Rent the Runway, a second-hand fashion site, is preparing to go public

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Rent the Runway began trading in public markets on Wednesday, testing investor appetite for its clothing rental model following a brutal year.

The listing marks a milestone for the dynamic venture capital-backed company, which was founded in 2009 by Jennifer Hyman and Jennifer Carter Fleiss, and comes amid a wave of initial public offerings from other selling companies in the retail funded by venture capitalists, notably Warby Parker and Allbirds. The stock started trading at $ 23 per share, almost 10% above the IPO price of $ 21.

Rent the Runway was built on the idea of ​​renting evening dresses for special occasions like weddings and it quickly became a hit. Women loved the idea of ​​spending less money on expensive clothes that were rarely worn, and in the age of social media, being able to be photographed in different dresses at different events.

The company has since expanded beyond renting dresses on weekends, with the goal of offering women a “closet in the cloud” through subscriptions. Rent the Runway has worked to get women to pay a monthly subscription to access a wide range of clothing, jewelry and bags, with a particular focus on trendy work wear. Subscribers can swap their choices several times a month.

“I am so proud of this milestone day,” Ms. Hyman, now CEO of the company, said on Wednesday. “We’ve gone from one dress and one situation to building a complete cloud closet that women can access for any occasion. “

In its IPO filing, Rent the Runway pointed to a confluence of factors for its continued growth, including a “shift from ownership to access” as evidenced by the popularity of companies like Netflix and Airbnb, a increased interest in sustainability and more working women, who tend to spend more on work clothes than their male counterparts.

The company also cited studies that found that 33% of women consider an outfit to be “old” after wearing it less than three times and that “one in seven women consider it a fashion faux pas to be photographed twice with it. an outfit “. Social media not only increases the pressure women feel to have variety in their wardrobes, according to the file, but it also allows consumers to learn more about “ambitious brands outside of their income level.”

The company valued the offer at $ 21 per share, the high end of the $ 18 to $ 21 range the company had marketed. He also extended the offer to 17 million shares, against the 15 million initially planned. He plans to use the proceeds to pay down debt and finance business expansion.

Still, the pandemic has hit the company, which is still trying to regain the momentum it had in 2019. Rent the Runway has been optimistic about the rebound this year, but the record shows how severe the damage was: l The company finished last year with 54,797 active subscribers and $ 157.5 million in revenue, up from 133,572 active subscribers and $ 256.9 million in revenue in 2019. The number of active subscribers was 111,732 to September 30.

“They took a huge hit because if you don’t have to leave your home to wear an outfit at a wedding, prom or graduation, you are going to dress in comfortable clothes. “said Shawn Grain Carter, associate professor. of Fashion Business Management at Fashion Institute of Technology.

She said she expected the company to continue to be challenged as remote working persists and offices relax their dress codes. Rent the Runway also faces competition from second-hand sites like ThredUp and RealReal.

“You have millennials negotiating and saying, ‘I’ll quit my job if I have to go to the office’ – it changes the way you dress,” Ms. Grain Carter said. “I see this as a challenge for them in terms of the customer’s perception of the brand value and also the value of the subscription service they pay for each month. “

Rent the Runway noted in its file that in August and September about half of customer use cases were for casual, daily occasions, while the other half were for work and evenings.

Ms Hyman was optimistic about Rent the Runway, especially given its performance over the past year and a half. “2020 really should have been the end of Rent the Runway, and we’ve become a more financially sound company,” she said.

Recent IPO filings from venture-backed retail companies have attracted particular interest, with companies that have played their disruptor status and valuations of over $ 1 billion finally having to share the details. financial. Rent the Runway, despite its popularity, is relatively small compared to other retailers and not yet profitable. The company recorded a net loss of $ 171 million last year, compared to a net loss of $ 154 million in 2019.

Rent the Runway said in its file that it was in the “first sleeves” of growth, noting that less than 10% of the company’s total revenue has been spent on marketing since its inception and that it believes it can grow. brand awareness. He also said that while most of his subscribers and clients are female graduates or working, he believes he can diversify that base over time.

Ms Hyman said the company also plans to expand into new categories. “We are open to housewares, shoes, luxury, children and I think there is a world in the future where men are not even off the table anymore,” she said on Wednesday. .

Simeon Siegel, retail analyst at BMO Capital Markets, said the clothing rental market, which has attracted public companies like Urban Outfitters in recent years, has remained “very nascent.”

“People have been buying clothes since time immemorial and companies are now trying to train people to consume clothes in a different way,” Siegel said. “Being repackaged is not an overnight sensation.”


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