Fashion e-commerce platform Rent the Runway has experienced a significant upturn following its restructuring initiatives and its strategic shift towards integrating artificial intelligence (AI) technologies amidst a challenging period marked by the repercussions of the pandemic.
After announcing favorable financial results recently, the company’s stock price surged fourfold this week, initially reaching \(5 per share and subsequently skyrocketing to over \)20. Rent the Runway disclosed a revenue of \(298.2 million for the fiscal year 2023 during the Wednesday report, reflecting a modest increase from \)296.4 million in 2022.
Projections for the fiscal year 2024 indicate a revenue growth ranging from 1% to 6% compared to 2023. While the company has not yet achieved profitability, it aims to break even in 2024 by intensifying its focus on utilizing technology to enhance marketing strategies.
During an investor call on Thursday, CEO Jennifer Hyman highlighted the advancements made in optimizing site performance and speed across all platforms, emphasizing the enhancement of user experience through features such as Rent the Look, AI-driven search capabilities, revamped product screening, and upgraded visual content and styling options.
Established in 2009, Rent the Runway went public in 2021. The upscale clothing e-commerce brand faced significant setbacks due to the pandemic, which led to the suspension of events that necessitated luxury attire, despite an initially positive market reception. Moreover, the company encountered challenges related to subpar customer service and delayed deliveries, resulting in a tarnished reputation. The introduction of a lackluster casualwear line failed to resonate with customers, contributing to Rent the Runway stagnating at approximately 130,000 subscribers, while competitors like Urban Outfitters continued to expand. Amid the pandemic, 60% of its customer base either paused or terminated their subscriptions.
However, Rent the Runway underwent a strategic realignment over the past year by appointing Natalie McGrath as Chief Marketing Officer (CMO) in February, following a 10% reduction in its corporate workforce. Last week, the company, previously trading as a penny stock, implemented a one-for-20 reverse stock split to enable the sale of 2.6 million shares above the minimum listing price.
The integration of AI technology stands out as a pivotal development for Rent the Runway. In June, the company commenced testing an AI-powered search feature that curates product listings based on specific phrases like “Miami vibes.”
According to Hyman, the incorporation of AI represents a transformative milestone for consumer-facing enterprises, akin to the impact of the iPhone’s debut, with the potential to either propel businesses forward or render them obsolete. The fashion industry as a whole is poised to benefit significantly from AI advancements.
Rent the Runway refrained from commenting on Fortune’s request for input.
The Role of AI in E-commerce
Experts in the retail sector assert that leveraging AI can streamline the consumer experience by reducing the cognitive load associated with searching for specific items on e-commerce platforms.
Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, views Rent the Runway as a prime example for investors who believe in the capacity of AI to aid small businesses, not just large corporations.
An increasing number of retailers are embracing AI technologies. Twilio’s 2024 State of Customer Engagement Report, released recently, underscores the potential of AI in enhancing customer interactions, with 70% of the surveyed 4,750 companies having already utilized AI for personalized marketing. The report also indicates that over half of the respondents are willing to invest more in personalized shopping experiences, while nearly half of the 6,300 customers surveyed expressed a likelihood of returning to a brand based on the level of personalized marketing received.
Companies like Alibaba have demonstrated the broader applications of AI in e-commerce beyond marketing and customer engagement. In March, Alibaba embarked on an initiative to expand cross-border e-commerce by leveraging AI tools, including smart chatbots and AI software for automating sales processes. Alibaba reports a 37% increase in AI-optimized product listings on its platform.
Jack Ma, the co-founder of Alibaba, extolled the virtues of AI and encouraged the company to embrace the potential of this technology, emphasizing that Alibaba’s interest in AI extends beyond retail operations to encompass large-scale language models that could rival industry giants like Amazon and Microsoft.
In a memo issued on Wednesday, Ma heralded the dawn of the AI era, emphasizing that this is just the beginning of a transformative period where opportunities abound.
