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Last week, Rent the Runway unveiled a subscription service called Unlimited that lets women rent three articles of clothing at a time for $139 a month. The goal, according to CEO Jennifer Hyman, is to convince working women that it makes more sense to spend $1,700 a year on a rotating closet of leased clothing rather than plug the gaps in a wardrobe with purchases from fast-fashion brands that won’t last.
“I’m just really thrilled that we can bring Rent the Runway from being a service for special occasions to being a utility,” is how Hyman described it in an interview.
Hyman’s six-year-old startup is best known for single-handedly creating the rental market for designer dresses. But the CEO has huge expectations for this subscription rental launch, which is really on at least attempt No. 3.
The launch comes 20 months after Rent the Runway first announced a similar service, which cost $75 and just included accessories. It later added some clothing — though not the full collection of workwear it offers now — and upped the price to $99 a month. That tier is gone now, too.
“The program didn’t have the type of mass-market demand we needed,” Hyman said of the $75 offering.
Now the stakes are higher, with a higher price point, and Hyman is talking big. She told her board that the Unlimited service will account for 20 percent of the company’s total revenue this year, which she would only say will be “much larger” than $100 million. Within three years, she said, clothing subscriptions will surpass the dress-rental business in revenue.
To get there, Rent the Runway will launch different tiers of the service in the future — some less expensive, and perhaps some more — one of which would potentially limit the frequency of clothing swaps allowed in exchange for a lower price.
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Hyman also expects the Unlimited business to grow mainly from the same word-of-mouth marketing that has allowed the company to spend less than 4 percent of revenue on marketing up to now.
“The plan is to spend zero paid marketing on this,” Hyman said. “We’re not going to need it for years.”
“All of the women who work around [an Unlimited customer] visually see a billboard for Rent the Runway every day,” she added, as a way of explaining why she thinks the service will grow even more virally than the dress business.
The plan is that the new business will have gross profit margins north of 50 percent, so it’s not a drag on the bottom line of the combined company as the core business looks to break into the black. The original dress-rental business will become EBITDA-positive this year — that is, profitable when you exclude certain expenses like taxes. Hyman said that’s extra important in a business like hers, because it’s a milestone that allows for access to cheaper debt to fund inventory purchases.
It’s also important because of the current fundraising environment facing privately held companies.
“I think you need to assume it’s impossible to raise equity financing for the next two years,” Hyman said, when asked whether her company, which last raised $60 million in 2014, was in the market for more capital. “As a first-time founder and CEO, I have not seen a downturn yet, so I’m preparing for the worst, and if something happens to turn the environment around, great.”
Preparing for the worst sounds like a sound mindset. But it also adds even more pressure for the third launch of the Unlimited business to be the one that sticks.
This article originally appeared on Recode.net.
