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Rent the Runway Files for IPO

Rent the Runway finally revealed the state of its finances Monday as it filed for an initial public offering.

The Brooklyn company’s S-1 statement with the Securities and Exchange Commission documented an uneven recovery from last year’s pandemic upheaval, which forced the closet-in-the-cloud disruptor to exit brick and mortar and shed store staff. It narrowed its net loss for the six months through July 31, 2021 to $84.7 million, lower than the $88 million it reported for the same period last year. Revenue of $157.5 million for fiscal 2020 pales in comparison to 2019’s $256.9 million.

However, subscriber counts suggest consumers are getting back into the swing of their social and professional lives. Of the 126,841 total subscribers it has on file for the six months ending July 31, RTR reported 97,614 active subscribers, which doesn’t count members who pause their subscription. That’s an improvement from 108,752 total and 54,228 active subscribers in the 2020 comparison.

RTR devastated legions of fans last year when it nixed its beloved unlimited membership that let subscribers truly lean into the rinse-and-repeat lifestyle for $159 per month. Now, the company says a $135-per-month plan allowing two shipments of four items apiece is its most popular, though it offers customizable plans at $89, $174 and $199 as well. What’s more, it added, phasing out unlimited and the myriad carbon-belching shipments that came with it was partially responsible for getting fulfillment margins up to 72 percent for the six months through July 31, up from 66 percent in fiscal year 2020 and 54 percent in fiscal year 2019.

Once a fashion unicorn valued at $1 billion, the rental pioneer has yet to price its offering or determine the numbers of shares on offer, but plans to trade under the ticker symbol “RENT.” RTR supplements its revenue-driving subscription business with one-off rentals, called Reserve, in addition to its newer efforts in resale, which is open to shoppers beyond its member base.

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Though wholesale remains one approach to sourcing product, RTR said it plans to pursue its more “asset-light” strategies. Share by RTR, a consignment model with “zero low upfront cost and revenue share” with brands, and Exclusive Designs, items co-produced with certain brands and manufactured for enhanced durability and longevity, accounted for roughly 54 percent of its products in fiscal 2020, up from 26 percent in 2019. RTR “anticipate[s] a similar acquisition mix” for the 2021 fiscal year.

RTR’s filing listed adding new brand partners as a key growth strategy, and a member survey it circulated in August seems to suggest it might be actively courting new prospects while eyeing new categories. The poll gauged customer interest in borrowing luxury footwear, which would be a first for the platform, and accessing top-of-the-line labels like Gucci, Louis Vuitton, Chanel, Balenciaga, Erdem, Y/Project, Batsheva, Chloe, Burberry, Dion Lee, Gabriela Hearst and Emilia Wickstead.

While RTR subscribers already have access to 18,000-plus styles from more than 750 brands including Ulla Johnson, Armani, Prabal Gurung and Proenza Schouler, the company might see its go-public filing as a prime opportunity to coax the next tier of ultra-premium and highly covetable brands to the negotiating table. RTR says it has become “an important and growing distribution channel” for many of the brands it works with, pointing to a 293 percent jump in the gross merchandise value of the products it acquired from labels on the platform for five years through fiscal 2019.

As Americans took to the skies this summer, RTR pounced on the opportunity to rekindle—and expand—the hotel-centric service it first tested with Marriott’s W Hotels last year, which marked the first iteration of its “Closet Concierge” program. RTR incorporated “positive customer feedback” from that venture to scale a new offering through Tripadvisor Plus, the travel platform giving Closet Concierge users access to hundreds of thousands of U.S. hotels.

The program theoretically takes much of the hassle out of event and destination travel; why load up a suitcase with outfits you’ll have little need for after an out-of-town wedding wraps or your week of sun, surf and sand draws to a close? Instead, Closet Concierge allows users to have RTR rentals sent to a participating hotel, where they can also leave the shipment once they’re ready to depart. But more important, Closet Concierge’s revival might point to new ways RTR is trying to acquire customers.

RTR’s filing hinted at making the leap beyond America’s borders. The company opened an office in Ireland prior to the pandemic, a move that seems to have paid dividends and could hint at things to come.

“Initially, we saw Galway as just a [center] for software engineering,” CEO Jenn Hyman told the Independent, an Irish news outlet, in May. “But our Galway team is involved in everything—from the engineering behind our financial systems, our merchandising systems, they’re involved in our customer service systems, data science and our operations system. So they’re in all of the mainframe software that really powers Rent the Runway.”

Goldman Sachs, Morgan Stanley and Barclays are acting as lead book-running managers, Credit Suisse, Piper Sandler, Wells Fargo Securities, KeyBanc Capital Markets and JMP Securities are acting as joint book-running managers, and Telsey Advisory Group is acting as co-manager for the proposed offering.