When the pandemic hit, Kathryn Simpson put her Runway subscription on hold. But recently, the San Francisco-based union communications specialist continued the service, which allows her to rent up to eight sets of clothes and accessories for $144 a month. “My husband and I live in the same city and have very little shelter; So being able to bring back items that take up a lot of room, like outerwear, is really important to us,” she says.
She needs a tenant for the highway. By the end of 2020, nearly two-thirds of its 134,000 customers had abandoned the monthly rental service, forcing the company to cut costs by 51 percent and lay off half of its workforce. Shares of the 13-year-old company are hovering around $5.34, down from $21 a share in early October.
Once presented as a threat to fast fashion — “I plan to put Zara out of business,” CEO Jennifer Hyman told online trade publication Glossy in 2017. Next Gap (Everlane), Lenscrafter owner Essilor Lucotica (Warby Parker), Estee Lauder (Glossier) or eBay for designer luxury (The RealReal). With effective branding and the ability to recruit new customers through social media, these online native businesses have been treated – and financed – by existing merchants treated as technology companies, promising audiences, fast growth and low operating costs by expensive stores and “middle men”. .
After a decade and a slew of IPOs — online luxury consignment website RealReal went public in June 2019, followed by peer-to-peer resale platforms Poshmark and ThredUp, geek-chic eyewear maker Warby Parker, Rent the Runway and sustainability — shoemaker Allbirds — in 2021. That vision hasn’t materialized yet, and investors aren’t sure it ever will.
“The big question is, how did so many people believe their narrative?” Suchrita Kodali, Principal Analyst, Forrester says. “People wanted to believe that Goliath could be disrupted, and all it took was a little Silicon Valley money to disrupt Goliath.”
It turns out that disrupting Goliath will take a lot of expensive infrastructure. Early on, Everlane and Warby Parker realized the price they promised to cut — stores — was essential to reach the masses — even during the 2020 pandemic, 14 percent of adults bought eyeglasses online, according to Vision. Council and most clothes are still bought offline. To make the rental model work, Runway Rent the Runway became the world’s largest dry cleaner. And although it has only a handful of stores, The RealReal has spent millions selling second-hand luxury goods for the home, photography and consignment online. Meanwhile, the value of acquiring new customers through social media has increased. As a result, none of these companies are profitable – and for most of them, their losses are widening.
The numbers are improving at Rent the Runway, which reported 134,998 active subscribers in the most recent quarter. But with less than .08 percent of American women signing up for the service, the company is falling far short of the claim on its LinkedIn page that “women everywhere will soon have a fashion subscription.” Many customers don’t see the value of paying for clothes they can’t keep; A former customer complained about the logistics of returning rental items.
It’s a similar story in Warby Parker, ed. Launched in 2010, Essilor Luccotica sells mid-cost custom frames (originally priced at around $95) online “direct to consumer”. The company, which raised more than half a billion dollars from investors before going public, now offers eye exams and contact lenses in 160 stores, with a 1 percent market share, according to its S-1 filing. Esilor Leukotica has 20 percent. Warby Parker has announced that it will lay off 15% of its workforce and cut marketing costs in its latest quarter, which grew to $32.2m on revenue of $149.6mn. The proposed solution? It expanded its retail footprint to 900 stores.
Merino-wool sneaker maker Allbirds, whose shares were trading less than a fifth lower at $28.64 at the close of the first day of trading, announced it was winding down this month and shutting down its activewear line as its net loss widened. To $18.1mn Despite growth in the overall second-hand luxury market, profitability has not been easy at Real Real, which led to the replacement of founder Julie Wainwhite as chief executive in June. (Glossy founder Emily Weiss stepped down as CEO of the beauty brand in May.)
Aside from renting the highway, many of these companies have seen significant growth during the Covid-19 lockdowns – after all, they’re very good at selling online. But those growths have not been sustainable, and as their market values slide and their profitability becomes unattainable, they no longer provide the disruptive potential they once did. “They are the first digital stores,” says Forrester’s Kodaly.
As long as these companies continue to pay their rents, they will survive an economic downturn in America. One of its peers, direct-to-consumer online mattress company Casper, offers a cautionary tale — after two years of public trading, it was bought by a private equity firm in November for more than half its IPO price. For now, the incumbents can rest easy.
Lauren Indwick He is the FT’s fashion editor.
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