Rent the Runway’s IPO filing marks a return to parties

CEO Jennifer Hyman launched Rent the Runway, along with cofounder Jennifer Fleiss, in New York City in 2009. The business plan was based on the insight that young women raised on Sex and the City and The Devil Wears Prada were eager to wear luxury fashion. But in the age of social media, Hyman and Fleiss understood, the social currency of a particular statement piece lasted only as long as it took to upload one Instagram post, creating a tricky cost-benefit analysis for consumers. 

And fortunately for Hyman and Fleiss, the luxury fashion business was notoriously late to the e-commerce party—and laser-focused on the full-price, retail consumer—creating an opening for a rental startup. Rent the Runway quickly became one of the largest customers and partners for the large fashion houses that were previously indifferent to the wants and needs of online customers. Sales grew at a torrid pace, reaching as many as 8 million members and $100 million in annual revenue.

Based on its hockey-stick-like revenue performance, Rent the Runway raised roughly $400 million and had been valued as high as $1 billion before the pandemic. But when COVID hit, the company saw its core business plummet as many consumers neither wanted to share clothes with strangers nor had any place other than their homes to wear them. 

But while 2020 was something of a wasteland for nightlife and special occasions, it was a bull market for online shopping, helping to fuel growth to Rent the Runway’s resale business of pre-owned clothing and accessories, according to Hyman. The lockdown “has pushed online shopping especially in fashion in a way that it would have taken decades to bring…customer segments onto the web that weren’t there before,” she told CNBC in December. “We are seeing a wider diversity of who’s coming to the site, and we think that change is permanent.”

As the resale business becomes a larger share of revenue, it also adds a sustainability angle to the company’s road show narrative. Millennial and Gen Z consumers are increasingly mindful of the hefty carbon footprint and poor working conditions associated with fast-fashion brands, fueling demand for well-curated and reputable resale businesses. Aiming to transform Rent the Runway into a “fully circular platform,” Hyman told Vogue that “[t]here’s a very broad audience of people who want to consume secondhand, but potentially didn’t come to our platform in the past because they weren’t ready to subscribe, or they didn’t have an upcoming party or event.”

The secondhand market positioning also supplies potential IPO investors with some decent comps by which to value Rent the Runway. StockX, a leading sneaker reseller, was recently valued at $3.8 billion and is reportedly considering an IPO for later this year. The RealReal, a luxury rival of Rent the Runway’s, went public last month and currently has a market cap of $1.49 billion, against revenue of just under $300 million. While Rent the Runway is a newer entrant in this business, Hyman argues that it has a competitive advantage in that it can market resale merchandise to its existing rental subscriber base. 

In addition to the focus on resale, Rent the Runway has pivoted in other ways, closing retail shops intended to promote the rental service that, Hyman says, were designed to allow customers to try on garments but in practice were just overly fancy pick-up-and-drop-off facilities. 

It also reconsidered its subscription model “from being all-you-can-eat to a pay-as-you-go kind of model,” as Hyman told Fortune last year. “The goal has always been to create a more personalized subscription program, where people could flex up or flex down their usage based on what was going on in their life, and that would correspond to flexing up or down the price that they paid. 

“Thank God that was in the works prior to the pandemic,” she added.

In the run-up to this IPO filing, Rent the Runway has been polishing its image, earning headlines by adding Goop founder Gwyneth Paltrow to its board and for sharing fascinating data on changing fashion trends with the New York Times. Consumers, Hyman observed, are redefining what fashion might deem “age appropriate,” with women of all ages searching for crop tops and outfits with cutouts on Rent the Runway. 

“It is truly surprising that women above the age of 35, women in their forties, are renting crop tops at the exact same rate as our teenagers on the platform,” Hyman told the Times.

The company is also seeing heightened demand for vivid prints and other brightly colored fashion. Pent-up demand for post-pandemic weddings and other special events have even led to longer wait times for in-demand garments—a happy problem for Rent the Runway to have as the U.S. emerges from months of lockdowns. After many grew overly accustomed to wearing the same pair of yoga pants and sweatshirts day after day, consumers want their clothes to stand out.

And when it comes to standing out, Rent the Runway’s IPO has a chance to stand out precisely because Hyman is the rare female founder to reach this stage. 

Having survived not just the pandemic but also the departure of her cofounder and other key executives, Hyman is now poised to join a small but growing group of women entrepreneurs who have taken their companies public through an initial public offering—only about two dozen, by one estimate. After a record 13 women took companies public in 2019, this year has seen less activity, though the women-run companies that have gone public have been fairly high-profile ventures. Bumble CEO Whitney Wolfe Herd took her dating-app company public in February, becoming the youngest woman on record to lead a company from launch through IPO. And in June, 23andMe CEO Anne Wojcicki took her genetic-testing business public through a SPAC. 

The share of venture capital raised by women continues to be shockingly low—and going in the wrong direction, falling to a scant 2.2% in 2020. A successful Rent the Runway offering won’t make up for that glaring inequity, but it could, in its own way, help to increase momentum for other women who want to build businesses that not only grow but are primed to effectively disrupt entire industries.