What Rent the Runway’s IPO filing says about the business of loaner garments

Good news, everyone: The Q4 IPO cycle is now well and truly underway.

For those of us who prefer to read IPO filings to funding announcements, new S-1 documents from Udemy, Rent the Runway and others just touched down. But we care the most about those two, as they are listings from venture-backed companies that we’ve covered here at TechCrunch over the years.

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This morning, we’re going to dig into the core business results of each company, discussing how they make money and the state of their recent results. This entry will dive into Rent the Runway; afterward, we’ll dig into Udemy. Today is a rare two-Exchange day. You are welcome.

Off the top, I’m incredibly curious what impact the pandemic had on Rent the Runway’s numbers — after all, no one needed a loaner gown for months and months — and how strong its gross margins have proved over time. I also want to understand how expensive it is to buy all the clothing items that the company needs to operate, and how those costs are accounted for in its reporting.

While private, Rent the Runway raised hundreds of millions of dollars in equity funding and the odd debt round. The company’s most recent major investment was a $125 million Series F announced in March 2019. The company was valued at a flat $1.0 billion after that transaction, Crunchbase data indicates. Fidelity, Bain Capital Ventures, Highland Capital Partners, Kleiner Perkins, TCV and others invested in the company during its private life. Let’s see how it has performed.

Rent the Runway’s IPO filing

You are likely familiar with the Rent the Runway model: It buys expensive clothing aimed at women, renting the pieces out to subscribers and customers for a fraction of their retail price. The idea is that customers want a more varied wardrobe and want to wear items that they would not be able to afford on their own. Customers can subscribe to the company’s service or rent individual items piecemeal.

By lucky happenstance, your servant got his first real tour of the Rent the Runway product a few days ago, so I am moderately read-up on how it works in practice. Rent the Runway has a truly epic selection of items, and frankly shopping for designer items at rental prices is good fun.

But is it a good business? It’s a little hard to say, but I am not leaning toward yes.

COVID-19 was not kind to Rent the Runway. This makes sense. Clothes are for wearing places, and the pandemic kept most of us at home. Naturally, then, revenues at the company declined during its fiscal 2020, a 12-month period that ended January 31, 2021:

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