Katherine Simpson suspended her Rent the Runway subscription when the pandemic began. But recently, a San Francisco-based union communications her specialist relaunched its service, letting you rent up to eight pieces of clothing and accessories for $144 a month. “We live in the city and my wife and I have very little closet space, so being able to return items that take up a lot of space, like outerwear, is very convenient for us,” she explains.

I need her to rent the runway. By the end of 2020, nearly two-thirds of its 134,000 customers had abandoned monthly rental services, and the company had to cut costs by 51% and lay off or furlough half of its workforce. The 13-year-old company’s stock is currently hovering around $5.34 from his October initial public offering price of $21 a share.

Billed as a fast-fashion disruptor – “I’m going to put Zara out of business,” CEO Jennifer Hyman told online trade magazine Glossy in 2017 – Next Gap (Everlane), owner of LensCrafters Essilor Luxottica (Warby Parker), Estée Lauder (Glossier) and designer luxury eBay (The RealReal). With sophisticated branding and a knack for acquiring new customers on social media, these online native businesses are treated and funded like tech companies, promise huge audiences, and enjoy rapid growth and It promised lower operating costs than incumbents with expensive stores and “middlemen.” .

A decade later, there have been a number of IPOs — online luxury consignment site The RealReal went public in June 2019, followed by peer-to-peer resale platforms Poshmark and ThredUp, and nerdy-chic eyewear maker Warby. Parker, Rent the Runway and Sustainability followed. Branding shoe manufacturer Allbirds in 2021 — that vision has yet to come to fruition.

Turns out it takes a lot of expensive infrastructure to disrupt Goliath

“The big question is why so many people believed their story,” said Sucharita Kodali, principal analyst at Forrester. “People wanted to believe that Goliath could be destroyed and that all it took to destroy Goliath was a little bit of Silicon Valley money.”

It turns out that disrupting Goliath requires a lot of expensive infrastructure. Everlane and Warby Parker realized early on that the very costs of the stores they promised to undercut were necessary to reach the masses. According to The Vision, even during the 2020 pandemic, only 14% of adults bought glasses online. Council, and the vast majority of clothes are still bought offline.To make the rental model work, Rent the Runway has become the world’s largest dry-her cleaner. And while it only has a handful of stores, The RealReal has spent millions of dollars on warehouse space to store, photograph, and ship pre-owned luxury items for sale online. Meanwhile, the cost of acquiring new customers through social media is skyrocketing. As a result, none of these companies are profitable, and most are seeing growing losses.

Rent the Runway’s numbers are improving, reporting a record 134,998 active subscribers in its most recent quarter. But less than 0.08% of women in the U.S. subscribe to the company’s service, which falls well short of the claim on its LinkedIn page that “women around the world will soon be subscribing to fashion.” of customers see no value in paying for clothes they don’t have. A former client complained about the logistics involved in returning rental works.

Warby Parker, launched in 2010, had a similar story, promising to compete with EssilorLuxottica and selling a mid-range prescription frame (originally priced at about $95) online “direct to consumer.” . The company, which raised more than $500 million from investors before going public and now offers eye exams and contact lenses in 160 stores, has 1% of his market share, according to the S-1 filing. has earned Essilor Luxottica has his 20%. Warby Parker announced this month that he would lay off 15% of the company’s workforce and cut marketing costs. That’s because in the latest quarter earnings were his $149.6 million and losses widened to his $32.2 million. What is the proposed solution? Expands retail footprint to his 900 stores.

Merino wool sneaker maker Allbirds, which traded for less than a fifth of its $28.64 stock at the close of its first day of trading, announced layoffs and the closure of its activewear line this month as net losses climbed. to $18.1 million. Despite a growing second-hand luxury market as a whole, The RealReal’s profits have been sluggish, and founder Julie Wainwright took over as CEO in June. (Glossier founder Emily Weiss stepped down as beauty brand CEO in May.)

With the exception of Rent the Runway, most of these companies got a boost during the Covid-19 lockdown. After all, they are very good at selling online. But those gains have proven short-lived, and as market values ​​fall and profitability remains out of reach, the disruptive potential it once seemed is no longer available. No. “They’re just digital-first retailers,” says Forrester’s Kodali.

As long as these businesses can keep paying their rent, they can weather the US economic slowdown. One of his peers, Casper, his mattress company online for consumers, offers a cautionary tale. After two years of public trading, in November he was acquired by his private equity firm for just over half the IPO price. For now, incumbents can rest in peace.

Lauren Indovik FT fashion editor

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