9 ms·

Rent The Runway S-1 IPO

81 points by marc__1 5y ago

fasteddie 5y ago
As a mediocre armchair accountant, I'm interested in how to read their P&L since so much of the loss is depreciated clothing, which they presumably continue to rent out even after they mark down the value of the clothes. Presumably a dress has a much higher LTV in future implied subscription income then its inherent accounting liquidation value.
- asdfasgasdgasdg 5y ago
  I'm not one of their customers, but my understanding is that they're all about renting out high fashion and near-high fashion. These dresses have a short lifespan that has nothing to do with their physical integrity. I doubt they have much value to RTR more than two or three years after they are acquired.
  - spyspy 5y ago
    Fashion is fast, but it's not _that_ fast. Most items would break down long before they go out of style.
    - mikepurvis 5y ago
      Yeah, particularly when it's real-world "off the rack" garments rather than couture items. Most fashionable items will still look good 5-10 years later.
  - jsjohnst 5y ago
    > I'm not one of their customers, but my understanding is that they're all about renting out high fashion and near-high fashion. That used to be the case, but not really anymore. They do more rental of “work” or “simple night out” clothing than they do higher formality clothing.
    - asdfasgasdgasdg 5y ago
      Today I learned. Thanks for the info! You know they say the best way to get information is to be wrong on the internet. Someone will come fix you up pretty fast.
    - gruez 5y ago
      >They do more rental of “work” or “simple night out” clothing than they do higher formality clothing. I can understand renting something for date night, but why would anyone would rent clothes just to go into the office? Is the HN/programmer bubble messing with my perception of what's normal?
      - buryat 5y ago
        why not if you want to look good? $200 * 365 = $73k, peanuts for a right individual
        jsjohnst 5y ago
        What are you basing those numbers on? The RTR subscription plans definitely don’t cost $200/day (closer to that for a month). Even if you were doing RTR classic rentals instead, it would be around half that price.
      - jsjohnst 5y ago
        > but why would anyone would rent clothes just to go into the office? I’m going to take a guess and assume you don’t wear the gender of clothing that they target? > Is the HN/programmer bubble messing with my perception of what's normal? Or maybe that’s the issue. Either way, many women who work in an office want a freshly changing attire that they can conveniently have with a monthly subscription. Like I’d probably wear a button up shirt and slacks more often if I: 1) had fresh new looks sent regularly 2) that I never had to wash or dry clean 3) and usually don’t have to iron (although that wasn’t full proof with RTR’s delivery)
  - elliekelly 5y ago
    I haven’t rented anything from them in several years but I know they used to sell the worn items at the end of the season or sometimes the end of the next season. They were really great deals, too. I would imagine they still sell the items at the end of their expected rental life though I’m not sure whether they sell directly to customers anymore. It wouldn’t surprise me if they had figured out a way to sell the older items in bulk.
codezero 5y ago
I went to a VC meeting where we presented along side RTR and at that moment I was seriously impressed. This might have been more than five or six years ago. I’ve been following them ever since. It’s cool to see a tiny startup your own startup grew up next to open up retail locations and gain wild success. Go for it! They might have been quite larger than my startup at the time but since it’s a company very outside my general interests it was very new to me at the time :)
marc__1 5y ago
This is a very detailed s-1. The 'Our Financial Model' starting on page 84 is a great way to understand how B2C companies make money: > Our ROI calculation assumes an average of 20 lifetime turns per unit. Based on the average lifetime turns as of June 2021 of all items we acquired in fiscal years 2015, 2016 and 2017, we have determined that an item can turn a minimum of 20 times on average over its lifetime. >When we multiply the item economics from fiscal year 2019 and the first six months of fiscal year 2021 by 20 turns, this implies total lifetime revenue of $445 and $536, respectively, and total lifetime profit of $212 and $324, respectively. >Therefore, our product ROI has improved from 4.0x to 5.9x on a revenue basis, and from 1.9x to 3.6x on a profit basis based on item economics in fiscal year 2019 and the first six months of fiscal year 2021 applied over the expected lifetime of units, respectively. We believe we have the ability to drive improvements in product ROI over time as we continue to decrease our fulfillment expenses to improve profitability per item and use more efficient product acquisition channels to reduce upfront product cost.
- raman162 5y ago
  I believe that this answers my original question I made in a previous comment regarding the impact on environmental fast fashion. Sounds like it's better for the environment for someone to use rent the runway versus making a purchase at H&M.
  - sokoloff 5y ago
    Maybe or maybe not. Making and moving four articles to H&M, then to the consumer who might wear them 5x each is not obviously worse than making one article, moving it to Rent the Runway and then moving it twice for each of 20 wearings.
    - azinman2 5y ago
      Fashion industry produces 10% of world CO2 and consumes a ton of water in the process [1]. To get H&M pricing, you’re using extremely low pay workers which in the case of China, could easily be forced labor. You have to include the total picture to make a fair comparison. [1] https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medio-ambiente https://www.worldbank.org/en/news/feature/2019/09/23/costo-m...
raman162 5y ago
I'm not the most familiar with rent the runway but I'm curious if this type of business alleviates or worsens the fast fashion environmental issue. In theory it helps by reducing the need for people to own the latest fashion and that could lead to a reduction in waste. But I'm assuming that they also have to bulk purchase the latest trends.
- swman 5y ago
  It'd be cool if there was a service that took old clothing, stripped them all down to the threads or whatever (idk anything about fashion - I wear the free t shirts I get at conferences lol), and make really cool clothing from that. When you're bored you can return the clothing (doesn't matter if its ripped) and it gets re-used to make the next season's fashion. You could even partner with locals all around the world who could use the economic opportunity and work on making truly global clothing that incorporates all the beautiful traditional clothing and customs too. It could be a bit premium service too, I'm sure some of the highly paid professionals would be totally on board to try it as it scales. All in one platform, I'll help code it. If it already exists, let me know the name.
  - desertraven 5y ago
    This sounds really cool! I'm quite ignorant of the space, so can't speak to the existence of such a thing. Also curious about the practicality of "dethreading" clothes. Would also be interested in this.
    - Animats 5y ago
      What you can make that way is "nonwoven textiles". That's what you get when you run chopped up cloth through a paper machine. Paper money is the classic nonwoven textile. Hospital gowns and such can be made that way. Roof insulation. Floor insulation. Auto seat insulation. Basically, filler materials.
  - dickfink 5y ago
    There isn't a platform, but I am aware of this shop in LA which does something similar: https://suayla.com https://suayla.com
chrisseaton 5y ago
Why are these documents always typeset and laid out so atrociously?
- paxys 5y ago
  PDF to HTML conversion
  - breput 5y ago
    Doubtful - possibly DOCX to HTML, though. EDGAR (the SEC's filing system) only allows a limited subset of HTML 3.2 including inline CSS styles only[0]. The real culprit is the financial printer, Donnelley Financial, and to a lesser extent the filer. They could have made a better looking, more designed document but for a S-1 there is no motivation since the only consumers of this will be analysts. Future 8-K and 10-Q filings will likely be better designed. Still, it could have been done better. [0] https://www.sec.gov/info/edgar/specifications/edgarfm-vol2-v59.pdf https://www.sec.gov/info/edgar/specifications/edgarfm-vol2-v... (search for "5.2.2.3 Acceptable HTML Tags Within a Document Body" and the following sections).
rahimnathwani 5y ago
p84 'illustrates the economics' and shows positive contribution profit. But when you look more closely at the numbers on page 16, you see: - Once you deduct marketing costs, contribution profit goes from 11% to 2% - G&A is $77MM, which seems like a lot when you consider fulfillment is only $53MM. I wonder how G&A will increase as revenue increases. Even if 5% of G&A is variable (proportional to revenue), this results in 0% contribution profit. Of course, we can also wonder what the 'other depreciation and amortization' is.
mensetmanusman 5y ago
I also consider lifetime usage of clothes when I buy. Eg a laminate belt that breaks after a year is inferior to a more expensive full leather belt that I have worn every day for 3 years with almost no signs of wear. Interesting that they consider 20 uses to be the average. It would be nice if they kept a public list of best value fashion that was durable and long lasting, that would be good for the environment.
- milesward 5y ago
  Ooh like the Backblaze storage reports, but for clothing manufacturers.. I dig it!
ramesh31 5y ago
I knew Rent-a-Swag was a good idea
Animats 5y ago
Another CEO who's trying to set themself up as a president for life: The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 20 votes per share and is convertible into one share of Class A common stock at any time. Jennifer Y. Hyman, our Co-Founder, Chief Executive Officer and the Chair of our board of directors, and Jennifer Fleiss, our Co-Founder and a member of our board of directors, together, the Co-Founders, and their affiliates, will together hold all of the outstanding shares of Class B common stock. That used to be prohibited on the NYSE, except for Ford Motor Company, which predated the NYSE and was grandfathered in. Then Google got away with it on the NASDAQ. Then Zuckerberg, with Facebook. It used to take a CEO who had already pulled off a miracle, or investors would laugh off the IPO. Now, bottom-feeder companies like this think they qualify. Consider that if this works, you now have the logistics problems of Netflix. Plus dry cleaning. Now please turn to page F-4 and read the numbers. Total revenue: $157.5M. Net loss: $171.1. Which means they need to be about 3x better at this to break even. It doesn't matter that they're growing. This thing is expensive to run and, since it depends on physical product handling, does not get hugely cheaper at scale.
- bpodgursky 5y ago
  As an investor, I have far more confidence in a company led by a founder-CEO with an iron fist and a controlling share than one controlled by wall street hedge funds with an eye on quarterly earnings.
- refurb 5y ago
  Isn’t it up to investors to decide if the rights of different share classes matter? It’s being fully disclosed.
  - rdtwo 5y ago
    Not really, if you own index funds you end up with this shit in you portfolio and if it’s 401k you don’t really have an opt out
papageek 5y ago
The only thing I liked about this company was Camille Fournier and her tech talks. I still like Camille Fournier, not this company.
- okhobb 5y ago
  She's great but also bailed 5 years ago. Perhaps there is signal in that fact.
- tspowell 5y ago
  I’m impressed she’s stuck with Two Sigma for so long. I’ve heard mixed things about the culture.
  - buryat 5y ago
    when you're given something in the order of $10M it becomes pretty hard to reason about anything, and if it fits you moral compass then you stay because it's "talking about the same thing basically".
    - selectodude 5y ago
      Was about to say the same thing. She almost certainly takes takes home more than a few million per year. She is the culture.
deleted 5y ago
[deleted]
thecleaner 5y ago
I read the analyses posted here and those seem level-headed. But I saw the numbers at the front and given I am a big fan of reuse / renting companies, I got all giddy and excited and didnt last past couple of pages. How can I improve my mindset when it comes to reading ipo filings ? I couldnt spot the issues others pointed out. Any tips ?

81 points by marc__1 5y ago

As a mediocre armchair accountant, I'm interested in how to read their P&L since so much of the loss is depreciated clothing, which they presumably continue to rent out even after they mark down the value of the clothes. Presumably a dress has a much higher LTV in future implied subscription income then its inherent accounting liquidation value.

asdfasgasdgasdg 5y ago
I'm not one of their customers, but my understanding is that they're all about renting out high fashion and near-high fashion. These dresses have a short lifespan that has nothing to do with their physical integrity. I doubt they have much value to RTR more than two or three years after they are acquired.
- spyspy 5y ago
  Fashion is fast, but it's not _that_ fast. Most items would break down long before they go out of style.
  - mikepurvis 5y ago
    Yeah, particularly when it's real-world "off the rack" garments rather than couture items. Most fashionable items will still look good 5-10 years later.
- jsjohnst 5y ago
  > I'm not one of their customers, but my understanding is that they're all about renting out high fashion and near-high fashion. That used to be the case, but not really anymore. They do more rental of “work” or “simple night out” clothing than they do higher formality clothing.
  - asdfasgasdgasdg 5y ago
    Today I learned. Thanks for the info! You know they say the best way to get information is to be wrong on the internet. Someone will come fix you up pretty fast.
  - gruez 5y ago
    >They do more rental of “work” or “simple night out” clothing than they do higher formality clothing. I can understand renting something for date night, but why would anyone would rent clothes just to go into the office? Is the HN/programmer bubble messing with my perception of what's normal?
    - buryat 5y ago
      why not if you want to look good? $200 * 365 = $73k, peanuts for a right individual
      - jsjohnst 5y ago
        What are you basing those numbers on? The RTR subscription plans definitely don’t cost $200/day (closer to that for a month). Even if you were doing RTR classic rentals instead, it would be around half that price.
    - jsjohnst 5y ago
      > but why would anyone would rent clothes just to go into the office? I’m going to take a guess and assume you don’t wear the gender of clothing that they target? > Is the HN/programmer bubble messing with my perception of what's normal? Or maybe that’s the issue. Either way, many women who work in an office want a freshly changing attire that they can conveniently have with a monthly subscription. Like I’d probably wear a button up shirt and slacks more often if I: 1) had fresh new looks sent regularly 2) that I never had to wash or dry clean 3) and usually don’t have to iron (although that wasn’t full proof with RTR’s delivery)
- elliekelly 5y ago
  I haven’t rented anything from them in several years but I know they used to sell the worn items at the end of the season or sometimes the end of the next season. They were really great deals, too. I would imagine they still sell the items at the end of their expected rental life though I’m not sure whether they sell directly to customers anymore. It wouldn’t surprise me if they had figured out a way to sell the older items in bulk.

codezero 5y ago

I went to a VC meeting where we presented along side RTR and at that moment I was seriously impressed. This might have been more than five or six years ago. I’ve been following them ever since. It’s cool to see a tiny startup your own startup grew up next to open up retail locations and gain wild success. Go for it! They might have been quite larger than my startup at the time but since it’s a company very outside my general interests it was very new to me at the time :)

marc__1 5y ago

This is a very detailed s-1. The 'Our Financial Model' starting on page 84 is a great way to understand how B2C companies make money: > Our ROI calculation assumes an average of 20 lifetime turns per unit. Based on the average lifetime turns as of June 2021 of all items we acquired in fiscal years 2015, 2016 and 2017, we have determined that an item can turn a minimum of 20 times on average over its lifetime. >When we multiply the item economics from fiscal year 2019 and the first six months of fiscal year 2021 by 20 turns, this implies total lifetime revenue of $445 and $536, respectively, and total lifetime profit of $212 and $324, respectively. >Therefore, our product ROI has improved from 4.0x to 5.9x on a revenue basis, and from 1.9x to 3.6x on a profit basis based on item economics in fiscal year 2019 and the first six months of fiscal year 2021 applied over the expected lifetime of units, respectively. We believe we have the ability to drive improvements in product ROI over time as we continue to decrease our fulfillment expenses to improve profitability per item and use more efficient product acquisition channels to reduce upfront product cost.

raman162 5y ago
I believe that this answers my original question I made in a previous comment regarding the impact on environmental fast fashion. Sounds like it's better for the environment for someone to use rent the runway versus making a purchase at H&M.
- sokoloff 5y ago
  Maybe or maybe not. Making and moving four articles to H&M, then to the consumer who might wear them 5x each is not obviously worse than making one article, moving it to Rent the Runway and then moving it twice for each of 20 wearings.
  - azinman2 5y ago
    Fashion industry produces 10% of world CO2 and consumes a ton of water in the process [1]. To get H&M pricing, you’re using extremely low pay workers which in the case of China, could easily be forced labor. You have to include the total picture to make a fair comparison. [1] https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medio-ambiente https://www.worldbank.org/en/news/feature/2019/09/23/costo-m...

raman162 5y ago

I'm not the most familiar with rent the runway but I'm curious if this type of business alleviates or worsens the fast fashion environmental issue. In theory it helps by reducing the need for people to own the latest fashion and that could lead to a reduction in waste. But I'm assuming that they also have to bulk purchase the latest trends.

swman 5y ago
It'd be cool if there was a service that took old clothing, stripped them all down to the threads or whatever (idk anything about fashion - I wear the free t shirts I get at conferences lol), and make really cool clothing from that. When you're bored you can return the clothing (doesn't matter if its ripped) and it gets re-used to make the next season's fashion. You could even partner with locals all around the world who could use the economic opportunity and work on making truly global clothing that incorporates all the beautiful traditional clothing and customs too. It could be a bit premium service too, I'm sure some of the highly paid professionals would be totally on board to try it as it scales. All in one platform, I'll help code it. If it already exists, let me know the name.
- desertraven 5y ago
  This sounds really cool! I'm quite ignorant of the space, so can't speak to the existence of such a thing. Also curious about the practicality of "dethreading" clothes. Would also be interested in this.
  - Animats 5y ago
    What you can make that way is "nonwoven textiles". That's what you get when you run chopped up cloth through a paper machine. Paper money is the classic nonwoven textile. Hospital gowns and such can be made that way. Roof insulation. Floor insulation. Auto seat insulation. Basically, filler materials.
- dickfink 5y ago
  There isn't a platform, but I am aware of this shop in LA which does something similar: https://suayla.com https://suayla.com

chrisseaton 5y ago

Why are these documents always typeset and laid out so atrociously?

paxys 5y ago
PDF to HTML conversion
- breput 5y ago
  Doubtful - possibly DOCX to HTML, though. EDGAR (the SEC's filing system) only allows a limited subset of HTML 3.2 including inline CSS styles only[0]. The real culprit is the financial printer, Donnelley Financial, and to a lesser extent the filer. They could have made a better looking, more designed document but for a S-1 there is no motivation since the only consumers of this will be analysts. Future 8-K and 10-Q filings will likely be better designed. Still, it could have been done better. [0] https://www.sec.gov/info/edgar/specifications/edgarfm-vol2-v59.pdf https://www.sec.gov/info/edgar/specifications/edgarfm-vol2-v... (search for "5.2.2.3 Acceptable HTML Tags Within a Document Body" and the following sections).

rahimnathwani 5y ago

p84 'illustrates the economics' and shows positive contribution profit. But when you look more closely at the numbers on page 16, you see: - Once you deduct marketing costs, contribution profit goes from 11% to 2% - G&A is $77MM, which seems like a lot when you consider fulfillment is only $53MM. I wonder how G&A will increase as revenue increases. Even if 5% of G&A is variable (proportional to revenue), this results in 0% contribution profit. Of course, we can also wonder what the 'other depreciation and amortization' is.

mensetmanusman 5y ago

I also consider lifetime usage of clothes when I buy. Eg a laminate belt that breaks after a year is inferior to a more expensive full leather belt that I have worn every day for 3 years with almost no signs of wear. Interesting that they consider 20 uses to be the average. It would be nice if they kept a public list of best value fashion that was durable and long lasting, that would be good for the environment.

milesward 5y ago
Ooh like the Backblaze storage reports, but for clothing manufacturers.. I dig it!

ramesh31 5y ago

I knew Rent-a-Swag was a good idea

Animats 5y ago

Another CEO who's trying to set themself up as a president for life: The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 20 votes per share and is convertible into one share of Class A common stock at any time. Jennifer Y. Hyman, our Co-Founder, Chief Executive Officer and the Chair of our board of directors, and Jennifer Fleiss, our Co-Founder and a member of our board of directors, together, the Co-Founders, and their affiliates, will together hold all of the outstanding shares of Class B common stock. That used to be prohibited on the NYSE, except for Ford Motor Company, which predated the NYSE and was grandfathered in. Then Google got away with it on the NASDAQ. Then Zuckerberg, with Facebook. It used to take a CEO who had already pulled off a miracle, or investors would laugh off the IPO. Now, bottom-feeder companies like this think they qualify. Consider that if this works, you now have the logistics problems of Netflix. Plus dry cleaning. Now please turn to page F-4 and read the numbers. Total revenue: $157.5M. Net loss: $171.1. Which means they need to be about 3x better at this to break even. It doesn't matter that they're growing. This thing is expensive to run and, since it depends on physical product handling, does not get hugely cheaper at scale.

bpodgursky 5y ago
As an investor, I have far more confidence in a company led by a founder-CEO with an iron fist and a controlling share than one controlled by wall street hedge funds with an eye on quarterly earnings.
refurb 5y ago
Isn’t it up to investors to decide if the rights of different share classes matter? It’s being fully disclosed.
- rdtwo 5y ago
  Not really, if you own index funds you end up with this shit in you portfolio and if it’s 401k you don’t really have an opt out

papageek 5y ago

The only thing I liked about this company was Camille Fournier and her tech talks. I still like Camille Fournier, not this company.

okhobb 5y ago
She's great but also bailed 5 years ago. Perhaps there is signal in that fact.
tspowell 5y ago
I’m impressed she’s stuck with Two Sigma for so long. I’ve heard mixed things about the culture.
- buryat 5y ago
  when you're given something in the order of $10M it becomes pretty hard to reason about anything, and if it fits you moral compass then you stay because it's "talking about the same thing basically".
  - selectodude 5y ago
    Was about to say the same thing. She almost certainly takes takes home more than a few million per year. She is the culture.

deleted 5y ago

[deleted]

thecleaner 5y ago

I read the analyses posted here and those seem level-headed. But I saw the numbers at the front and given I am a big fan of reuse / renting companies, I got all giddy and excited and didnt last past couple of pages. How can I improve my mindset when it comes to reading ipo filings ? I couldnt spot the issues others pointed out. Any tips ?