What The Fashion Industry Can Learn From Rent the Runway’s Disruptive Business Model

As the fashion industry relentlessly struggles with lack of trends, digital shifts and high brick-and-mortar costs, disruptive online service Rent the Runway is quickly becoming one of its most intriguing case studies.

Last year, the eight-year-old firm — which rents designer apparel and accessories — landed a $60 million investment led by the mutual fund company Fidelity; opened a new store in Los Angeles as well as a flagship in New York; and launched a trendy shop-in-shop in Neiman Marcus in San Francisco.

With 6 million members in tow, experts say Rent the Runway has created and empowered the next generation luxury customer.

Maureen Sullivan, Rent the Runway’s COO, says the proof is in the pudding.

The access we provided to women across the U.S. to designer fashion really started a movement [and] changed her relationship with her closet,” Sullivan explained during a presentation at WWD’s Retail 20/20 Forum in New York on Tuesday.

Likening Rent the Runway’s impact on fashion to that of Uber’s on taxi cabs, AirBnB’s on hotels and Netflix on Blockbuster, Sullivan said the e-company successfully homed in on an area where fashion has long lagged.

Every other area of our lives has been put in the cloud,” Sullivan said. “The closet was really crying for a revolution and it’s really the only part of our lives that hasn’t evolved with the digital transformation of our lives.”

She added, “Our goal is for every woman to be able to access our closet in the clouds in a way that fits her life.”

Indeed, with more than 450 brands on constant rotation in a digital “dream closet,” Rent the Runway has checked off several boxes that have challenged the retail industry at large.

The desire of millennial and Generation Z consumers to get their hands on a range of exclusive labels coupled with a strong need to impress their peers on social media by never repeating the same look twice has become a winning formula for Rent the Runway.

What’s more, the company also appears to have mastered the ever-elusive concept of online engagement — the bane of many a retailer’s existence.

Sullivan said one in six Rent the Runway customers posts a detailed review after renting a piece from the site, providing a gold mine of data for other users and the site itself.

Our customers are an engaged community — they share their weight, their bra size [and so on], giving us a database of hundreds of thousands of customer reviews [and] providing amazing insight for [other] customers on quality, fit and style,” Sullivan said. “[Customer reviews] are the no. 1 part of our experience that our members love and is the biggest driver of conversion on our site.”

The service’s core customer is a busy, career-oriented 29 year-old woman who is organically social and often locked into her mobile device. But despite its heritage as a digital-first firm — as well as a general consumer shift toward online shopping — Rent the Runway has found that a brick-and-mortar presence is still a necessary component to its strategy.

Stores allow us to have a very powerful service center in critical markets where we serve hundreds of thousands of customers,” Sullivan said. “Stores have been transformational in getting more women more comfortable with this idea of renting and it allows them to see, touch and feel inventory and get comfortable with fit.” (In addition to its New York flagship and California locations, Rent the Runway has stores in Chicago, Washington D.C., and Las Vegas.)

As the company publicly reaps the rewards of its niche strategy, other retailers are beginning to follow suit. Nordstrom Inc. announced this week that it is partnering with online tuxedo rental service The Black Tux to offer a shop-in-shop experience.

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