Rent the Runway will start trading on the public markets on Wednesday, testing investor appetite for its apparel rental model in the wake of a brutal year.
The listing represents a milestone for the buzzy venture capital-backed company, which was founded in 2009 by Jennifer Hyman and Jennifer Carter Fleiss, and arrives during a flurry of initial public offerings from other venture-backed retail companies, including Warby Parker and Allbirds.
Rent the Runway was built on the idea of renting out formal dresses for special occasions like weddings and it quickly became a hit. Women loved the idea of spending less money to buy costly garments that were worn infrequently and, in the age of social media, being able to be photographed in different dresses at different events.
The company has since expanded beyond weekend dress rentals, aiming to offer women a “closet in the cloud” through subscriptions. Rent the Runway has focused on getting women to pay a monthly subscription fee to access a wide range of apparel, jewelry and bags, with a particular emphasis on trendy workwear. Subscribers can swap in their picks several times a month.
“I’m so proud of this milestone day,” Ms. Hyman, now the company’s chief executive, said in an interview on Wednesday. “We’ve gone from a single dress and a single situation to building a full closet in the cloud that women can access for every occasion.”
In its I.P.O. filing, Rent the Runway pointed to a confluence of factors for its continued growth, including a “shift from ownership to access” as typified by the popularity of companies like Netflix and Airbnb, increased interest in sustainability and more working women, who tend to spend more on workwear than their male counterparts.
The company also cited studies saying that 33 percent of women consider an outfit “old” after wearing it fewer than three times and that “one in seven women considers it a fashion faux pas to be photographed in an outfit twice.” Social media not only increases the pressure that women feel to have variety in their wardrobes, according to the filing, but it also gives consumers a higher awareness of “aspirational brands outside their income level.”
In a supplement to its filing, the company said it would price the offering at $21 a share, which is the high end of the $18-to-$21 range the company had marketed. It also said the offering would expand to 17 million shares, up from the 15 million originally planned. It plans to use the proceeds to repay debt and fund the company’s expansion.
Still, the pandemic battered the company, which is still trying to regain the momentum that it had in 2019. Rent the Runway has been optimistic about rebounding this year but the filing shows how bad the damage was: The company ended last year with 54,797 active subscribers and $157.5 million in revenue, down from 133,572 active subscribers and $256.9 million in revenue in 2019. The active subscriber count was 111,732 as of Sept. 30.
“They took a huge hit because if you don’t need to leave your domicile to wear an outfit at a wedding or a prom or a graduation, you’re going to dress in comfortable clothing,” said Shawn Grain Carter, an associate professor of fashion business management at the Fashion Institute of Technology.
She said she expected the business would continue to be challenged as remote work persisted and offices relaxed their dress codes. Rent the Runway also faces competition from secondhand sites like ThredUp and the RealReal.
“You have millennials negotiating and saying, ‘I will leave my job if I have to go into the office’ — that changes how you dress,” Ms. Grain Carter said. “I see that as a challenge for them in terms of how the customer perceives the brand equity and also the value for the subscription service they are paying for every month.”
Rent the Runway noted in its filing that in August and September, about half of customer use cases were for casual, everyday occasions, while the other half were for work and evening.
Ms. Hyman was optimistic about Rent the Runway, particularly given its performance in the past year and a half. “2020 really should have been the end of Rent the Runway, and we’ve emerged a stronger business financially,” she said.
Recent I.P.O. filings from venture-backed retail companies have attracted particular interest, with businesses that have played up their disrupter status and $1 billion-plus valuations finally having to share financial details. Rent the Runway, despite its popularity, is relatively small compared with other retailers and not yet profitable. The company posted a net loss of $171 million last year, compared with a net loss of $154 million in 2019.
Rent the Runway said in its filing that it was in the “early innings” of growth, noting that less than 10 percent of the company’s total revenue has been spent on marketing since its founding and that it believed it could increase awareness of the brand. It also said that although most of its subscribers and customers were college-educated or working women, it believes it can diversify that base over time.
Ms. Hyman said that the company also planned to expand into new categories. “We’re open to home goods, to shoes, to luxury, to kids and I think there’s a world in the future where men aren’t even off the table anymore,” she said on Wednesday.
Simeon Siegel, a retail analyst at BMO Capital Markets, said that the rental clothing market, which has attracted public companies like Urban Outfitters in recent years, remained “very nascent.”
“People have bought clothing since time immemorial and companies are now trying to train people to consume clothing in a different way,” Mr. Siegel said. “Being reconditioned is not an overnight sensation.”