How Rent the Runway manages 250000 units of fast moving inventory and still makes a profit?

Rent the Runway offers designer dresses (among other things) for rent to the average consumer.

There are some serious issues with this business model though.

- If you know anything about fashion, you know trends don't last long. So RTR needs to keep its inventory updated with the changing times.

- And if you are paying for a designer dress, it better be new and look amazing. So, RTR can only reuse the dress for so many times.

- Every time a dress is rented out and returned, there's a

    a) Forward logistics cost

     b). Return logistics cost

     c) Cost of washing, cleaning and stitching

- There's also the cost of holding the stock. The more time an item lies idle in the warehouse, the faster the trend changes and the more money company loses.

So, how did Jennifer Hyman and Jennifer Fleiss, two HBS grads built up an efficient machine to tackle all these problems?

There are many small things that need to be done right to get this working. Here's a great article detailing their model.

Today, I want to focus on one item, their Just in Time inventory management.

Rent the runway processes 60% of their daily incoming products on the same day and sends it out! They clean about 6000 units of apparel per hour.

Why is JIT important for RTR?

In simple terms, RTR has an asset (apparel). It makes money when the asset gets rented out. The asset has a depreciating value based on the

a) The age of the asset

b) The number of times it has been rented out.

So, to get the maximum benefit, RTR needs to rent out the product as many times as possible. In other terms, this is utilization of the asset.

So, every day the item is not rented out and lies idle in the warehouse, they lose money. So, they need to make sure the item spends the minimum amount of time in the warehouse. This is why JIT is key for Rent the Runway.

How do they do it?

Model to predict the future available inventory:

RTR needs to know what items will be available in their inventory to showcase them to the customer. So, even if it is not currently available with them, they can still rent it out based on expected arrival time.

Sorting - Determine which items need to go out the same day:

The next step is to tag (barcode) the items that need to go out on the same day. These items are then automatically pushed to the cleaning teams to be made ready.

Automated Inspection:

The inspection team manually inspects every aspect of the dress based on computer aided training material. This then gets pushed to washing or stitching based on the response.

Washing and Dry cleaning:

RTR has the world's largest dry cleaning facility where an item can be dry cleaned within 1 minute.

Mending:

Sewers and Seamstresses then mend any damages on the apparel.

Shipping:

Once the dress is ready, it is then pushed out the door based on where it needs to go.

This whole process should be done in under a day.

How can you adopt this?

The first step is to understand if you need JIT in your operations. If you're handling physical inventory, most likely you do.

The next step is to determine what's the current turnover ratio and where do you need to get to.

The third step is a multiple month journey of identifying bottlenecks and determining fixes to reduce each of those. I would recommend reading this book to learn more.