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Hire the runway overhaul subscription to alter enterprise by way of a pandemic

Rent The Runway Store, an online subscription service for women to rent designer clothes and accessories, is on view in New York City, New York, United States on September 12, 2019.

Shannon Stapleton | Reuters

Rent the Runway is overhauling its membership plans, eliminating the need for an unlimited rental option as consumers change what they wear and how they buy clothes during the coronavirus pandemic.

CEO Jenn Hyman said the changes had been in the works for about 18 months, even before Covid-19.

However, the pandemic has accelerated many of the company's decisions and investments. Last month, the company announced plans to permanently close its stores, focus on digital media, and expand its network of dropboxes.

"There will of course be a segment of unlimited users who are extremely upset about this decision … and this is not a decision we made lightly," said Hyman.

The unlimited option had allowed Rent the Runway customers to pay $ 159 a month to swap as many items as they wanted, as many times as they wanted, as long as they only had four items at a time. Now they can choose from plans that offer four, eight, and 16 items each month, and add extra parts for an additional fee.

"We saw that 80% of the people who joined us through Covid choose four or eight items a month," Hyman said. "We think it's important for members to pay for what they use. Pay per use is also the most financially sustainable decision for [us] in the long run."

This move is intended to help Rent the Runway keep costs more under control and ensure faster deliveries for all customers, according to Hyman. She also sees the move as environmentally friendly by reducing CO2 emissions with fewer shipments and less plastic packaging.

Since Rent the Runway is missing out on its unlimited option, Rent the Runway offers its customers the following:

A four item plan for $ 89 per month with access to a scaled-down version of items, including casual and work wear. An eight item plan for $ 135 per month with access to all of Rent the Runway's inventory, including evening wear. A 16 item plan for $ 199 per month, which equates to four shipments of four items per month, also with full inventory access

According to Rent the Runway, only 6% of unlimited customers exchange more than 16 items per month and 70% of unlimited members actually rent fewer than eight items per month. The company suggests that exchanging for new plans can save many current users money.

After an initial slump in subscriptions at the start of the pandemic, business is starting to pick up again, according to Hyman – a subtle sign that consumers are wanting to get dressed again after spending months in pajamas and sweatpants.

"August is usually a slower moment for us, but in August we saw very strong momentum in both taking over the business and … people who were on hiatus and then really returning in large percentages," she said.

She said women are also starting to rent more formal dresses again when they return to weddings, parties, and other social gatherings.

"I think it is an incredibly difficult time to run a company because there is so much uncertainty," said Hyman. "But that has forced companies like Rent the Runway to accelerate their plans … from a gross margin standpoint. We're a leaner company."

"I think a good company is considering surviving a pandemic," she added. "A great company is thinking about how to make business a more strategic place because of this pandemic."

Rent the Runway raised new funding during the pandemic but valued the start-up below its previous valuation of $ 1 billion and lost its so-called unicorn status. To date, around $ 380 million in equity has been raised.

Rent the Runway's new membership structure is slated to roll out next week, the company announced to customers on Thursday. Current unlimited members have until early next year to cancel their plan before choosing a new one.

Rent the Runway is a five-time CNBC Disruptor 50 company that was last ranked 5th on the 2019 list.

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