Despite a strong Q2, Rent the Runway will lay off a quarter of its corporate employees by the end of the year - The Entrepreneurial Way with A.I.


Tuesday, September 13, 2022

Despite a strong Q2, Rent the Runway will lay off a quarter of its corporate employees by the end of the year


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Dive Brief:

  • Despite reporting Q2 results that included record revenue and its first positive adjusted EBITDA since going public last year, Rent the Runway on Monday announced it will lay off 24% of its corporate workforce as part of “a restructuring plan to reduce costs, streamline its organizational structure and drive operational efficiencies.”

  • The apparel rental site’s downsizing, (expected to cost about $2.5 million, hitting mostly in Q3), will be “substantially completed” by the end of the fourth quarter, saving some $25 million to $27 million in annual operating costs next year, per a company press release.

  • On a call Monday, executives said they’re pleased with the Q2 performance and that the restructuring is meant to help the site reach profitability more quickly. Revenue rose 64% year over year to $76.5 million and active subscribers rose 27% to 124,131, though that declined from last quarter. The company remained in the red, but net loss narrowed to $33.9 million, from $42.4 million a year ago.

Dive Insight:

Rent the Runway has shaken up its model more than once, by shifting its assortment to add workwear to its special-occasion focus, adjusting its subscription tiers and adding an option to rent clothes without a membership. The pandemic sent the company scrambling further as people worked from home and events like weddings and parties were canceled.

The pandemic and its effects on demand aren’t over, and the macro environment recently has introduced yet more unknowns, CEO Jennifer Hyman said. Despite its many improving metrics, the company’s steep cost-cutting, including substantial layoffs, is necessary to achieve its targets, saying it “gives us the ability to reinvest in the customer experience and play significant offense.”

“We're a proactive organization, and we follow the data,” she told analysts. “This is what we did when we saw the very early impacts of COVID, and we acted early and meaningfully. And as promising as the bounce-back has been in August and September, we simply can't predict what's going to happen in the next 12 months. These changes put us in a strong position to continue to grow both in the immediate [term] and once the environment is fully recovered.”

She gave a full-throated defense of apparel rental, saying that it remains poised to grow as more people get comfortable with the idea of forgoing clothing purchases because “it doesn't really make sense to buy a dress that you'll only wear once.”

“We believe this market is in its infancy and customer adoption of rental and resale will continue to grow,” she also said, adding that the company “can more than double the business in the upcoming years” by continuing to work on factors under its control including acquisition, conversion, rejoin rates and loyalty.

The company does have several advantages that other apparel retailers don’t, including its connection to the disruptive resale market and the rental model’s reputation for sustainability and value, according to a client note from Wells Fargo analysts. Still, while it enjoys a small but growing total addressable market, its path to profitability and free cash flow contains enough volatility to keep it a “show-me story” in the long term, they said.


Daphne Howland, Khareem Sudlow