Dive Brief:
- Rent the Runway is turning to side gigs to boost revenue. The apparel rental site now offers its dry-cleaning services to outside companies like hotels; is scaling its advertising; and in March launched an online marketplace.
- Last year, the rental site’s revenue rose 7.7% year over year to nearly $330 million. Gross margin contracted to 32.6% from 37.9% a year ago. The company swung into the black, reaching net income of $22.6 million, from a $69.9 million loss in 2024.
- For this year, the company expects double-digit revenue growth, but warned that “unknowns around the economy, such as fuel surcharges, tariffs, and other macroeconomic developments,” were not factored into its guidance.
Dive Insight:
Rent the Runway turned a profit last year but has struggled with its bottom line since its inception. Now the company has to worry about Urban Outfitters’ Nuuly business, which is growing and has been consistently profitable for the apparel conglomerate.
That may be why the subscription rental site — in addition to launching the side businesses — is encroaching on Nuuly’s territory, by expanding its assortment of “everyday” and “workwear” assortments by about 20% each and launching a marketplace.
The latter is an answer to customers’ demand for a way to buy things to go with their outfits, co-founder and CEO Jennifer Hyman told analysts Tuesday. Nearly 90% of customers are interested in buying items to complement the clothing they get from Rent the Runway, she said.
“The marketplace is designed to fill the gap that exists in our customers’ wardrobe, between her rental assortment and the total look she desires, by providing a highly curated assortment of shoes, shapewear, basics, beauty products and more available for purchase,” she said. “The goal is to increase the attach rate of orders by providing the wardrobe essentials that complete her rental look.”
Rent the Runway plans to launch more than 30 new brands this year, “with a focus on elevated, versatile styles that work for every aspect of our customer’s life — from office to weekend and everywhere in between.”
Artificial intelligence is helping the company on a number of fronts, including a search algorithm launched in February that has improved subscription conversion rate by about 10%. This year the company is working on “an AI-powered discovery model” that will allow customers to “browse in outfit groupings, improve conversational search, and view items in robust [product detail pages] with visual versatility, including seeing the item in motion and in her size.”
On the back end, the company has turned to AI to help determine the condition of the items it rents out, “helping us salvage inventory and keep more units in peak rotation for longer,” the company said in its earnings presentation.
