tell me, make it happen.

• Speaker #0

  Let's make it happen. Where I really want to be is at a Sephora or at an Ulta. Those are the two retailers that I think are doing the best job in the US in terms of multi-branded retail. That is where they have built a business model of momentum and enthusiasm. And that is very similar to Rent the Runway. What is Sephora's business model? It's the... business model of discovery. They have been genius to bring in all of these different indie beauty brands. into Sephora, build them up, constantly have newness in what brands are in their ecosystem. They're attracting people to come into their stores over and over and over again because it isn't the same stale assortment that you see. That's exactly what we're doing. Our average customer tries over 45 new brands with us every single year. She is using this to express herself via fashion and to try something new. It is fun for her. He does rent the runway because it's fun and it makes her feel awesome about herself. It's the same thing with beauty. And so those are the retailers that I think get it. And to bring an experience of playfulness and fun that adds a lot to what they're doing because our customer is going to events, going to work. She obviously cares about how she's presenting herself, which is very in line with beauty.

• Speaker #1

  I mean, it's so interesting. You know, I think about a partnership like that. And you think about just my head goes to the real estate and it could be the second floor. It doesn't have to be on the main board. So destination centric that you can leverage the name of the brand, drive traffic at very low cost.

• Speaker #0

  Well, we had when we first launched retail, we had two store within a store concepts. First was that. Henry Bendel's Rest in Peace on 57th. And we were on like the third floor of Henry Bendel's. And for the year or two that we were in that store, we drove 50% of total store traffic that entered Henry Bendel's was coming because of Rent the Runway. Then we also had a partnership with Neiman Marcus where we were in their flagship store in San Francisco. We were hidden on the fourth floor. That is a 40,000 square foot location in which we held 1,500 square feet, like in a corner of the fourth floor. For the year and a half that we were in that store, we accounted for 40% of total store traffic. In fact, I would get kisses and Christmas gifts every year from the heads of the beauty departments and the head of the shoe department at Neiman Marcus in San Francisco. Because all of our customers who were coming in to rent the runway, of course, would. go downstairs and buy a thousand dollar pair of shoes and go downstairs to the beauty department and stock up on all of the new things. So I think that to me, the problem with being there is that I didn't benefit at all from their traffic. So that's why I think that there would be this unbelievable synergy with a Sephora or with an Ulta. I think one of the most interesting things actually going on in fashion is the very... company that kind of inspired me to start this, which is Zara, 15 years ago, because I thought that they were the most genius company in the world because they had been the ones to discover what women actually want, which is variety and self-expression in their wardrobe. Zara continues to amaze me now, 15 years later. I think they're even better than they've ever been.

• Speaker #1

  The Inditex is a product. I'd have to agree. Inditex could be the best retailer ever.

• Speaker #0

  I agree. Zara... looks better than most luxury brands. Their quality is actually incredible and better than most luxury brands. They used to be high speed, low quality. Now they're just high speed, high quality, high fashion. They have all of the check plus marks. I would love to locate Rent the Runway in Azara.

• Speaker #1

  I mean,

• Speaker #0

  it's completely complimentary. It's an exact similar customer base. And I think Azara is high end. And Zara gets what the customer wants. Like they are age agnostic. They're about an aesthetic. And they produce like really lots of newness and lots of discovery.

• Speaker #1

  Jen, listen, I may be gender challenged, but I would like to quit the job I don't have. Come work for you and roll out physical partnerships.

• Speaker #0

  Let's do it.

• Speaker #1

  Okay. Is that an offer?

• Speaker #0

  Partnerships at Sephora or Ulta or Zara, or by the way, Aritzia.

• Speaker #1

  Ritzia, another.

• Speaker #0

  Ritzia is doing unbelievable things. Well,

• Speaker #1

  why not with, well then, well, let's, you know, how about someone like a Lululemon or an Aloe Yoga where, you know, it's just like, you're not necessarily playing there, but yeah, she's there.

• Speaker #0

  Well, Aloe Yoga is the exact same customer demographic as OTR for sure. Like that would be a marketing synergy Mecca. Yeah. I think that it's interesting. I think about like the real estate footprint though. And I think that. there's just more space in an Ulta or a Sephora or a Zara to have, you know, a few hundred square feet for RTR and to be able to kind of build that excitement. I think that what is fascinating to me 15 years into being a part of this industry, and I still consider myself very much to be an outsider, is that most of the industry has still not woken up to the crazy disruption that is at their doorstep. So I'm not just talking about secondhand. I think that Sheehan and Timo and what Amazon just launched and their Shein competitor, like they're undercutting everyone and they're putting everyone out of business so quickly because of TikTok. The customer doesn't care about, it's not that she doesn't care about brand as much. She cares about hundreds of more brands than she ever has before or thousands of more brands. She doesn't think about brand in the same way where 15 years ago. She used to think about brand as being correlated with price, meaning that the higher the price point, the more she might aspire to or covet that brand. That has been thrown out of the window by TikTok. Today, you actually have to win on product. You have to win on the kind of aesthetic and the design of your product. And you could be a product that sells for... 50 bucks. You don't have to sell for $5,000. And you could be considered super cool and super high end because I think that the customer of today doesn't distinguish between like, oh, the snob factor of as I make more money, I just have to just only buy more expensive things. She wants quality. That's why a brand like Quince is killing it as it relates to cashmere and sweaters. Like they're undercutting everyone by, you know, their price point is 10 or 20 percent. of where you could buy similar looks. And it's equivalent, if not better, quality. So we are totally asleep at the wheel in this industry as it relates to Shein, as it relates to Timo, as it relates to Amazon, who is eating everyone's lunch. The lingerie brands are diluted by their own success over the last few years in just raising pricing and in China. So how did we make so much money? in a Chanel or an LVMH or a carrying like over the last five years, it's because of the strength of the business in China where that consumer is now struggling and that market is struggling. We don't know when it's going to come back. And it's also because like the price point has fundamentally doubled. I mean, the price point of a Chanel bag has doubled over the past 10 years. I just don't think that the customer base is there anymore. Customers like this is insane. I don't want to spend eight. thousand dollars on a handbag. And so it's just that strategy is not going to work. If there's no innovation in your product strategy, you're not actually going to be able to grow.

• Speaker #1

  I think the desire for luxury continues to grow, but you're 100% right. Pricing has just gotten to a point of outrageousness. Pricing, I mean, we had Oliver Chen on about a week ago talking a little bit about what's happening in the luxury market and how pricing has just gone through the roof. 54% pricing growth, European goods over the past couple of years. I mean, Ralph Lauren's grown since 2019 over 90% on many of its key item prices. So pricing has just been a runaway, but the customer still wants the product. And clearly you're providing that for the customer and allowing them to continue to change, which is so important to the customer today. They want to be seen in a style. They don't have to live in a brand. And that's what Rent the Runway really does offer. Before we close, just want to ask you the... importance of technology and AI and how that's helping you save money potentially or how it's helping improve the business?

• Speaker #0

  I think that there's different vectors that we're experimenting with AI. One is going to be related to photography and creative. Another vector is related to customer service and styling. Another vector is actually related to our own efficiency on our tech team. So utilizing AI to be able to train. new software developers on our own code in our own systems. And we've implemented some really interesting applications of AI in our search algorithms. And I think we'll continue to do that in search and virtualization. But I think that AI is at the very beginnings of what it's going to be. I do think it's fundamentally going to change how we search and discover in fashion. And so I'm excited to just... learn an enormous amount over the next few quarters as it relates to AI and figure out where are we going to invest the most to leverage, I think, the power that this is going to have.

• Speaker #1

  A lot of tools out there I'm seeing coming along today that are really helping companies not only improve the associate experience, but just improve the customer experience through its output. And it is exciting to see what's happening. Let's conclude with Rapid Fire. You ready?

• Speaker #0

  Yeah, I love Rapid Fire.

• Speaker #1

  All right, here we go. Favorite place to travel?

• Speaker #0

  Mexico.

• Speaker #1

  Favorite stream TV show?

• Speaker #0

  My favorite recently is the Martha documentary. I cannot believe. how little she went to prison for, and I cannot believe it was Jim Comey that put her there.

• Speaker #1

  What percent of your fashion, your personal fashion, is represented by Rent the Runway?

• Speaker #0

  80%.

• Speaker #1

  I'm going to bring my wife in in a couple of minutes. I'd like you to talk to her about that. We need to get her on board here because we still do wear it once and never wear it again, but we own it. That's a problem. Person you'd like to meet most?

• Speaker #0

  Well, I've learned don't meet your heroes because they often disappoint you, but The person I think would be incredible to hang out with is Adam Sandler. I'm convinced in another life, like we would have gotten married and, you know.

• Speaker #1

  I love Adam. Big Adam Sandler fan.

• Speaker #0

  He's fantastic. He just seems like a great person.

• Speaker #1

  I have no arguments. What brand isn't currently available at Rent the Runway that you are most eager to include?

• Speaker #0

  Well, I'll tell you from the customer perspective of RTR. I would say that our customer most wants Kate and likely The Row.

• Speaker #1

  Kind of knew that was coming. Finally, if you weren't running Rent the Runway, what would you be doing?

• Speaker #0

  Well, what I would want to be doing is being a pop star, but I think I would fail at that. So I've learned that I just really love the fashion industry. I really love the beauty industry because of the way it makes women feel. So I'd probably continue to. be involved in some way in one of these industries.

• Speaker #1

  And with that, we'll end this flight of the Retail Pilot. Jen Hyman, it's been amazing to have you today and just hearing about your story, your passion, your resilience, your tenacity, and the future of Rent the Runway. Thank you for joining us.

• Speaker #0

  Thank you. It's going to be a really, really fun next few years for Rent the Runway. So stay tuned.

• Speaker #1

  Thanks for tuning in to this week's flight of the Retail Pilot. And please give us a review on your favorite. podcast platform.