Rent the Runway is cutting off 10% of its corporate employees as subscriber growth slows down and aims to achieve an annualized cash savings of $11 million to $13 million.
The regulatory filing on Tuesday also disclosed that Co-founder and CEO Jennifer Hyman will succeed CEO Anushka Salinas on January 31.
Strategic Restructuring
"The Company expects to incur charges of approximately $3 million to $4 million for the Restructuring Plan, substantially all of which is expected to be incurred in the fourth quarter of fiscal year 2023," the filing said.
Rent the Runway reported earnings with a 2% decrease in active subscribers and a slight decline in total subscribers in the previous month. According to CEO Jennifer Hyman, this decline in subscriber count is a deliberate outcome of the promotions and marketing spending reduction to focus more on inventory and stock rates, where they acquired fewer but more profitable customers on purpose.
CEO Matt Baer also informed analysts that they are working on constructing a healthier client base by specifically aiming for high-lifetime value clients to expand the client base gradually. Additionally, a long-term strategy is being developed to improve services for both existing and potential clients. The reported trend is surprising, as clothing subscribers are loyal to their providers.
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Achieving Free Cash Flow in 2024
The decision aims to align the workforce and costs with the growth and profitability objectives outlined in the 2024 budget. A spokesperson from Rent the Runway stated that the new structure aims to guide the company towards achieving free cash flow and breaking even in the 2024 fiscal year.
Rent the Runway anticipates facing charges of $3 million to $4 million in the fourth quarter of its fiscal year due to the restructuring plan, according to the filing. These charges will include $2 million to $3 million for employee severance and related costs and approximately $1 million for a non-cash impairment charge of company assets.
Reigniting Growth by Capturing the Market
The company has strengthened crucial parts of the customer experience for future growth in the past few years and now focuses on marketing, consumer product, and customer experience investment to reignite growth and capture a larger share of the expanding rental subscription market, according to a spokesperson's email to Fashion Dive.
Rent the Runway noted a 6.3% decline compared to the same period the previous year, revealing a $72.5 million in revenue, as reported in its quarterly earnings in December 2023. The active subscribers declined by 2% year-over-year from 134,240 to 131,725 and remained relatively stable year-over-year at 175,901. The company achieved a record-high subscriber number in its first quarter, as reported in June, while the date for its Q4 results has not been announced yet.
Cutting Down Transportation Expenses
In September, Rent the Runway secured a deal with UPS to cut down on transportation expenses. UPS now manages most of its shipping requirements, shifting nearly all non-same-day outbound shipping and home pick-up services over the following months under this arrangement.
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