Rent the Runway - 1 © Minder Chen, 2015 Case Study: Rent the Runway Minder Chen Professor of MIS...

Rent the Runway - 1 © Minder Chen, 2015

Case Study: Rent the Runway

Minder ChenProfessor of MIS

California State University Channel [email protected]

Todd Heisler/The New York Times


Competitors

bluefly.com, outnet.com, bagborroworsteal.com, ideeli.com,

WearTodayGoneTomorrow.com has been doing this for almost a year! WTGT loans nationally at 5 – 10% retail values, has had amazing reviews from Teen Vogue, People, InStyle, The Today Show and many more. Items arrive in 2 – 3 days, and they carry over 125 of the top designers including 3.1 Phillip Lim, Herve Leger, Matthew Williamson and more. They’re amazing!

A Netflix Model for Haute Couture

http://www.nytimes.com/2009/11/09/technology/09runway.html


Observation: Friction / Inspiration

• In 2008, Jenn Hyman, a second- year MBA student at Harvard Business School noticed her sister struggling to decide what to wear to an upcoming wedding. “Becky desperately wanted to buy a $1,500 Marchesa dress and she felt compelled to buy a new dress— because she knew photos would soon appear on Facebook and she didn’t want to be seen twice in the same outfit.”

• As she watched her sister wrestle with the cost of the dress (i.e., the pain point/friction), her sister’s emotion was a clue to an important job-to-be done for young women: helping them feel special and confident.


Related Experiences and Hypothesis

• Hyman realized that other fashion-oriented young women might have a similar challenge, an observation backed up by her years spent building a wedding event business at Starwood hotels and working in marketing and sales at Wedding.com

• Hyman’s insight led her to hypothesize a potential solution: instead of purchasing designer dresses, women might prefer the option of renting designer dresses online for special occasions.


Pop Quiz

Imagine she came to you. What would you advise?

•It has been done by someone already.

•Write a business plan first.

•Figure out a way to test your hypothesis.

•Finish your MBA program first.

•That is a great idea and I will invest in it.

•Nobody is willing to wear rented a high fashion dress.

Business Plan would identify the customer need, describe the product or service, estimate the size of the market, and estimate the revenues and profits based on projections of pricing, costs, and unit volume growth.


No Business Plan but a Business

• “We had an idea, we thought that it was fun, we decided to start working on it,” says Hyman. “We never had a business plan.

• We pretended that we had a business from the very beginning, as opposed to planning and strategizing as to whether it would work.”


First ExperimentHyman recruited classmate Jenny Fleiss to help her test their proposed solution. Hyman and Fleiss set up an experiment to answer two key questions:

1. Will middle- to upper-class young women rent a designer dress if it is available at one-tenth the retail price?

2. Will women who rent dresses return them in good condition?Then Hyman and Fleiss borrowed or bought 130 dresses from designers like Diane von Furstenberg, Calvin Klein, and Halston and set up an experiment to rent dresses to Harvard undergrads. They advertised around campus, rented a location, and invited young women. Of the 140 women who came in to view the dresses, 35 percent ended up renting one, and 51 of 53 mailed them back in good condition (the other two had stains that were easily removed).


Second ExperimentBut would women rent dresses

they could not try on?

To answer that question, Hyman and Fleiss set up another experiment, this time on the Yale campus, allowing women to see the dresses before renting but not allowing them to try them on.

In the second trial they had more dress options, because the first pilot revealed that many women didn’t rent because they couldn’t find an option they liked. The Yale pilot showed two things:

1.women would rent dresses when they couldn’t try them on, and

2.the percentage of women who rented increased to more than 55 percent because they had more options.


Third Experiment

Now Hyman and Fleiss were ready to test the big idea: Would women rent dresses they could not physically see?

•The entrepreneurs took photos of each dress and ran a test in New York, where one thousand women in the target audience were given the option to rent a dress from PDF photos.

•The final experiment showed that roughly 5 percent of women looking for special occasion dresses were willing to try the service — enough to demonstrate the viability of renting high fashion over the web.


Channel Hypothesis: Renting via Designer’s Websites

• So Hyman and Fleiss gathered data on whether designers would go for their idea and whether they could use designers’ websites as their rental channel.

• Less than two weeks after conceiving the idea, the two women cold-called Diane von Furstenberg, an influential fashion designer and president of the Council of Fashion Designers of America.

• The initial idea Hyman proposed to von Furstenberg was to set up a rental option on the websites of existing designers. Hyman’s startup would take care of fulfillment— taking the order, shipping the dress, and dry-cleaning the returns.

• Von Furstenberg was intrigued by the idea and helped Hyman and Fleiss set up meetings with more than twenty designers.


Pivot to the Netflix Model

• The initial response from most designers was extremely negative. “We were going to designers asking to buy their inventory so we could rent it at the same time it’s available at Saks Fifth Avenue and Niemen Marcus for 10 percent of the retail price,” said Hyman.

• “In the first meetings their response was basically, ‘over my dead body.’” Designers were worried about cannibalization. Renting dresses instead of selling them seemed like a bad idea.

• Hyman and Fleiss realized that to make their idea work, they would need to have their own website and inventory. So the idea of Rent the Runway— using the Netflix model to rent a wide variety of high- fashion dresses from multiple designers— was born.


Obtain Capital without a Business Plan

• Now that Hyman and Fleiss had resolved concerns about whether there would be demand for their product— and what their initial solution might look like— they were ready to launch. But the change in business model meant they needed capital to purchase inventory.

• The typical advice when you’re going for capital is to make sure you have a top-notch business plan and get capital as cheaply as possible. They didn’t do it.


Learning by Doing

• Hyman replied, “We’re anti-business plan people. We think that so many people just sit around all day and strategize but they don’t act.”

• Fleiss concurred, saying, “We had a bias for action, not business planning.” In fact, one reason Hyman and Fleiss chose Bain Capital, even though it wasn’t necessarily the cheapest capital, was the attitude of partner Scott Friend. “He shared our commitment to learning by doing,” said Fleiss.


Building a Team

• With capital in hand, the two women were ready to build the team. The typical advice is to hire experts to head each functional area, perhaps

• Someone who can leverage significant corporate experience to take the team to the next level. They didn’t do it.

• Use a fluid approach to allocating responsibilities and hire managers who can wear different hats without worrying about their titles.

• They make heavy use of unpaid internships to test whether employees have the same hungry jack-of-all-trades attitude.


Beta Version

• With a small team in place, the typical advice would be to carefully develop a flawless website and service with broad appeal, adding features that might attract a wider set of customers. They didn’t do it.

• Rent the Runway quickly launched a beta version of its service for 5,000 invited members on November 2, 2009.

• RTR started with 800 dresses from 30 designers— a relatively small inventory. “We followed the minimum viable product approach,” said Fleiss. “At the outset we just wanted to provide the capability to rent dresses. Nothing fancy.”

• But with the help of a New York Times article titled “A Netflix Model for Haute Couture,” initial demand for the small inventory proved almost overwhelming.


Netflix for designer dresses

• “Netflix for designer dresses” is the elevator pitch that everyone uses to describe Rent the Runway, the New York City startup that launched in November with Series A funding from Boston-based Bain Capital Ventures.

• The company buys dresses from top fashion designers, then lets customers reserve them online for a four- or eight-day rental period. When the time comes, Rent the Runway ships out the dresses (in two sizes, just in case) along with a handy pre-paid return shipping package. They even handle the dry cleaning.

http://www.xconomy.com/boston/2010/01/08/subscription-model-turns-rent-the-runway-into-a-real-dressflix/


Subscription Model and Inventory Management

• Renting dresses by subscription could help with that problem by making demand more predictable, Fleiss says.

• Beta users of the subscription program have tended to reserve all of their dresses for the month or the quarter right away—which gives the startup time to think ahead. “The further out people are renting the dresses, the more we can plan inventory,” Fleiss says.


Data Analysis

“We’re very confident that we can get [the conversion rate] up higher; it’s entirely because of inventory being the constraining problem, as we see it,” Fleiss says. “We’re servicing those 2,000 customers with only 1,000 dresses. But the good news is that now, as we are purchasing for February, March, April, and the spring season, we have so much data about what’s renting, what sizes customers want, which designers fit best, and which things are wearing out fastest that we’re actually taking a lot less risk when we buy inventory. So in the long run, this conservative buy was really smart business, because we didn’t waste money on things we weren’t sure of.”


Rental and Subscription Model • But Rent the Runway members have to rent each dress

separately at prices ranging from $50 to $200.

• Starting Jan. 8, 2010, Rent the Runway is offering its own subscription-based pricing option: for $350, members can now rent as many dresses as they can wear in the course of a single month (with a limit of four dresses out at once). For $900, they’ll get unlimited rentals through January, February, and March.– Jennifer Fleiss, Rent the Runway’s co-founder and president,

says customers were demanding a more economical way to rent lots of dresses in succession. “We’re seeing a lot of our really loyal customers renting a few times in one month, so they’re spending a lot of money,” Fleiss says. “We’re trying to find a way to enable that in a more cost-effective way.”


Subscription-based pricing option

• “This is our first bold step to really try to change user behavior,” says Fleiss. “Our belief is that you should rent anything that’s not a basic. For your basic black dress, you should absolutely buy that.

• But for anything that’s seasonal or just once or twice, you should rent—the job interview, the date next week, the meet-the-parents dinner, the special night out. There is no occasion too small to have fun and pick out a special dress.”


Subscription-based pricing option


Expansion

• And now that it’s launched subscriptions, the company plans to expand in other ways, she says. Starting in April, Rent the Runway will offer designer accessories such as bracelets and necklaces.

• In May, it will introduce bridal rentals—aimed not at brides (a big market unto itself) but at bridesmaids, who will be able to get package deals. And by the fall, the company hopes to offer maternity clothing.

• “The more we talk to customers, the more we see there is all this enthusiasm for all these different verticals,” says Fleiss.

http://www.xconomy.com/boston/2010/01/08/subscription-model-turns-rent-the-runway-into-a-real-dressflix/3/


Validation and Outside Funding• The testing validated their hunch. “Women would put

on a sparkly gold dress, twirl around in the mirror, say ‘Don’t I look hot?’ and strut their stuff in front of all of her friends,” says Fleiss.

• “For us that was real proof that there is a lot of tangibility to this concept, there’s a huge stickiness factor, an emotional connection. We decided to build the concept of Rent the Runway around that feeling that fantastic fashion gets to women.”

http://www.harbus.org/2012/rent-the-runway/


Raising Funds

• The company raised its first outside funding from Bain Capital Ventures in 2009 (raise a seed round from Bain of $1.5 million), based on the strength of their early market tests, including real-world trials at Harvard and Yale during spring formal season.

• Scott Friend (HBS ‘95) led the seed investment from Bain. Friend says, “Unlike a lot of entrepreneurs, Jenn and Jenny immediately started doing stuff. They had assembled 100 dresses and started running trunk shows to validate things about the value proposition.” He adds: “I was blown away by their ambitious and yet very analytical approach.”

• Raise a $15 million first round of funding led by Highland Capital in 2009.



Validating Idea without Funding

• Bain, for its part, is bullish on the designer-rental concept, and on “the Jennifers” in particular. Both Fleiss and Hyman are 2009 Harvard Business School graduates, and Bain partner Scott Friend told me in November that he was impressed by the advance research they’d done even before leaving campus.

• “What was super compelling to me was the effort they made, without any funding, to validate the idea for themselves,” says Friend. “Without any help from anyone they found their way into the offices of Diane von Furstenberg and signed her up as an adviser. They ran several pilot dress rental programs with sororities, to validate that women would rent these things and how big of an issue sizing and fit and damage were. All of those questions that would have been the obvious ones to ask, they had asked and had found clever ways to get answers. They’d been scrappy and creative—and all of this while they were still in school, going to class and passing exams.”


Venture Round• http://en.wikipedia.org/wiki/Venture_round

http://themiddlemarketcfo.com/tag/venture-capital-2/


Venture Capital Investment

http://xitconsulting.net/us/http://xitconsulting.net/wp-content/uploads/2014/07/venturecapital.gif

Rent the Runway - 28 © Minder Chen, 2015http://www.slideshare.net/dmc500hats/changes-in-venture-capital-startups


Changes in Tech Startups• LESS Capital required to build product, get to market

– Dramatically reduced $$$ on servers, software, bandwidth

– Crowdfunding, KickStarter, Angel List, Funders Club, etc– Cheap access to online platforms for 100M+ consumers, smallbiz, etc

• MORE Customers via ONLINE platforms (100M+ users)– Search (Google)

– Social (Facebook, Twitter)

– Mobile (Apple, Android)

– Local (Yelp, Groupon, Living Social)

– Media (YouTube, Pinterest, Instagram, Tumblr)

– Comm (Email, IM/Chat, Voice, SMS, etc)

• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits– Y Combinator, TechStars, 500 Startups

– Funding + Co-working + Mentoring -> Design, Data, Distribution– “Fast, Cheap Fail”, network effects, quantitative + iterative investments


Before & After 2 Dot-Com CrashesDaft Punk Startup: Simpler, Faster, Cheaper, Smarter

Before 2000

•Sun Servers

•Oracle DB

•Exodus Hosting

•12-24mo dev cycle

•6-18mo sales cycle

•<100M people online

•$1-2M seed round

•$3-5M Series A

•Sand Hill Road crawl

•Big, Fat, Dinosaur Startup

After 2008

•AWS, Google, PayPal, FB, TW

•Cloud + Open Source SW

•Lean Startup / Startup Wknd

•3-90d dev cycle

•SaaS / online sales

•>3B people online

•<$100K incub + <$1M seed

•$1-3M Series A

•Angel List global visibility

•Lean, Little, Cockroach Startup

http://www.slideshare.net/dmc500hats/changes-in-venture-capital-startups


Progress

By February 12, 2012

•Rent the Runway now has 2 million members and features dresses by over 150 designers on its website, including prominent designers Diane von Furstenberg, Zac Posen, Helmut Lang, Kate Spade and Hervé Léger.

•The company, which lets members rent dresses by top-name designers at a fraction of the purchase price, has captured the imagination of its customers and the public, with articles about the company appearing in publications ranging from New York Times and Forbes to Glamour and Teen Vogue.



Operational Model

• Rent the Runway offers members the ability to rent dresses and accessories for 4- or 8-day periods at up to 90% off the retail cost, with dress rentals starting at $40. Seasonal or monthly passes that allow unlimited rentals are also available.

• Hyman is quick to point out the benefits of the rent-by-mail model, including customers getting a chance to try before they buy. She says: “Over 90% of our renters report they have purchased something from the brand they rented, post-rental.”



“Making a Global Closet for Special Occasions”

• The uniqueness and sensibility of the business model is what attracted Kleiner Perkins partner Aileen Lee, who ended up leading Rent the Runway’s Series B round, raising $15 million in 2011, and bringing the total funding raised to over $30 million.

• Lee reached out to Hyman and Fleiss in the fall of 2010, and ended up investing in the spring of 2011. “They had recruited an impressive team and built a member base of almost a million people, much of it based on word-of-mouth, which was pretty impressive.”



More Funding

• On the same day, Rent the Runway—the Netflix-like site, which allows customers to rent clothes and accessories online—said it had received $20 million in new funds, in part from Advance Publications, parent company of Conde’ Nast.

• As for Rent the Runway, the three-year-old company previously raised $31 million. Those initial investors— Bain Capital Ventures, Highland Capital Partners, and Kleiner Perkins Caufield & Byers—are also part of the latest round of financing, while Conde’ Nast President Bob Sauerberg will join Rent the Runway’s board as part of this deal.

• The site allows customers to rent designer clothes, shoes, and other accessories for four days at a time, at rates that typically equal 10 percent of the retail price. Rent the Runway says it has over 3 million members.

Dec. 3, 2012 http://www.xconomy.com/new-york/2012/12/03/fashion-sites-nomorerack-rent-the-runway-raise-funds/


“Everyone Deserves a Cinderella Experience” - Growth Strategy

• Fleiss “There’s so many ways we can expand and grow this business,” she says. “When we think about which product categories we should extend into or which demographics we should go after, or even which countries we should consider, it’s all about kind of balancing that in a strategic and thoughtful way.”

• Indeed, Hyman and Fleiss have come a long way in a short time. They have become internet celebrities, appearing on TV numerous times, including CNN and Access Hollywood, and being profiled in articles on a semi-regular basis. The site continues to grow, adding 30 new designers in the past six months, including Reem Acra and Anna Sui, and 100,000 new members monthly.



Team

• What Hyman and her cofounder, Jennifer Fleiss, have built is the furthest thing from cute.

• Buzzing around Hyman’s cubbyhole-chic office in an old printing building in lower Manhattan are 280 employees with a strange blend of talents: data scientists, fashion stylists, app developers, apparel merchandisers. It’s as if MIT and FIT (The Fashion Institute of Technology) threw a mixer.


Shared Economy

• Hyman and Fleiss’ idea emerged at the right moment.

• Millennials are leading a migration away from ownership to subscribing and sharing: Spotify invades our speakers, Netflix our TVs, Uber our curbs, Airbnb our entire homes.

• Rent the Runway wants to stream your wardrobe.

Date post:	26-Dec-2015
Category:	Documents
Upload:	elisabeth-sherman
View:	244 times
Download:	2 times

Rent the Runway - 1 © Minder Chen, 2015 Case Study: Rent the Runway Minder Chen Professor of MIS...

Documents