Rent the Runway, one-year after IPO, is down 90%

In this weekly series, CNBC takes a look at companies that made the inaugural Disruptor 50 list, 10 years later.

More than 50% of clothing hanging up in someone’s closet is only worn a handful of times before being discarded, according to Rent the Runway CEO Jennifer Hyman. 

That’s why she, along with co-founder Jenny Fleiss, started the fashion rental and subscription business Rent the Runway in 2009  – a service the company has coined  a “closet in the cloud.”

“Providing women with access … to an unlimited closet and the ability to wear whatever she wants without having to own it, that was really the underpinning of Rent the Runway – this idea that actually there was a better way to have variety in your wardrobe than just buying and throwing away,” Hyman said in an interview with CNBC’s Julia Boorstin in August.

With more than 800 brand partnerships, sizes ranging from 00-22, and three main subscription plans, Rent the Runway’s business model of helping women to stay up-to-date with constantly evolving fashion trends — without breaking the bank or repeating their outfits — found early success. Customers can rent items for as long as they’d like and have the option to purchase any pieces they love. The company estimates that with their eight-item monthly plan, customers have the opportunity to sport more than $4,000 worth of designer clothing every month for less than $18 per item.

In its first decade of existence, Rent the Runway says it reached more than 11 million members. It also was named to the CNBC Disruptor 50 list five times, most recently ranked No. 5 in 2019.

But with a heavy reliance on subscribers renting outfits largely to wear at in-person events and gatherings, the Covid-19 pandemic hit the company hard and it had to make many hard decisions to keep the business going. In 2020, its active subscriber count fell almost 60% to about 55,000 from about 133,000 the prior year, and it experienced a net loss of $171.1 million compared to its $153.9 million loss in 2019.

Rent the Runway slashed costs at the onset of the pandemic. It also rewrote the terms with its suppliers to pivot to a revenue-sharing consignment model, different from its initial wholesale model that required a capital spend upfront without a guaranteed payback. It revamped its membership plans and did away with its unlimited subscription option. It began an expansion into the resale market, allowing customers to shop its selection and purchase gently used items without having a membership.

Rent the Runway also had to backtrack on its bricks-and-mortar expansion. It opened its first retail store location in New York City in October 2014 and eventually established four additional stores in major cities across the U.S. After it closed down all retail locations and laid off all retail staff…