Rent the Runway

CASE ANALYSIS: RENT THE RUNWAY

INTRODUCTION

Rent the Runway (RTR), a newly formed and recently launched venture was bursting at the seams - literally. With explosive growth, marked by unrelenting demand, RTR was at a critical point in its evolution, Co-Founders Jenn Hyman and Jenny Fleiss (Harvard Business School Colleagues) had a decision to make. Their concept, simple as it was, allowed for the rental of high end fashion without the high ticket prices associated with wearing designer fashions (upwards of $4000 per item in some instances). For as little as $50, women could rent the fashion of their dreams - this posed a great opportunity for Hyman and Fleiss, realizing that in 2008, the women's designer fashion industry generated $149 billion, dresses alone accounted for $80 billion. With a lean management team, difficulty in meeting demand and a planned strategic focus on operational efficiency, Hyman and Fleiss were posed with the decisions of either raising additional capital to meet inventory demand and diversify product offerings while foregoing creation of operational efficiencies - something that they both knew was lacking - or, do just that, focus on the plan and create operational efficiency.

ANALYSIS

In many, if not all instances, the strategic fit, between internal and external environments is critical for the success of the business. RTR is a new entrant into the fairly new fashion rental business, more specifically - the high end designer fashion rental industry. This novel approach takes careful planning and execution, RTR has been able to set a competitive advantage by diversifying itself from two other competitors in a similar space by taking a differentiation strategy and focusing their efforts on dominating the specific target market, in this case, women who aspire to wear high end designer fashions. Target ages can range from 15 to 30, or older - the key is that RTR allows women who would not be able to purchase high end fashion dresses to wear them by renting them 4 or 8 days at a time. RTR is clearly in the growth phase of the business life cycle, in this case, service innovation was high with the introduction of the business model, process innovation should follow and increase dramatically as RTR is able to work through operational issues and improve efficiency. In order to understand RTR's positioning, both an external and internal analysis follow.

External - Industry

For the purposes of this case, the designer fashion industry proves to be too general and in fact a competitive substitution to the dress rental industry in question. Many women are too intimidated to consider shopping in high-end retail stores such as Bergdorf-Goodman's or Neiman Marcus, especially considering the whopping price tags on the dresses and the snobbery that is associated with the whole experience. For example, designer fashion includes purses, boots, coats, blazers and many other function pieces that would be useful for future occasions if purchased. The industry can be defined more specifically as designer fashion rentals.

In keeping with Porter's 5 Forces of Competitive Analysis, Industry Rivalry exists with two other competitors: Wear Today, Gone Tomorrow and Avelle "Bag Borrow or Steal". Buyer Power is directly created by the consumer demand and imposed on RTR. The consumer in this situation is at the mercy of RTR with regards to waiting for inventory (long wait lists), styles and types of dresses available, fashion trends and fashion designer supply to RTR. Supplier Power is very strong in this situation, through the early stages it was clear that fashion designers did not want to bear the costs and risks of building their own rental business, while simultaneously being aware of cannibalization. The suppliers of the dresses are aware of the power they have over RTR, they ultimately decide whether or not to sell dresses to RTR at wholesale costs and/or if they even want to be involved in the dress rental business - although, benefits such as consumer exposure and new customer acquisitions drive suppliers to become involved. The important aspect in supplier power for RTR is to have the well-known and desirable fashion designers involved (Michael Kors, Marc Jacobs). The Threat of New Entrants is high because the barriers to entry are low, RTR must ensure that they are prepared for new competitors, not only new firms but also their own suppliers starting a rental business - it is natural for an attractive business to gain attention and competition, especially if it is highly profitable. Contracts between RTR ensuring exclusivity with fashion designers will minimize this risk. Lastly, the Threat of Substitutes in this situation is low because of the expensive cost of purchasing the dresses - assuming RTR is competitive in their rental pricing structure, it will be difficult for substitutes to marginalize the business by taking a cost leadership strategy while delivering the same high quality experience that customers have come to expect from RTR. Key Success Factors within the designer fashion industry, such as customer service, pricing and product selection should be set as benchmarks for RTR to exceed in all aspects of its business.

Internal - Rent the Runway

The business competencies and capabilities of the Co-Founders are clearly present, as they have exhibited successful entrepreneurship in the past. Figure 1 provides a visual representation of RTR's organizational structure - it is a very lean management team, with both Co-Founders in positions of leadership as CEO and President. They are able to control and coordinate easily but not effectively as inventory shortages and long wait lists have developed. The structure of