Photo: Rent the Runway
Can Rent the Runway move past unlimited rentals?
Imagine if Netflix or Spotify got rid of unlimited streaming and how viewers would react? Rent the Runway may be facing a similar challenge as it moves to end unlimited rentals.
The shift should give the company the ability to add tighter control over expenses and ensure faster deliveries. Sending fewer overall shipments per customer also supports sustainability goals. The change comes as the demand for formal wear, Rent the Runway’s forte, has waned in a stay-at-home economy.
Members gain more customization and flexibility under the new subscription structure, although Rent the Runway CEO Jen Hyman admits that losing the unlimited option will annoy some customers. “There are of course going to be a segment of unlimited users who are extremely upset about this decision … and this isn’t a decision we made lightly,” she told CNBC.
The new monthly structure offers customers the choice of:
- A four-item plan (formerly called 1 Swap) for $89 per month, with access to a narrower basics inventory, including casual and workwear;
- An eight-item plan (formerly called 2 Swaps) for $135 per month, with access to all inventory, including formal wear;
- A 16-item plan (new) for $199 per month, which equates to four shipments of four items each month, also with access to all inventory.
The company has instituted an upgrade to include faster turnaround — members will be able to get their next shipment before their returns are scanned back. It’s the “most-requested feature of all-time.”
The 16-item plan, however, is still priced higher than the current $159 Unlimited Swap plan. Ms. Hyman noted that 70 percent of Unlimited Swap members were renting fewer than eight items per month and have the opportunity to shift to the cheaper plan. Only six percent were renting 16 items or more monthly.
“We believe that when a member is in the right plan that matches their needs and budget, they’ll stay with us longer and keep renting — helping us on our mission to reduce clothing waste and build a better future for fashion,” said Ms. Hyman.
The new structure is set to debut this week. Current Unlimited members will have until early next year to phase out of their plan before picking a new one.
- An Open Letter from Our CEO Jenn Hyman on the Future of Subscription – Rent the Runway
- Rent the Runway overhauls subscription plan as pandemic reshapes business – CNBC
- Rent the Runway is ending its unlimited monthly subscription — but you can still sign up for it before next week and enjoy it until ‘early next year’ – Business Insider
- Rent the Runway is ditching its unlimited membership – CNN
- Rent the Runway axes the Unlimited model – Glossy
Discussion Questions
DISCUSSION QUESTIONS: Are the changes under Rent the Runway’s new membership structure equally beneficial to Rent the Runway and members? How much of a hurdle does Rent the Runway face convincing Unlimited Swap members to embrace new plans?
Poll
BrainTrust
Bindu Gupta
Loyalty & Marketing Strategist, Comarch
If they have priced it right, it shouldn’t be that much of a hurdle. I think I saw somewhere that something like 10-15 percent of Unlimited Swap customers actually use it in an “unlimited” kind of way. So there aren’t that many customers at risk from this shift. I think overall it reflects a big slowdown in luxury fashion, and a greater recognition of the sustainability impact of fashion. It’s smart of RTR to appeal to consumers on this basis.
This move doesn’t surprise me — I’ve never seen Rent the Runway as a viable long term model. The problem with a startup’s tendency to present their best offer first is that they never develop enough perceived value for their service to charge what they should be charging.
Now RtR has to take away things they’ve set up members to expect. A fundamental strategic problem and error. Can they survive despite “taking back” what they’d originally given? Maybe. Yet also, maybe not.
A lot of rental has traditionally been driven by work requirements and social events. Unfortunately, both of these things have become very disrupted during the pandemic. As such, the need for rental services has plummeted and volumes of rented product have fallen. This has provided Rent the Runway with an opportunity to assess the economics of its various subscription models and make changes that help it operationally and monetarily. While Unlimited Swap is arguably less relevant now that volumes are lower, there will be some high-use customers who will be annoyed by the shift – but arguably those are the customers that likely cost Rent the Runway money because of their extensive use of the program.
This is a similar move to what Netflix did when they began pricing DVD rentals separately. Or when unlimited data plans went away for a while. This also reminds me of the Moviepass debacle, where they walked back from unlimited movie screenings.
I am not a customer of rent the runway, so I can’t speak from personal experience. But there will be a period of turbulence until the new normal sets in for their subscribers. They should expect a bunch of cancellations, of course negative press and disgruntled customers. Having decided on the new model, the success depends on execution, financial ability to withstand a dip for two or three quarters and controlling the narrative.
They have made some cost cutting moves including closing all their retail locations. If this is seen as last ditch effort, it would be viewed very negatively.
Going by what Jen Hyman reported, that only 6 percent of their unlimited subscribers rented 16 or more items per month, it seems they are risking a small subset of their customer base. The real question is how these three new plans will drive new customer acquisition above and beyond the old plans. Even if they don’t lose that 6 percent of existing customers, they still need to find a way to drive growth. As it stands, I don’t see these new plans hurting them very much, and if the four-item plan is priced right they could gain more customers than they lose.
Rent the Runway would need to provide a solid value add and maybe additional perks to the customer segment that was renting 16 items or more monthly prior to this change. They also need to focus on their more valuable customers and determine how this decision will affect them.
Rent the Runway is adapting which is key to the ongoing success of any business. It appears that the changes are well balanced for the significant majority of their clients. To re-enforce this they need to communicate the reasons for the changes to their clients in a meaningful way that resonates with them. This could result in several different meaningful messages tailored to segments of their clients. These could include: the changes will provide you with greater selection, the changes will reduce our carbon footprint by X, or based on your past rental trend for the last six months you will save X.
This clearly benefits Rent the Runway more than it does their customers, but I’m not sure they have another realistic choice. Their business has been severely disrupted by COVID-19 and will continue to be disrupted after it as more and more employees and employers get comfortable with the idea of work from home. As far as hurdles go, it’s a fairly binary choice for customers – take it, or leave it. It’s not like Rent the Runway has many other options if this one fails.