Pricing Strategy – Rent the Runway

Pricing strategy, Rent the Runway, Big Red Car? Huh?

Full disclosure: The Big Red Car has never rented a dress from Rent the Runway, but the Big Red Car has always been intrigued by RTR’s pricing strategy.

Oh, my goodness, Big Red Car!

WASHINGTON, DC - NOVEMBER 24: Jenn Hyman, Christian Siriano and Jenny Fleiss attends the Rent the Runway DC store Opening at Rent The Runway on November 24, 2014 in Washington, DC. (Photo by Kris Connor/Getty Images for Rent The Runway)

Jennifer Hyman and Jennifer Fleiss – co-founders of Rent the Runway – at their 24 November 2014 opening in Washington, DC (Kris Connor/Getty)

So, it’s a beautiful warm Austin day and we live in the greatest city, in the greatest state, in the greatest country in the world! Ahhh, on Earth as it is in Texas!

So, the Big Red Car has always been a fan of a smart pricing strategy. I think one of the smartest guys out there is a chap named Patrick Campbell of Price Intelligently by Profitwell.

Here is their website: Price Intelligently.

Pricing strategy is a way for a company to obtain a better source and magnitude of revenue by being smart. You should be reading that Price Intelligently blog.

As a bonus, here is the Price Intelligently “Tear Down” on the Rent the Runway pricing model. Read it here.

Rent the Runway

Rent the Runway is a $416MM venture capital and debt funded “closet in the cloud” which provides clothing and accessories for rent with three different price arrangements: Reserve, Update, Unlimited. <<< do not love these names

 1. Reserve. You can rent (four days) any individual item for a fixed price starting at $30/rental. The price is based on the cost of the dress and the time of the year.

 2. Update. You can rent four items for a fixed price of $89/month. Each month you return last month’s four and get four more.

 3. Unlimited. You can rent four items and return them to receive four more items as many times as you want each month. This costs $159/month.

The company has gross revenue in excess of $60MM and is said to be profitable. Somewhere I have read that their revenue is evenly split between one off transaction income and subscription income.

The company employs 1,200 and more than 70% of them are women. The co-founders are both women named Jennifer. If your name is Jennifer, this may be the company for you.

What just happened there, Big Red?

What happened there, dear reader, is that Rent the Runway converted transactional income into subscription income. 

Transactional income requires a customer to make a chained series of continuous decisions, while subscription income requires a single decision. Break the chain, no more revenue. Subscription revenue continues until cancelled.

Note that if a customer goes on vacation for two months to a nudist colony, Rent the Runway still gets paid because it’s like a gym membership – you pay even if you don’t go!

That is the beauty of subscription income.

There is one other aspect of their pricing strategy which is worth noting – they are, in effect, putting Uber demand pricing into the mix with a formula which charges more for a dress during certain high demand times of the year (talking to you, New Years Eve). They also add to or subtract from their inventory based on demand.

In addition, the company sells off its inventory as it ages. It is suggested that the company prices its rentals at approximately 15% of acquisition cost – they must get a lot of credit card points and enormous discounts, don’t you think?

They sell off at 80% less than their acquisition cost – not sure I believe that. This is a clever way for them to dispose of their inventory while cycling their capital into fresh goods. Can you imagine the enormous amount of capital it must require to fund that inventory from Size 0 to Size 20?

Now, stop – does your business have an opportunity to create subscription income? Look at me. Do you have a way to create subscription income? If so, explore it.


Rent the Runway was founded by the two Jennifers (Harvard Business grads) in 2009 and funded with a $1.8 MM seed round from Bain Capital.

That was followed by seven more rounds of financing:

Series A, 25 February 2010, $15MM, led by Highland Capital Partners with Bain Capital in again

Series B, 23 May 2011, $15MM, led by Kleiner Perkins as the sole investor

Series C, 20 May 2013, $44.4MM, led by Novel TMT Ventures and American Express with Kleiner, Highland Capital Partners, Conde Nast, and Bain

Series D, 19 December 2014, $60MM, led by TCV with Reimagined Ventures, Highland, Flight Ventures, Advance Publications, and Bain

Series E, 27 December 2016, $60MM, led by Fidelity Management and Research Company with Highland, Advance, and Bain

Venture Round, 9 March 2018, $20MM, Blue Pool Capital (Jack Ma, Joseph Tsai)

Debt, 2 August 2018, $200MM, Temasek Holdings (Singapore sovereign fund)

This is a very classic pattern for venture funding starting with a traditional seed round and progressing every 1-2 years thereafter as the company scaled. It includes a slew of substantial and savvy investors including Jack Ma and Joseph Tsai the founders of Alibaba. It ends with a piece of debt from Temasek Holdings, the sovereign fund of Singapore.

The company is on the edge of Unicorn value at $800MM for the Jack Ma/Joe Tsai round.

Any bugs on Rent the Runway, Big Red Car?

Hate their logo. Ugh. In all that creative genius this is all they could come up with?

Maybe it’s just me. You?

So, dear reader, there you have it. An interesting company as an exemplar of an evolving pricing strategy. Learn from it.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be good to someone who needs a helping hand this weekend. You can do it and you will be injecting kindness into the world.