Rent the Runway, a $1 billion fashion startup, loses 90% of its value exactly one-year after IPO

13 years ago, Rent the Runway CEO Jennifer Hyman and her co-founder Jenny Fleiss pioneered “closet in the cloud,” an idea that women can rent designer apparel and accessories without having to buy them outright. The duo later launched a fashion rental and subscription business called Rent the Runway.

It didn’t take long for the startup to build partnerships with over 800 leading brands. The startup’s model is very simple: help women stay up-to-date with constantly evolving fashion trends, without breaking the bank with different outfits. At its peak, Rent the Runway carried hundreds of thousands of pieces of apparel and accessories by 550+ designer partners with options for work, weekends, and special occasions.

A few years after launch, Rent the Runway became a huge success raising $125 million in funding at a $1 billion valuation and making it a member of the highly coveted unicorn startup club. The round was led by existing investors Franklin Templeton Investments and Bain Capital Ventures.

Then in 2020, the pandemic hit, and Rent the Runway fell on a hard time. The startup lost about 60% of its active subscribers from 133,000 the prior year to about 55,000 and also experienced a net loss of $171.1 million compared to its $153.9 million loss in 2019.

The company was forced to cut costs and shut down all its physical retail stores. As we reported back then, the startup said it was permanently closing all of its physical stores as it reaccesses retail during the pandemic. The affected stores include its five physical retail locations in New York City, Chicago, Los Angeles, San Francisco, and Washington, D.C.

The startup added that the decision was part of its effort to focus its investments on digital and adding more drop boxes for customers. Then last year, Rent the Runway went public after a blockbuster initial public offering (IPO).

Fast forward exactly one year after the IPO, and its shares have fallen by nearly 90%. In its recent earnings report, Rent the Runway announced a restructuring plan, “including cutting 24% of corporate employees and an estimated annual operating expense savings of $25 to $27 million in fiscal 2023.”

Credit: CNBC

But the company founders are not giving up. In an interview with CNBC, Rent the Runway CEO Jennifer Hyman said: “Because of the fact that we’ve been cooped up for the last two years, we’ve not been attending holiday parties and weddings and dinners with our friends and vacations. I think that there’s even more demand than ever to have those experiences.”

But it’s also not all bad news for the company. Rent the Runway reported over 124,000 active subscribers, representing 27% growth year over year, and a 64% year-over-year revenue increase in its fiscal 2022 second-quarter results, released in September.

Founded in 2009 by Jennifer Hyman and Jennifer Fleiss, Rent the Runway is an online e-commerce website that allows women to rent designer apparel and accessories. It is transforming the way modern women get dressed – and in turn, disrupting the $1.7 trillion fashion industry – through the concept of renting over buying clothing.