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September 21, 2022

Rent the Runway to cut workforce as consumers cut back

US apparel rental company Rent the Runway is to cut its corporate workforce by around 24% as part of a restructuring plan by the firm to cut costs.

By Michelle Russell

Shares in Rent The Runway were down more than 22% last week as consumers pull back on discretionary spending, including apparel, amid rising bills.

The company, which filed for an IPO last year, lowered its annual sales forecast last week to US$285m-GBP290m, and is expecting an adjusted EBITDA margin of (2)% to 0%.

Rent The Runway has earmarked $25m-$27m in annualised fixed cost savings, which it hopes will help the company “navigate potentially rougher macro conditions”, while also allowing it to “significantly” improve medium-term profitability.

The restructuring plan will involve streamlining its organisational structure and driving operational efficiencies. The plan primarily includes total workforce reductions of approximately 24% of corporate employees (primarily a reduction in force, with some open role closures/reduced backfills), reorganising certain functions and reallocating resources to continue to focus on customer experience and growth initiatives.

Senior apparel analyst for GlobalData, Emily Salter, told Just Style: “This is not the first time Rent The Runway has had to cut jobs, but this round and the lowering of its annual sales forecast signifies the challenges the rental market is facing.

“Despite a lot of good press about rental models, especially in the UK with numerous players opening pop-ups and brands launching rental options, it is yet to become as mainstream as resale and currently doesn’t have the same potential. Rent The Runway ’s focus on luxury limits its appeal, especially considering inflation, as consumers can purchase a value or mass market dress for the same price of renting a luxury one for a couple of days.”

According to Reuters, at least five brokerages cut their price targets on the stock, with Credit Suisse downgrading its rating to “neutral” from “outperform”.

The company said on a call to analysts last week that while it saw subscriber numbers bounce back in August and September, it was still difficult to predict how consumers would behave given an uncertain macro backdrop. “It is becoming clear to us that our customers live, work, socialise and travel differently in 2022 than they did prior to the pandemic,” chief executive Jennifer Hyman said. “We are still learning how these types of changes in customer behaviour impact the business, particularly in a challenging macro environment.”

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