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what's up

Welcome to slackingoff, where we have in-depth conversations on whatever is particularly interesting. Follow below.

rent vs. buy πŸ‘—

rent vs. buy πŸ‘—

ameet
What's up Anthony.

anthony
Hey Ameet. Just got back from a wedding where I used Black Tux. Gotta say - I was pleasantly surprised.

ameet
Send me a photo man.

anthony

ameet
Very nice. πŸ•΄πŸ•΄πŸ•΄ Why did you guys go for Black Tux?

anthony
I think the groom decided on the Black Tux because the groomsmen were located all across the country. They made it easy for everyone to get the same suit without worrying about local availability.

ameet
Makes sense. How does it work?

anthony
The online ordering process was very easy with a few standard suit measurements and fit preferences (slim or regular). Because this was an organized group, we were given a specialist to help us with any questions we had along the way. Two weeks before the event, the suit came in the mail. They also provided one free replacement if the sizing was off which was also great. A few days after the event, you mail back the suit in the same box and that's it.

ameet
Sounds pretty straightforward. It also makes sense from a business standpoint. A tuxedo for example is only used on special occasions which are few and far between; the rest of the time it sits in a closet and collects dust. They are also typically more expensive than ordinary suits, are quite interchangeable, and are used in "low-stress environments" which makes them ideal for being rented out. The only limit is how quickly the owner can process each turn (intake, cleaning, boxing, shipping, etc.) to maximize the utilization rate for a given product.

ameet
The Black Tux are obviously not the first to take a crack at this:

ameet
WSJ
Rent the Runway Chases the Fast-Fashion Shopper
Rent the Runway is going after discount shoppers outside big cities with a limited, lower-priced fashion-rental plan, dangling the allure of an ever-changing designer wardrobe for $89 a month.

ameet
I know we've been following this company for a long time but what they are doing is really interesting and takes the "special occasion only" rental to the next level:

ameet

The New York-based company on Monday is introducing a new subscription priced at $89 a month...Under the new model, customers can rent up to four pieces a month, including dresses, coats or handbags, from labels such as Tory Burch, Vince and Diane von Furstenberg. The items arrive dry-cleaned and in a garment bag with a prepaid postage label; the customer must return them by the end of a month to obtain four more items.


ameet
What Rent the Runway (RTR) is doing here is entering a tier of clothing below the fancy special stuff they previously focused on; it looks like they are going after Zara and the other vaunted "fast fashion" brands with the ultimate goal of having a permanent slot in your closet.

anthony
Take a look at their pricing options:

anthony

anthony
While all the headlines have dubbed this new offering as the Netflix or Spotify for clothes, I actually think the better comparison is to Redbox. Look at the pricing options above, you get to choose up to 4 pieces of clothing at a time. At the beginning of every month, you have to carefully select what jacket, dress, etc you want for the month, just like people who are looking for a specific movie to watch would go to Redbox. I don't think they are trying to replace your entire closet (yet), rather they are focused on selling to consumers looking for designer clothing without dropping hundreds of dollars on just one piece.

ameet
That theory is largely borne out by their current product mix:

ameet

ameet
I'm well aware of the risks of opining on a bunch of dresses but even if you only judge these on the retail price, these are not low-end SKUs. This is more similar to The Black Tux in which these items which are expensive and substantially underutilized, and the owner is able to spread the costs out over a large user base. If we look at that very fetching first item (the Stone Halter Sheath) which is $190 retail, it rents out for around $50. So it's not too difficult to envision that after several turns, RTR breaks even on the cost of the product.

ameet
On that point, check this out:

ameet
Recode
Rent the Runway has raised a $60 million investment led by Fidelity
The company was profitable in 2016 on revenue north of $100 million.

ameet

The startup best known for its dress rental business put together a profitable year on an EBITDA basis while growing its revenue to well over $100 million.


ameet
This is pretty interesting because it suggests that RTR used the one-off rental model as a tactic to eventually focus on the subscription business. The rental model probably allowed them to establish operational best practices and determine how to squeeze as much value out of a given SKU as possible. Now they can take all those learnings and processes and effectively re-deploy them for the subscription customers who are going to be re-ordering on a regular basis and will be feeding data into the RTR machine, thereby further improving the system.

ameet
It's also super intriguing to think about the consumer behavioral changes that had to happen to get to this point. We are already accustomed to buying things online (and buying clothes and returning them online), so if the perceived value is there for a rental then why not go for it? It's true that customers do "lose" something in not going into a store in that they don't get to feel or try on the product prior to purchase, but there are other benefits that make up for that like free/fast shipping, wide selection, the ability to pick your next items right from your phone, and the luxury of having a very personalized experience. What is "quality" for a modern consumer? It doesn't necessarily mean the most expensive item or the most prestigious brand; it's about having a seamless, communicative, tailored customer journey that doesn't begin when you use the product, but actually begins with your first interaction with the brand, such as through an Instagram post or a YouTube video.

ameet
If we were to take this to its logical conclusion it would consist of people only owning the "essentials" and "basics" and renting everything else.

anthony
Definitely. The explosion of e-commerce has brought us many more options for clothing than just the local mall. The variety of choices has exposed that many pieces of the clothing that we buy (dress shirts, sweaters, belts, scarves) are all relatively similar. This has evened the playing field for new competitors to differentiate and compete on the shopping experience vs. product style/quality/etc.

anthony
Retail E-commerce has shown to be a good space to be in. See Stitch Fix's newly released S-1.

anthony
Recode
Stitch Fix has filed publicly for its long-awaited IPO
$0 to $977 million real quick.

anthony

The San Francisco-based company registered $977 million in revenue in its most recent fiscal year, which ended this summer. It lost $594,000 for the year, after two years of strong profits.


anthony
I dug a little deeper into their increased costs this last year and saw this:

anthony

Selling, general and administrative expenses in 2017 increased by $143.8 million, or 55.5%, from selling, general and administrative expenses in 2016. The increase in selling, general and administrative expenses was primarily attributable to a $68.1 million increase in compensation and benefits expenses as we increased our headcount, and a $16.5 million increase related to compensation expense recognized for certain stock sales by current and former employees. In addition, the increase was driven by $47.8 million in higher marketing spend as we expanded our television, online and radio advertising initiatives.


anthony
The fact that they were able to easily tap into the early adopters without burning all their cash is a good sign. They can now thoughtfully deploy their marketing dollars on getting to a wider base through TV, online and radio advertising.

ameet
This is in-line with what RTR is doing as well. RTR is lowering their price point and as stated in the first paragraph of that WSJ article above, trying to go after the "women in Middle America". Meanwhile Stitch Fix, having tapped the low-hanging fruit, is now going after more mainstream consumers. It also ties into what we were saying earlier about how the modern consumer defines "quality"; it's about personalization:

ameet

Stitch Fix runs a large data-science operation, which the company says helps it make more accurate styling choices for customers, and also helps it create its own clothing that matches up with current trends.


ameet
What's more, Stitch Fix has proved that it's possible to build a self-sustaining tech-enabled e-commerce business. Compare them to the other overfunded e-commerce startups (e.g. Birchbox, Warby Parker, Casper, Bonobos, Fab.com, One Kings Lane, Jet.com) which are all still trying to make it, closed up shop, or got sold.

ameet
I'm also going to be real clever and quote myself here:

ameet
slackingoff
retailmenot πŸ›’
This really helps solidify the earlier point about our idealistic startups; if you're going to compete, you have to provide something really meaningful for the end user, in brand or product. It has to be something that would compel them to circumvent the convenience of Amazon and jump through whatever hoops are necessary to purchase yours, and you need to be able to find your audience wherever they live.

ameet
Ultimately what this shows is that there isn't only one way to win. It's kind of like media consumption habits; people have Netflix subscriptions to watch old episodes of The Office and slightly stale movies like Finding Dory, but they are still willing to shell out $25 at a movie theater to watch Dunkirk live for that premium experience.

anthony
Nice.

work from work 🏒

work from work 🏒

the electric slide ⚑

the electric slide ⚑