Rent the Runway earnings: flat revenue, high customer satisfaction

Despite reporting roughly flat revenue of $75.8 million for its fiscal fourth quarter and fiscal year ended Jan. 31, 2023, Rent the Runway Inc. sang a hopeful song in terms of customer experience and cost-cutting to its investors on its April 11 earnings call.

Rent the Runway is an online apparel brand that allows shoppers to rent designer garments for one-time use and return them. Alternatively, customers can buy a subscription to rent multiple designer garments each month and then return those items. The brand also allows subscribers to purchase the items they are renting at discounted prices.

Rent the Runway is No. 293 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers. The company appears in the Apparel & Accessories category.

Rent the Runway customer feedback in earnings results for Q4

The web-only apparel brand reported that its Net Promoter Score for its subscription business in its fiscal Q4 was the highest it has been in years. The score was 20 points higher than its low in Q2 2023. A net promoter score is a customer satisfaction metric. It is meant to measure how likely customers will recommend a brand or product to a friend or colleague. Retailers conduct customer surveys asking for a ranking based on a scale of 1-10.

Customer loyalty rate is also up 10% year over year in its Q4, the brand reported. It did not describe how that rate is calculated.

Rent the Runway points to investments in its customer service in 2023 as reasons for these positive performance metrics. These features include artificial intelligence-powered search results, easier-to-use and better-merchandised product detail pages and texting with a stylist. In addition, the company says it improved onboarding for new members and improved photography and styling.

Texting between customers and stylists

Rent the Runway debuted texting with a stylist in May 2023 in beta mode. Now, 40% of its first-time 90-day membership customers use the service, CEO Jennifer Hyman told investors according to a SeekingAlpha transcript.

“We saw that one-on-one communication with customers improved early term retention by answering questions, styling customers and helping them get the most out of their membership,” Hyman said.

The brand says it has created more merchandise-heavy, use-case “hubs” that have increased conversion. For example, it now curates its products into collections for work, events, weddings, travel and parties, with different seasonal showcases for its merchandise. It also helps shoppers to style their outfits, keep up with trends and put together whole looks.

Besides customer service investments, Rent the Runway highlighted its record revenue from resale or “try before you buy” garments. This option is when Rent the Runway shoppers also have the option to buy the products they are currently renting. This allows the brand to generate even more revenue out of that garment on top of the rental revenue. This “other” revenue (non-rental, non-subscription revenue) generated $10.4 million in Q4. That was a 48.6% increase from $7 million in its fiscal Q3 2023.

“We believe that Try To Buy’s Q4 success was primarily due to investments we made into our pricing strategy and technology earlier in 2023, which drove significant increases in customer conversion,” Hyman said.

Rent the Runway hits the road to breakeven

Rent the Runway also told investors that it plans to break even by the end of its fiscal 2024. In part, it plans to achieve that through its 10% reduction in staff by the end of Q2 2024, which it announced in January 2024.

A large pillar of this breakeven goal is through its “capital-light” model. That approach entails relying less on wholesale products that the company has to invest in upfront. Instead, the brand plans for roughly 70% of its merchandise to come from exclusive designs and its revenue-share program. This is when Rent the Runway pays nothing or a low amount for the designer garment upfront and then shares in the revenue.

“The only reason why any brand would interact with us in this way is because they see us as a powerful marketing channel on behalf of their brand,” Hyman said. “They know that when this psychographic of women — which is highly desirable that we have in our Rent the Runway base — interacts with their brand, that brand affinity is built and that those experiences drive additional purchases for those brands.”

In March, Rent the Runway hired a new chief marketing officer, Nataline McGrath. After a few years of being “pretty quiet” on the marketing front, the brand plans to reinvigorate full-stack marketing in 2024, Hyman said.

“Now is the perfect time to put our foot back on the gas pedal as it relates to marketing as our inventory is in a great position and the customer experience is as premium as it’s ever been,” she said.