1. Rent The Runway Case Study
Kahaan Rajan Vasa
Due 29th September 2015

2. Qualitative Assessment
The idea for RTR was one that came about from the owner’s personal experiences in late It was a business already worth $80 billion in dresses. Hence, it was an issue that a lot of women would struggle with in their day to day lives. This was the major USP of RTR. Their customer value proposition was really solid as they were ideally not selling only their products, but providing their customers with an experience that would have a powerful emotional effect and would create brand loyalty for the company.
RTR has had a very good product development strategy. Cold calling top industry designers is a risky proposition but is one that they decided to take and it paid off as they got a lot of meetings with reputed industry leaders (made the right connections) who could give them feedback on the idea.
This allowed RTR to come up with a very strong Minimum Viable Product idea that it could revise to make constantly better and then pitch to its consumers. Exhibit 3 contains testimonials from customers talking about the novelty of the product.
The RTR team did a very good job defining valid tests. They tested out every different aspect of their idea (ranging from the online product rentals to rentals in person by setting up trials at target locales.) This allowed the owners to gauge how interested people were in the idea of RTR and they saw tremendous response in form of the 34% and 75% rental rates.
RTR was a very novel concept that did not face too much competition. The other brands either existed in a different segment of the market or passed on most of the cost of the dresses to the consumers and did not make it very cost-efficient for them.
WTGT charged 90% of retail for weekly rentals and young women would not be able to afford such expensive dresses. RTR had an advantage due to its efficient pricing and focus on creating a user experience rather than the product which would persuade women to rent the dresses online rather than from departmental stores. (Big benefit of the customer service team).
The company had a very strong hiring policy as they got experienced and flexible team members along with industry leaders who could guide them in the right direction. A lot of operations were kept in-house which allowed Hyman and Fleiss to ensure that they ran smoothly and all the products sent out to consumers were high-quality and a bad brand name was avoided.
The owners erred in website buildup as they did not allow for essential Tech & Ops Management. They struggled to release an adequate website to the customers and this business thrives on first-time consumers pushing up their conversion rate and telling more people about their great service. (the 12.5% customer return rate could have been even higher than it was).
The referral system was very effective as it created incentive for the women to tell their friends and create discounts for them.
The company has a strong social media presence, which it must exploit as the business runs on word-of-mouth through past user experiences and positives of the website. This would alleviate advertising costs for the company and also ensure that users can display their great experiences for the public to see.

3. Quantitative Assessment
RTR gained an initial seed funding of $1.75 million from the Bain Venture Capital for a common investment opportunity. This money was integral in RTR creating a brand name as a future big company and getting endorsements from fashion world leaders. This would only push up sales as more young women would want to try out the range of different dresses offered by the company.
The brand has a real pricing advantage over the competitors. WTGT charges 90% of retail prices for weekly rentals and 70% of monthly rentals whereas Avelle is a brand that specializes in accessories, which they buy at relatively higher prices. RTR focuses on younger women, provides clothes at a cheaper rate of 10-15% of retail and focuses on giving impeccable customer service.
The 2008 retail market for women’s dresses was $80 billion and quickly growing. This displays the potential that the company has to seize the market as their USP is that they can shop from the comfort of their homes and make educated decisions on what dresses to wear with advice from customer service.
The word-of-mouth referral model was rewarded handsomely as 40% of the website’s footfalls was through customers telling their friends or others about the website whereas 60% was through publicity. This shows the benefits of both strategies as they can set aside an advertising budget but also rely on word of mouth referrals to bring more customers to the company.
According to the case, RTR inventory in Dec 2009 ~ 1000 dresses. With 60% out for rental over a 2 month period, we can assume over 2 months, they rented out 600 dresses. With them raising inventory to dresses in April, we can assume that over the first 6 months, they rented out (600*6) = 3600 dresses. From April to December, they rented out (60% of 5000*6) = dresses. This gives us a year long estimate of rented dresses. Using the unit economics for the dresses, we can assume variable figures per dress = (21600*$90)-(21600*$31) = $ Reducing the cost of the dress to RTR for the dresses, we get (5000*226) = $ Deducting other costs such as the money paid to the advertising company, we can see that the RTR model is very close to breakeven even through its first year (which is a huge achievement for a start up).

4. Future Recommendations
As happened at the colleges, it could be seen that their second trial at Yale (75% rental) was far more successful than that at Harvard (34% rental). RTR is a product that relies on women finding out about the novelty of the website and telling others about it, hence, as long as they maintain their quality of customer service, is a product that can never go out of fashion.
RTR needs to start hiring more technical staff. Considering the bad experiences that they have had in the past, the website is the most important facet of their business and they need to ensure that it is constantly running and not affected in any adverse way which would drive away consumers. Stability is the key.
One of the biggest plus point of the company so far has been the mentality of the partners. Each of the owners has been willing to help out in whatever capacity possible and have been donning multiple hats. If RTR follows expansion immediately, there will be a lot more roles added on and it would leave a lot more opportunity for arguments over division of roles to take place. This would greatly affect operations as Hyman and Fleiss might not see eye-to-eye with each other over several major issues.
While RTR already has a very big consumer base, they are still constantly making changes and improvements based on feedback from the customers on what issues they have faced, new styles they might like to see added to the company and issues, if any, they have faced with receiving the dresses on time or sending them back to the company.
There is no doubt, that there is a huge potential for expansion, but the market they are in is such that it is very difficult for there to ever be a “lull” or recession in the sales of women’s dresses. It is a product that women will always require.
In my opinion, RTR should spend the 2010 year holding on to their current customers and building up to even bigger numbers. They should translate their first year breakeven figures into profits in 2010 and capture a “monopoly” on the online rental market. They will still have the same expansion opportunities in 2010 and I believe that they must build up their existing sales model before they ramp up their products and focus on more expansion opportunities.