The fitting rooms at Rent the Runway’s flagship store in New York City.
Source: Rent the Runway
The coronavirus pandemic has taken a toll on many retailers, pushing dozens into bankruptcy, and it will now prompt the clothing subscription company Rent the Runway to shut all of its stores for good.
Rent the Runway told CNBC it is making the decision in order to focus its investments on digital and adding more drop boxes for customers.
Its New York City flagship will be turned into a permanent drop-off site, while stores in Chicago, Los Angeles, San Francisco and Washington, D.C. are shuttered. The stores had provided customers a spot to drop off their items and swap them for the new apparel or accessories that lined the shelves. It also offered styling services at these locations.
Rent the Runway said it plans to continue to grow its network of drop box locations. The company has partnered with WeWork, Nordstrom and West Elm so far.
“This has been an evolution over the past two to three years,” Anushka Salinas, Rent the Runway president and chief operating officer, said in an interview. “We always knew we wanted and will continue to have a physical presence strategy. What we know now is the physical presence strategy is about drop boxes.”
A number of retailers have been slimming down during the pandemic, in part to cut costs as many have fallen into a sales slump. Others are using the opportunity to simply right-size and shift resources online. The tech company Microsoft in late June announced plans to permanently close its 83 retail locations. Kate Spade and Coach owner Tapestry said this week it is planning a wave of closures. The off-price chain Stein Mart also this week filed for bankruptcy and said it is closing all of its roughly 280 locations. More than 6,000 permanent store closures have already been announced by retailers this year, according to a tracking by Coresight Research.
Rent the Runway knew it had to make cost-cutting moves early on because of the pandemic. Its business model, in part, revolves around women renting out designer ball gowns and party dresses for special events like weddings, birthdays and black-tie events — which were brought to a halt when the pandemic hit.
In March, it laid off all of its retail staff during a Zoom call, saying it needed to “dramatically reassess” its business model, according to a Verge report. Rent the Runway declined to say how many jobs have been eliminated.
Costs were cut by 51% at the onset of the pandemic, the company said. And it rewrote the terms with its suppliers to pivot to a revenue-sharing consignment model, away from a wholesale model that required additional capital upfront, without a guaranteed payback.
Rent the Runway has also raised fresh financing during the coronavirus pandemic, a person familiar with the round said. The amount of the round could not immediately be determined. But the new funding was expected to value the start-up below its previous $1 billion valuation and so-called unicorn status, Bloomberg reported in May. Rent the Runway has raised roughly $380 million in equity to date.
At least for now, business seems to be creeping back, with more women looking to get dressed up again, according to the company’s COO.
“The vast majority of our subscribers didn’t cancel their accounts,” Salinas said. “They put them on hold or just kept items at home. … That tells me there is optimism.”
She added that, after bottoming out, business started ticking back up in June as local lockdown restrictions across the country eased. Many Rent the Runway subscribers are now focused on “keyboard-up dressing” (think nice tops and jewelry, not bottoms) for Zoom calls and other video chats from home.
In a recent interview with The Wall Street Journal, Rent the Runway co-founder Jenn Hyman said she was hopeful business was going to bounce back, and the company would come out of the pandemic even stronger than before it went into it.
“We repositioned the company financially and structurally to benefit coming out of the pandemic,” Hyman said in the interview. ”We don’t need people to go back to work. We just need people to leave their home.”
Rent the Runway is a five-time CNBC Disruptor 50 company, most recently ranked No. 5 on the 2019 list.