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Can Rent the Runway Recover from Supply Chain Screwup?

Direct-to-consumer darling Rent the Runway is facing its biggest hurdle yet.

The decade-old company, which has made millions on luxury apparel rentals and become one of few unicorns among apparel startups, has been facing a vitriolic maelstrom in recent weeks, fueled by hordes of disgruntled consumers whose orders have gone MIA. Scheduled system upgrades prompted widespread service delays and a complete overload of customer service operations, throwing the company into chaos.

Customers who lit up RTR’s phone trees cited wait times of up to four hours, and many on Twitter said they never received time-sensitive shipments bearing evening gowns for once-in-a-lifetime formal events like weddings, galas and even the Emmys.

The uproar thrust CEO Jennifer Hyman into the spotlight when she was forced to offer a mea culpa last week—along with refunds and $200 vouchers to customers affected by the operational breakdown.

The fiasco also prompted the abrupt exit of Marv Cunningham, RTR’s chief supply officer and a veteran of Amazon and Target. Cunningham had been with the company for less than six months when he left his post last week.

In the midst of the turmoil and the efforts to address consumer grievances, RTR is undoubtedly scurrying behind the scenes to ensure that history doesn’t repeat itself.

Which begs the question: what went wrong in the first place?

The issue of scale

Back in March, on the heels of a $125 million cash infusion from investors and a $1 billion “unicorn” valuation, RTR appeared to be riding high.

But shortly afterward, a surge in new membership appeared to overwhelm the company’s existing infrastructure. Customers complained of long wait times to speak with customer service reps, and quality control issues, like missing or late orders, and even damaged garments.

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In early July, the company blasted out an email to members, apologizing for the missteps. Hyman announced plans to double the size of RTR’s customer experience team to accommodate the influx of new users.

A month earlier, in June, the company also opened a new, 300,000-square-foot fulfillment center in Arlington, Texas, to be manned by 500 employees. The warehouse was built to speed up fulfillment times for consumers in the western U.S., as previously, the company’s Seacaucus, N.J.-facility managed orders across the country.

These efforts were meant to ensure that things ran more smoothly at RTR, but in September, member complaints reached a fever pitch. Again, the company reacted swiftly, tweeting vaguely that RTR was in the process of upgrading its operations and that in the short term, “these changes are causing some shipment and customer service delays.”

While the company didn’t specify which aspects of its operation had been affected, Donny Salazar, founder of MasonHub, an omnichannel fulfillment technology and services company, said that a new order management system (OMS) or warehouse management system (WMS) could be the culprit.

“They need an order management system to allocate all of the inventory appropriately. So if that breaks, then you’re going to have a lot of issues from a customer service perspective,” Salazar said.

“Additionally, from a warehouse management perspective—if that breaks, you can’t ship orders,” he added.

Salazar said that one of the growing pains that impacts brands as they continue to scale is the need to upgrade their existing systems in order to support greater order volumes. The nature of RTR’s time-sensitive deliveries makes for an even trickier balancing act.

“They have to schedule the delivery in time for the customer. It’s a logistics business that requires absolute perfection, and there’s very little room for error,” he explained.

“A normal direct-to-consumer business for someone selling a commoditized product—if it’s a day late, it really doesn’t make an impact on the customer experience,” he said, but for RTR, the implications of a late delivery can have lasting effects—and can even deter a customer from using the service completely.

“It’s an indication of how important logistics is now and how critical it is to any retail business.”

Salazar said that just one small hiccup could have monumental effects, snowballing into an issue that affects hundreds, though it may have started with just a minor blip.

“When one thing breaks down in your supply chain, the impacts down the line become exponential. If there was a breakdown in a reservation system, then things that they thought would be available are no longer available. And if they’re planning on selling other reservations after that, the problem just gets exponentially larger,” he said, calling the catastrophic phenomenon “a bullwhip effect.”

Paula Rosenblum, a leading retail technology analyst, co-founder and managing partner at RSR Research, isn’t sure that technology is entirely to blame for RTR’s service woes.

“It’s always easy to blame technology. When you use words like ‘glitch,’ it becomes a very amorphous way to lay fault. It’s no one’s fault except for the system,” she explained.

Instead, she conjectured that human error was likely at the heart of the operational breakdown.

“My gut feeling is that it’s a process problem—that it’s not so much an issue of the technology’s inability to scale, but it’s a problem of not defining what the new processes would be,” she said.

Rosenblum believes that the same business model that has made RTR a success has also complicated its ability to scale efficiently. If RTR’s process was totally tech-driven, it might be easier, she argued.

It’s the human-driven processes—the “things you can’t automate”—that seem hardest to scale, according to Rosenblum. The physical acts of dry cleaning, re-stitching and packaging each garment are time and labor intensive.

“They’re using the same asset over and over, and that’s a plus,” she said, referring to the garments. “But it takes labor to run the business. When you ratchet up the volume, you have to ask: do these processes still work?”

Clearly, the company tapped into something of great value to the customer, Rosenblum admitted, and that’s what’s earned RTR its large, loyal and continuously growing customer base. But the efficiencies that the company had honed in prior periods of growth aren’t meeting consumers’ current needs.

“Obviously over time they created a standard that they could meet, but between the new facility, new employees and new processes—they couldn’t continue to meet that standard,” Rosenblum explained.

While a technology issue with new system upgrades could have exacerbated the issue, she believes “there may also have been some presumptions around the physical processes of getting the product ready and how long that turnaround would take—and they were proven wrong.”

The path forward

What’s happened at RTR can “happen at any company—scaling or not,” Salazar said, though he admitted that “it’s more likely to happen when you’re scaling quickly because you’re forced to keep up with the volume and react, as opposed to planning accordingly and being more strategic about the way you’re launching.”

Whether the company’s latest debacle was the result of human or tech-driven inadequacies, it has had to face the music (in the form of a cacophony of thousands of tweet tantrums and angry phone calls). So how does it wash its hands of the fiasco and move on?

Salazar is optimistic about the company’s prospects. “There will always be blips. It’s more about how quickly you can spring from these momentary scaling challenges, and rally the team around to find the root cause,” he said.

This experience will likely force conversations about how RTR allocates its time, funding and manpower.

“Maybe there was an initiative they wanted to push on the front end side, and they didn’t have enough engineers on the back-end integration. Now, they’ll learn how to divert their resources correctly,” he said.

Rosenblum recommended that the company conducts a full third-party audit of its operations. “I would call for outside help to break apart the situation into its component pieces to understand where the problems really are,” she said.

It’s likely a three-pronged issue involving people, processes and technology, she said. “Only the management, documentation, updating and testing of all of the above” can reveal the changes that need to be made, she argued.

From a public relations perspective, Salazar believes RTR is taking the necessary steps to earn back consumer trust.

“I think the CEO has done a great job of being accountable and owning it,” he said. “I think that’s what people want—instead of sweeping it under the rug. That’s what their customer base expects.”

In his opinion, the current situation fully encompasses the issues of building a successful business—and maintaining a brand—during the digital era.

“There have been a lot of cases when you see businesses scale and there are hiccups—but we live in an age where any customer can easily vocalize their experience, and it gets out to a large group of people very quickly,” he explained.

“This was the perfect storm.”