Revenue is up for designer clothing rental company Rent the Runway, as the service looks ahead to a year full of social gatherings prompting customers to rent designer apparel. During its Q4 2021 and 2021 fiscal year earnings call April 13, the company spoke of its subscription pricing and new subscription acquisition plans, efforts to offset shipping costs with its at-home pickup service, and increased investment in automation technology.

During the call, Rent the Runway executives said they expect the momentum from weddings, social occasions and return-to-work situations to carry into the fiscal year 2022. In fiscal 2022, the retailer is “on track to achieve 77% year-over-year growth in active subscribers at the end of Q1 [2022],” Chief Financial Officer Scarlett O’Sullivan said during the earnings call.

Rent the Runway revenue increased about 91% to $64.1 million for Q4 fiscal year 2021, compared with $33.5 million Q4 2020.

For the fiscal year ending Jan. 31, 2022, revenue was $203.3 million, a 29% increase year over year compared with $157.5 million in fiscal year 2020 when the pandemic forced businesses to shut down and people canceled social gatherings.

Net loss in 2021 totaled $211.8 million, with $51.5 million accounting for initial public offering (IPO) expenses and other one-time charges since Rent the Runway’s IPO in October 2021. Rent the Runway is working toward profitability in 2022.

“Looking ahead, our strong Q1 2022 subscriber guidance and fiscal year 2022 revenue guidance reflects our ongoing confidence in the business as we continue to grow significantly with an eye towards profitability,” said Jennifer Hyman, Rent the Runway CEO and co-founder, during the earnings call. “We look forward to capitalizing on one of the strongest potential macro environments for rental we’ve seen in recent years, with an outsized pipeline of weddings and social occasions in 2022, return to work and a resurgence of general social activity.”

Rent the Runway’s pick a plan subscription page.

Subscribership trends upward

Subscribership is on the rise. As are active subscriptions (subscribers currently using the service and are up to date with payments), which are up 110% to 115,240 at the end of fiscal year Q4 2021 compared with 54,797 at the end of fiscal year 2020. Rent the Runway increased its subscription prices in spring 2021. It phased out its Unlimited rental plan ($159 per month). This allowed members to exchange up to four styles (clothing and/or accessories items) however much they wanted per month.

Instead, it offers an eight-item plan costing $144 per month. But customers are limited to trading out the four items to once a month instead of an unlimited amount. Customers can pick from various plans starting as low as $69 per month. That increases to $94 per month after the initial trial month period. The customer receives one shipment per month. Its 16-item plan offers customers four shipments per month. Customers can hold on to four items at one time. There is a two-month trial period at $149 per month. It increases to $235 per month after the trial period ends.

Sullivan added that seasonal patterns affect Rent the Runway. Subscriber acquisition is usually highest in March through May and September through November. There are higher pause rates throughout the summer and mid-December to the end of January.

“Q4 active subscriptions usually peak mid-quarter before we see an uptick in [paused subscriptions] by the end of the quarter,” Sullivan said during the call. She also noted that transportation expenses are highest in Q4. This affects fulfillment costs, “given higher service levels and competition during the holidays.”

Despite subscription price increases and limitations on monthly item swap outs, Liza Amlani, principal and founder of The Merchant Life, a retail consultancy, says she does not expect the price increase to hamper new customer acquisition.

“I don’t think it will be much of a challenge,” Amlani says. “New customers know why they’re renting versus buying. From an affordability standpoint because customers can wear designer items without paying full price to own. And from a sustainability standpoint, because they’re buying less.”

Rent the Runway for ways to cut costs

To cut costs and increase efficiency, the company launched an at-home pickup service in 2021. The service is currently available in nine of its markets, covering a quarter of subscribers. Rent the Runway plans to increase expansion in fiscal year 2022. Hyman said during the earnings call that the service is less expensive than shipping with a national carrier but did not specify by how much.

Subscribers can search Rent the Runway’s website for a drop-off location, including select Nordstrom stores. Users can scan their return at the drop-off location and leave, like an Amazon return at Whole Foods or Kohl’s stores.

Rent the Runway noted that it increased automation in its warehouses in fiscal year 2021. That resulted in a reduction of non-transportation fulfilment cost per unit by more than 30% year over year, according to the company earnings transcript.

Rent the Runway needs to automate some of the logistical and shipping aspects, and simplify the way they actually ship products, Amlani says.

With inflation driving prices up, Rent the Runway CEO Hyman said during the earnings call, “Inflation for us is a competitive advantage because it increases the value that the subscriber is getting from Rent the Runway,” she told investors. “When things like Uber rides, concerts, restaurant bookings, more people returning to offices, more vacations, as those things resume and go up, our business benefits. So, we feel really good about the year.”

For the fourth quarter ended Jan. 31, 2022, Rent the Runway reported:

• Revenue of $64.1 million, a 91% increase from $33.5 million a year earlier.
• A net loss of $39.3 million, a 1.3% increase from $38.8 million net loss a year earlier.
• An operating loss of $29.9 million, mirroring the $29.9 million operating loss a year earlier.

For the 12 months ended Jan. 31, 2022, Rent the Runway reported:

• Revenue of $203.3 million, an increase of 29% year over year from $157.5 million.
• A net loss of $211.8 million, a 23.8% increase from the net loss of $171.1 million a year earlier.
• An operating loss of $125.9 million, a 3.5% decrease from the $130.5 million net loss a year earlier.

Percentage changes may not align exactly with dollar figures due to rounding.

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