Next time you buy a Vivienne Westwood or Stella McCartney, check the label. You could be helping the Ethical Fashion Initiative and some of Kenya's poorest communities.
The muddy streets of Kenya’s crowded Korogocho slums are a far cry from the fashion boutiques of Paris, Milan, New York or London. But beneath a tin roof, workers from some of the country’s poorest communities sew buttons and stitch cloth for top international designers, part of a not-for-profit ethical fashion project.
“Before Ethical Fashion, I couldn’t educate my children,” says Lucy, sitting in a circle of women, needles in hand as they deftly sew white seed beads to the surface of smooth, chocolate-coloured leather. “But now I can educate them, and provide for them anything they need,” says the mother of four who is in her late 30s.
From Korogocho, accessories like the cuffs the women sew are sold in high-end international boutiques, stamped with the labels of international fashion houses like Vivienne Westwood, Fendi and Stella McCartney. It is part of the Ethical Fashion Initiative (EFI), a project built on a model of “mutual benefit” that aims to support poor communities by linking them up with fashion houses and distributors.
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Workers on the scheme – a member of the Fair Labour Association – would take months to earn enough to buy some of these luxury goods, which sell for hundreds of dollars on the high street. But conditions are very far from the sweatshops that muddy some fashion brands, with the UN-backed scheme providing decent working conditions, training and – perhaps the clearest sign of its success – people queuing up to join looking for work.
Organisers say some 90% of workers in Kenya have improved their homes, and almost 85% now provide better food for their families.
(Above) Arancha Gonzlez, Executive Director for the International Trade Centre, visits Nairobi's Hub workshop, the heart of Ethical Fashion Africa, a not-for-profit group. Ethical Fashion Africa is part of Ethical Fashion Initiative (EFI), a project built on a model of "mutual benefit" that aims to support poor communities by linking them up with fashion houses and distributors.
Rent The Runway’s Jennifer Hyman hooked millennials on catch-and-release couture, but the logistics platform she built is sophisticated enough to dominate the sharing economy
Five years ago Jennifer Hyman was a 29-year-old Harvard Business School graduate with no experience in fashion or technology, pitching her startup, Rent the Runway, to a boardroom full of partners at a big-time Boston venture capital firm. The idea then, as now, was to buy designer dresses wholesale and rent them, over the Web, for a night or two for a fraction of the price. When Hyman was about to get to the part where she explained how many inventory turns she could get from a Diane von Furstenberg, one of the men interrupted the presentation, cupped her hand in his and said, “You are just too cute. You get this big closet and get to play with all these dresses and can wear whatever you want. This must be so much fun!”
Hyman now laughs about it, doing an imitation of the guy in a baby-doll octave. But at the time she was floored. Weeks before the patronizing VC trapped her hand in his grip, Hyman had gotten six term sheets from some of the country’s best venture firms, which valued her “big closet” at $50 million. The comment left her more driven than before. “Opposed to screaming and shouting about inherent sexism in this entrepreneurial world, I thought, Let’s work it–let’s build the most kick-ass logistics company in the whole world, and then we’ll reveal what’s under the dress.”
What Hyman and her cofounder, Jennifer Fleiss, have built is the furthest thing from cute. Buzzing around Hyman’s cubbyhole-chic office in an old printing building in lower Manhattan are 280 employees with a strange blend of talents: data scientists, fashion stylists, app developers, apparel merchandisers. It’s as if MIT and FIT threw a mixer.
JORDAN FLIGHT ORIGIN
The operation is downright daunting in its complexity. Each day Rent the Runway and its software algorithms juggle more than 65,000 dresses and 25,000 earrings, bracelets and necklaces as they zip across the country among its 5 million members. Sixty percent of the dresses fly back out the door the same day they arrive balled up in Mylar UPS return envelopes. Its Secaucus, N.J. warehouse employs more than 200 people who sort returns, remove all kinds of stains, sterilize jewelry and mend tears. This fall the operation moves to a larger, 160,000 square-foot warehouse, at which point Hyman will officially become America’s largest dry cleaner.
Hyman and Fleiss’ idea emerged at the right moment. Millennials are leading a migration away from ownership to subscribing and sharing: Spotify invades our speakers, Netflix our TVs, Uber our curbs, Airbnb our entire homes. Rent the Runway wants to stream your wardrobe.
Fashion is, after all, a rotten investment. Hot colors cool, styles change fast–so can your dress size. For $70 on Rent the Runway you can wear a $2,295 white strapless Calvin Klein Collection gown; $30 rents you a $1,295 Vera Wang Jawdropper dress. The company just launched a new subscription service called Unlimited that lets customers borrow up to three accessories (sunglasses, bags, jackets) for as long as they want for $75 a month. “We’re giving our customer access to things she wouldn’t have otherwise purchased, either because it wasn’t smart to buy it or she couldn’t afford it,” says Hyman, the CEO. Adds Fleiss, who oversees strategy: “Being naive helped. If we knew how hard this was going to be, I doubt we would have done it.”
Rent the Runway cofounders Jennifer Fleiss and Jennifer Hyman (Photo: Jamel Toppin)
On average, an American woman buys 64 new pieces of clothing a year–half of which she’ll wear once, according to Rent the Runway’s internal research. Facebook and Instagram are making matters worse. “It creates pressure for women,” says Hyman. “Now you can’t repeat outfits because your friends have seen that outfit on social media. As ridiculous as that sounds, that is what drives our business.”
Streaming Halstons turned out to be more painful than Hyman thought. A source says that Rent the Runway hit the $50 million revenue milestone only last year–later than the explosive growth of its first two years would have indicated. A year long slump in between caused it to miss internal and VC growth projections. “It forced a very important come–to–Jesus moment,” says Hyman, who overcame the bump by plowing resources into data science, pricing models and a mobile platform (which today accounts for 40% of traffic).
User numbers, repeat business, rental volume and revenue have doubled in each of the last two years, and Hyman says she has lent out more than $350 million worth of fashion so far in 2014, which would track toward another doubling, $100 million in revenue, this year. Hyman says Rent the Runway would have turned a profit last year if they hadn’t continued to expand infrastructure and systems.
Accordingly, linking fashion into the sharing economy has proved very enriching. A $24.4 million funding round in March 2012 placed a $250 million valuation on Rent the Runway. Hyman is looking to raise another big chunk this fall, likely at a valuation north of $750 million, sources say. (Hyman and Fleiss won’t talk ownership stakes, but ballpark estimates based on similar trajectories would be that they still collectively hold 30%.) Given the current frenzy for these types of companies, it could run up against the coveted $1 billion mark–an especially rare feat for a New York startup with two female founders in this era of Silicon Valley bros.
Hyman has the frothy pitch to match. Dresses, she argues, are a Trojan horse: “We started off with the goods that are the most difficult to rent because of the durability of the product and all the services you must build. Now we can rent any product in the world. “She envisions Rent the Runway as a marketplace for retailers and brands to rent unsold inventory instead of shipping it off to discount outlets. Or perhaps a high-end consignment store for the wealthy? At the very least, guys will be able to stream their ties and cuff links.
“The idea,” she says, “is to build the Amazon of rental.”
Rent the Runway has a long way to go before it can call itself the Amazon of anything, but its founders have mastered their industry in a manner that would make Jeff Bezos proud. Hyman grew up in New Rochelle, N.Y. Her father was in international trade. Her mother, who had earned an M.B.A. from NYU, was the controller at a Pirelli Tire subsidiary but quit when Hyman’s younger sister Sherri was diagnosed with autism. “She required 24–hour care, and the whole family had to function as a team and collaborate to survive,” says Hyman. “That philosophy is so critical to who I am.”
A self-described high school nerd, Hyman sang, danced, played volleyball and volunteered with autistic children. She attended Harvard with plans to be a journalist, but after the 9/11 attacks she became interested in the travel industry and eventually launched a wedding registry program for Starwood Hotels that let newlyweds ask friends for experiences instead of picture frames and pots. In 2005 she moved to Los Angeles to run ad sales at Wedding Channel.com and applied to Harvard Business School. That year another sister, Becky — who now oversees Rent the Runway’s four retail stores — had back-to-back surgeries to treat her thyroid cancer. Hyman returned to New York, took a business development job at IMG and deferred her admittance to Harvard, entering the program in 2007.
On her first day at business school Hyman met Fleiss, who had a mutual friend with her sister. “She came up to me with this Post-it that had my name on it,” says Fleiss, who grew up in Manhattan and went to Yale before working in business strategy at Lehman Bros. The two became fast friends and often pitched each other start up ideas over lunch at Harvard’s Spangler Center. Hyman was always going big-picture, while Fleiss was better at figuring out how to get things done.
The dress-rental lightbulb went off when the Hyman sisters were home for Thanksgiving in 2008. Becky was showing off the $2,000 Marchesa dress she had bought for a wedding and the huge dent it had made in her credit card balance. “As an older sister I looked at her packed closet and started freaking out on her,” says Hyman. “Becky told me how she wanted something new to feel great and that she had already been photographed in all her outfits on Facebook.”
Hyman put two and two together and told Fleiss about her dress–rental idea. They decided to test it out at Harvard. If it flopped they could always take corporate jobs; Hyman had an offer from NBC Universal, Fleiss at job site The Ladders. In a move that is now an HBS case study, the pair bought and borrowed dresses, running a series of tests at Harvard and Yale to see if women would rent, first, a fancy dress they could try on and, later, one they saw only in a photo. In both cases the answer was yes. Test results in hand, they cold-called investors.
Despite their lack of experience in fashion, technology or start ups, Bain Capital Ventures came in with a $1.8 million seed investment and a few months later led a $15 million round with Highland Capital Partners. “I meet new entrepreneurs each week, and I’m rarely blown away by people out of the gate,” says Bain managing director Scott Friend. “The structured way they thought through the opportunity was unexpected and super appealing.”
Hyman and Fleiss ran the company out of extra space in a Tribeca architecture firm, using a local dry cleaner to store and turn around dresses. As the business grew, they got another $15 million in a round led by Kleiner Perkins Caufield & Byers in April 2011 and moved operations to a floor in their current building, later leasing a second level to store the growing inventory. They lured in college-age women, a core customer base, by deploying hundreds of “runway reps” at campuses and sororities. Says Juliet de Baubigny, a partner at Kleiner Perkins, “We didn’t back them as a fashion start up. It’s the sharing economy meets the Facebook–Instagram generation.”
Hyman had always planned on outsourcing the cleaning and shipping of clothes, but as the business grew, she realized that doing the dirty work wasn’t only a necessity but a competitive advantage. Hyman recruited Charles Ickes, who had run high-end dry cleaner Madame Paulette, to oversee logistics and Vijay Subramanian, a former data scientist at Oracle, to build the computer brain for the whole operation. (Hyman calls the firm “a fashion company with a technology soul.”)
Despite the comparison with Netflix–and there have been many–Rent the Runway is in a business where the stakes are higher, the problems more complex. Delivering a delicate designer dress is trickier and more expensive than slinging scuffed copies of Breaking Bad across the country. The dresses must arrive on time and in perfect condition. One mistake–a late arrival, an unsightly stain, a poor fit–creates a customer relations nightmare. “If we mess up it’s not just the customer who hates us,” says head of marketing A.J. Nicholas. “Her friends hate us, her sisters hate us, her mom hates us.”
So with every dress it lends, Rent the Runway’s algorithms get a bit smarter about ways to track the location of each item, forecast demand, select shipping methods, set prices and control inventory. Algorithms crawl customer reviews to tabulate which dresses women are renting for certain occasions and then forecast demand to determine if a prepaid shipping label that goes out with a dress should get that dress back overnight or if it can wait for three-day return.
When sizing up a new dress, merchandisers go through a list of 40 data points such as fabric, zippers, stitching and shape to determine whether it will hold up to the rigors of rental. “Our buyers literally try to tear the clothes apart,” says Hyman. After all, the longer the life span, the higher the return on capital. “When I initially went to fundraise,” says Hyman, “I had a Power Point slide that said the average dress would turn 12 times. They said, ‘You’re crazy,’ and cut that assumption to 8 times, saying if I can do that this is an amazing business.” Today Rent the Runway is averaging 30 turns per dress, which means some get worn many more times. That’s borderline icky, but the fact that an increasing number of women no longer get hung up on such boundaries is a testament to Hyman and Fleiss’ deep understanding of their customers. “The brilliance of what they’ve done is figure how to convince women it’s okay to rent and make it cool to rent and make sure a woman would be satisfied,” says Dan Rosensweig, who runs textbook renter Chegg and sits on Rent the Runway’s board.
In the male-dominated tech world Rent the Runway looks refreshingly like something from an alternative universe. The noxious Silicon Valley HR math (70% male at Facebook and Twitter) is precisely flipped female at Rent the Runway. The second men’s room was recently converted into a third ladies’ room, and unlike so many female-focused companies with men at the top, the executive suite also includes Beth Kaplan, as president and chief operating officer, and Camille Fournier, who runs engineering, in addition to Hyman and Fleiss.
For the overworked Hyman it’s something she doesn’t obsess over. At 9 a.m. on a scorching summer day in New York, she’s running up the dank stairwell to her conference room, just off the red–eye from London, where she attended a conference with British designers from Stella McCartney and Alexander McQueen. Hyman has to prepare for the launch two weeks away of the Unlimited subscription service. Then there’s the presentation for an August board meeting and the investor road show for the fall. Hyman remains cheerful and peppy as she marches through meetings–technology infrastructure, dynamic pricing, e–mail marketing, home page redesign and mobile apps.
At 5 p.m. Hyman leads a company wide meeting. Beer from Brooklyn Brewery and Skinny girl Margaritas sit on ice. Hyman takes the mic, reminds everyone that they’ll be locked out of the office for an upcoming mandatory Hamptons beach day and hands the mic to employees who use the air time to give shout-outs to co-workers who they think deserve special recognition and applause. Hyman has been known to belt out Madonna tunes at these meetings. “I can dance to Beyonce, sing karaoke, create strategy, go on dates,” says Hyman. “And build a multi billion company and show the world that women can build big businesses.”
