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Why Rent the Runway is expanding its retail operations

JP Mangalindan
·Chief Tech Correspondent

Rent the Runway’s new San Francisco store, which opened on Wednesday, likely won’t be a huge revenue driver for the startup, but that’s not the point.

The New York City-based fashion subscription service, which has more than 11 million members, opened its fifth and largest U.S. store in San Francisco on Wednesday, joining other Rent the Runway physical retail locations in New York City, Los Angeles, Chicago, and Washington, D.C. The startup does not disclose how much the company is generating in revenues through its physical stores, but says its stores serve as a good way to observe subscribers’ shopping tastes and offer them a physical showroom to try out items.

“What's really powerful about the level of engagement we're getting with our subscribers is we can merchandise this store in real-time,” says Rent the Runway COO Maureen Sullivan, adding that the company saw 142% year-over-year increase in subscribers in San Francisco. “So if there is a heat wave in the next few days, we can quickly change all the inventory in the store to make sure that it's perfect.”

To be sure, even Rent the Runway’s San Francisco store, which will rotate through 3,000 clothing and accessory items each day, carries a small fraction of the startup’s online inventory, which surpassed 800,000 items from over 500 designers at the end of 2018.

A physical showroom for designer goods

But just as other online retailers such as Warby Parker and Bonobos are finding, Rent the Runway stores are more than just about brand visibility. They’re also a physical showroom for Rent the Runway subscribers to touch, interact and try on items before they rent them out, which can ultimately drive incremental revenues. That’s why the San Francisco store places an added emphasis on having subscribers actually try out items, with 20 fitting rooms that can easily be doubled to 40 during “peak hours” with some added curtains, a Rent the Runway spokesperson says.

“Really it's to serve our quickly growing subscriber base here in San Francisco,” contends Sullivan. “We've gone from a business where we were getting women dressed a couple times a year for special occasions, and now our subscribers are wearing Rent the Runway over 120 days a year. So the store is not really a ‘store’ — it's an extension of their physical closet.”

Founded in 2009 by Harvard Business School graduates Jennifer Hyman and Jennifer Fleiss, Rent the Runway has become a popular destination for women seeking high-end designer looks without having to splurge hundreds or thousands of dollars on a single item. (Instead, subscribers may rent up to four items at once for up to $150 a month.) The startup, which expanded into children’s clothing and announced a West Elm partnership earlier this year, has raised $337 million in venture-backed capital to date and crossed the $1 billion valuation this March. The company does not currently have plans for an IPO, Sullivan tells Yahoo Finance.

“I think our mission is really removing that burden of ownership to give her the freedom to access any incredible designer at a really affordable price point, but also at their convenience,” adds Sullivan, who explains that 90% of Rent the Runway’s subscribers are working professionals. “So what that means is, time is their most valuable [asset] and as you see in the store, we have customers that are maximizing their time. They're getting an outfit they want to wear in an incredible environment and getting in and out as quickly as they want to.”

And if that helps drive up Rent the Runway’s revenues in the process — incremental, as they may be — so be it.

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