Fluent Essays

read the article and answer the  first two questions of Q3 the pdf i post ,both need answer and explain and write it in 300 words and in seperately question number 9 - 8 1 2 - 0 7 7 R E V : D E C E M B E R 1 7 , 2 0 1 2 ________________________________________________________________________________________________________________ Professor Thomas R. Eisenmann and Senior Researcher Laura Winig, Global Research Group, prepared this case. HBS cases are dev eloped solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. T H O M A S R . E I S E N M A N N L A U R A W I N I G Rent the Runway Every woman should have access to this Cinderella experience for the special occasions in her life. Rent the Runway sells the self-confidence that comes when a woman wears brands she never dreamed she would be able to afford. Whether a woman is 15 or 55, she wants to feel beautiful. Rent the Runway makes refreshing your wardrobe a magical, convenient experience. — Jenn Hyman, co-founder and CEO, Rent the Runway We’re trying to get women to step out of their comfort zones. This business is about the anti-little-black- dress. You have a black dress in your closet. Try a hot pink one-shoulder sequined dress—a stunner you normally wouldn’t buy because you’d only wear it once. — Jenny Fleiss, co-founder and president, Rent the Runway In January 2010, Jennifer (Jenn) Hyman and Jennifer (Jenny) Fleiss, co-founders of Manhattan- based Rent the Runway (RTR), were debating their next moves. RTR was a website that rented designer dresses, charging 10\% to 15\% of a dress’s retail purchase price and encouraging its members to “Try new brands, new trends and feel beautiful every night.” Just two months after its launch, RTR had demonstrated strong demand for this value proposition by attracting more than 150,000 members. With their November launch and the holiday crunch behind them, the co-founders faced a big decision: Should RTR raise another funding round, well ahead of schedule? They had originally assumed that their $1.75 million seed round of venture capital would last through the spring of 2011. Fleiss and Hyman had planned to grow RTR at a measured pace during 2010 while pursuing operational improvements that would move the company toward cash flow breakeven. After demonstrating proof of concept, RTR would then be well positioned to raise additional funds in early 2011. RTR would have ample funds available to cover budgeted inventory and head-count growth through 2010 if it followed that plan. Based on feedback from early customers, however, the co-founders realized that RTR was delivering more than just great value and convenience through dress rentals. The company was fulfilling women’s dreams by making them feel confident and beautiful. Consistent with this new vision, Hyman and Fleiss saw opportunities to serve a broader range of age groups and social occasions by increasing inventory more rapidly and by extending their product range, for example, For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. 812-077 Rent the Runway 2 adding accessories and maternity wear. Also, with website upgrades, customers could interact in ways that made the service more sticky, sharing stories and advice on what to wear to upcoming occasions. But pursuing these opportunities would put heavy demands on RTR’s small management team, which was still scrambling to get operations under control. It also would require raising more capital, and doing so sooner than originally planned. Was the upside revenue potential in their new vision for RTR great enough to offset the additional dilution the co-founders would suffer if they raised additional equity now? Had they shown enough progress to significantly increase their valuation in a new round? Or should they stick with their original plan, which would deliver positive cash flow sooner—and a bigger equity stake of what might be a smaller company? Background Hyman and Fleiss met in the Harvard Business School (HBS) MBA Program. Prior to attending HBS, Fleiss was an internal strategy consultant at Lehman Brothers and Morgan Stanley, and also founded an essay editing service for college applicants. Hyman had worked in sales and marketing at Starwood Hotels and later became an in-house entrepreneur there, launching Starwood’s wedding business. She then led WeddingChannel.com’s ad sales team and was director of new media for the sports talent agency, IMG. (See Exhibit 1 for biographies.) The inspiration for RTR came to Hyman in November 2008, during her second year at business school. She recalled: My younger sister Becky desperately wanted to buy a $1,500 Marchesa dress to wear to a wedding. She felt compelled to buy a new dress—despite already having a closet full of designer dresses—because she knew photos would soon appear on Facebook and she didn’t want to be seen twice in the same outfit. She was earning $55,000 a year as an accessories buyer at Bloomingdale’s, so I thought it was crazy for her to spend that much. At the same time, I realized that designer brands should strive to acquire Becky as a customer. She loves fashion and she’ll spend heavily on apparel for the rest of her life. The system was flawed: young women couldn’t afford the brands they truly desired and designers couldn’t access young women to build brand loyalty. Hyman shared her idea for a dress rental business with her friend Fleiss. Hyman commented, “I knew I needed a partner whose skills would complement mine. I’m great at the strategic and marketing vision—coming up with ideas and selling them, but executing on the details is not my strength. Jenny is very task-oriented and I knew she would keep us on track. She’s also more risk averse than I am, and I knew I could count on her to challenge ideas that were not fully thought through.” Neither co-founder had experience in the designer apparel business, which had generated $149 billion in 2008 retail sales to women in the U.S.—$80 billion from dresses alone. “In some ways, our lack of fashion industry experience has been an asset. We approached the industry with a fresh perspective on how to change it,” said Hyman. Getting Started In December 2008, two weeks after RTR was conceived, the women cold-called Diane von Furstenberg, an influential fashion designer who also was president of the Council of Fashion Designers of America, and secured a meeting with her. Von Furstenberg was intrigued with their idea and agreed to meet again to consider a formal proposal. For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. Rent the Runway 812-077 3 Fleiss and Hyman devised a plan for a turnkey service that would allow DVF (Von Furstenberg’s company) and other designers to rent their dresses through the designers’ own websites. The designers would bear the costs of website upgrades, supplying dresses to rent, and acquiring customers, while RTR would manage warehouse and customer service operations in exchange for a transaction fee. Hyman commented: “From the outset, we saw an opportunity to build our own site, but this white-label approach could be an interim step that required much less capital. This was important because we both had traditional job offers, and Jenny had resolved to make her career choice by June. Raising a lot of capital in that time frame would be difficult.” When the pair presented their plan in February 2009, Von Furstenberg said she would only come on board if Hyman and Fleiss could convince other designers to participate. “From this conversation, it became clear we’d have to buy dresses directly from designers and develop our own rental site. Designers would not be willing to bear the costs and risks of building a rental business themselves,” said Fleiss, adding, “While this model would be more challenging and capital intensive, we realized that it gave us more control over the business and offered the potential for greater profitability over time.” Hyman said, “It also became clear that it would be imperative to build a customer experience and a brand that would encourage women to try this new behavior of renting dresses.” Surveying the Competition To prepare to meet with more designers, Fleiss and Hyman studied other fashion rental websites. They found only two services in the U.S. that might pose a near-term competitive threat. Wear Today, Gone Tomorrow (WTGT), launched in March 2009 by a former women’s lifestyle magazine editor, rented dresses, tops, jackets, and skirts. WTGT’s customers paid about 90\% off an item’s retail purchase price for weekly rentals and 70\% off for monthly rentals. Fleiss and Hyman were not impressed with the quality of WTGT’s website or its inventory, but the site was new and could improve. Avelle, launched in 2004 as “Bag Borrow or Steal,” focused on renting handbags, sunglasses, and jewelry. The online service had raised $15 million in venture capital in 2007 and gained popularity after being mentioned in the 2008 movie, Sex and the City. Fleiss said, “Avelle launched with a good selection of top brands, but rather than buying directly from designers, they initially purchased through sample sales [retail events that offered designer goods at low prices] and other discount retailers.” She added, “This created ill will among designers. It also meant that Avelle paid retail prices for their inventory and bought stale goods at the end of the fashion season. We wanted access to designers’ best new products at wholesale prices, so we couldn’t afford to alienate designers. Everyone knows each other in fashion, so if you build trust with one brand, others will follow.” Hyman commented on the prospect of competition: There have always been brick-and-mortar boutiques that rent to wealthy women before red carpet events. And there are a few websites that rent dresses, mostly with assortments built from one woman’s closet. But if Rent the Runway turns out to be a great business, we’ll see serious copycats. We might negotiate designer exclusivity for some period, but if rental becomes a major new channel, competitors will eventually get access to product. Consequently, we need to differentiate our customer experience. We need to create a brand that women love; one that absolutely, positively will get them the right dress, on time, with flawless, “feels-like-new” presentation; and with superb service that treats the customer with the utmost respect. For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. 812-077 Rent the Runway 4 Another factor would distinguish RTR: no existing competitor catered to women’s needs to rent a dress for a specific occasion by allowing for reservations. Through a hotel-like reservation system, RTR would enable women to place orders for dresses up to six months in advance. Selling the Concept to Designers During February and March 2009, Hyman and Fleiss met with 20 designers and got a lukewarm reception from most of them. “We were lucky to get encouragement at the outset from Diane. Her belief in us gave us the fuel we needed to get through many early meetings at which people rejected our idea,” said Hyman, adding, “We were going to designers as two young women who’d never worked in fashion, asking to buy their inventory so we could rent it at the same time it’s available in Saks Fifth Avenue and Neiman Marcus for 10\% of their retail price. In the first five meetings, their response was basically, ‘over my dead body.’” Hyman and Fleiss steadily refined their pitch. Instead of selling the RTR concept, they asked for designers’ advice and listened carefully to concerns about retail market cannibalization and brand dilution. Hyman recalled, “Our goal in every conversation was to listen to designers’ and retailers’ objections so that we could create a service that was synergistic with their needs. We also were focused on using meetings to get more introductions. We never turned down a meeting that someone suggested, even if we couldn’t initially figure out its purpose. We were often surprised by what emerged from building relationships across the industry.” By the end of March, they had formulated a response. “Initially, we had focused on the superior price that RTR could offer consumers. We could have targeted older women who have money to spend on black-tie events with a value play. But after learning about designers’ concerns about retail cannibalization, we positioned RTR as a new customer acquisition channel that exposes younger women to designers’ brands, giving these women an aspirational experience,” said Fleiss. Hyman and Fleiss pointed out to designers that women had long found ways to experiment with brands, but the designers rarely benefited from these interactions. Hyman commented: Some women try things on in a store’s dressing room. Many others buy dresses, wear them once, and return them for full credit, deodorant stains and all. Returns rates in department stores for designer dresses are often over 50\%. Another segment of young women are intimidated by the experience of shopping for designer apparel. They shop for moderately priced dresses on the fifth floor of Bergdorf’s, afraid to venture down to the fourth floor to try on the expensive dresses they dream of wearing. We said to designers: “This is a way to put that girl in your dress, and give her a powerful emotional experience. She gets compliments from the most important people in her life. Those compliments make her intensely loyal to your brand: she wants to own it. And maybe it doesn’t hurt your brand to show it off on a 25-year-old rather than a 45-year-old. Rent the Runway is the gateway drug to designer fashion.” The new positioning was greeted more warmly; by July, the RTR team had supply agreements with 15 top dress designers. Derek Guillemette, an experienced Bloomingdale’s fashion buyer who joined RTR as head merchant in May 2009, said the company had avoided pushing too hard to sign reluctant designers. He said, “We still haven’t signed Marc Jacobs and Michael Kors, two of the most important U.S. designers, but we meet with them regularly. We feel strongly that designers should only come on board when they are 100\% committed to our concept. It would be a disaster if a high- For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. Rent the Runway 812-077 5 profile brand came for a while, then left. That would be worse than not having them in the first place!” Market Trials To gauge customer demand for dress rentals, the co-founders invited 140 women to two market trials during the spring of 2009, and 125 attended. The first trial was held at Harvard College in April. Fleiss and Hyman borrowed or purchased 130 dresses from 15 designers with retail prices ranging from $50 to $1,500; mid-tier designer dresses were typically priced in the middle of this range. They held a “styling session” in a dormitory common room to assess the appeal of different price points, styles, and sizes. “We also wanted to see who would rent more, true fashionistas or aspirational girls, and whether styling advice had an impact,” said Fleiss. Women were encouraged to try on the dresses, which were priced between $35 to $75, plus a mandatory $4 insurance charge. During the first trial, 34\% of the Harvard College women rented dresses. “We also wanted to see to what extent the rental experience is inherently social,” said Hyman, “so we invited women in groups, targeting two high-profile undergrad final clubs [sororities] as well as groups like the dance team.” She recalled, “A junior tried on a silver-sequined Tory Burch mini-dress. When she put it on, the expression on her face changed. She twirled in front of the mirror, threw back her shoulders, turned to her friends, and said, ‘I look hot!’ And I said to Jenny, ‘That’s our business.’ It was the first time we saw the self-confidence and the powerful emotional experience that Rent the Runway can deliver.” At the second trial, held at Yale College, women could view the dresses, but they were not allowed to try them on. Fleiss and Hyman also adjusted their dress assortment to focus on trendy styles and aspirational classics that had been popular at the Harvard trial. At Yale, 75\% of the women rented. In both trials, renters were given pre-addressed return envelopes to mail back the dresses. “We needed to know if the women would return the dresses promptly and if the U.S. Postal Service was a viable option for return shipping,” said Hyman. “We received 85\% of the dresses back within 24 hours and the rest within two days, and 51 of the 53 were returned in perfect condition. The other two had minor stains that were easily removed by the dry cleaner.” The team was encouraged by these results, but they had not yet demonstrated that women would rent dresses online. To address this uncertainty, they conducted a third trial in September 2009 with a random sample of 1,000 women who had asked to be contacted when RTR launched. These women were e-mailed PDFs with pictures of dresses that they could rent by telephone. During the trial, 5\% of the women rented. As expected, this was lower than rental rates for the earlier trials, but above the target rate required for a profitable service. Preparing to Launch In February 2009, Hyman and Fleiss sought legal advice on incorporating RTR. They met John Chory, a senior partner at Wilmer Hale, one of the Boston venture community’s most seasoned attorneys. “Despite our lack of experience, John was impressed with our passion and our progress, so he decided to work with us,” explained Fleiss. Chory introduced the team to several venture capital (VC) firms, including Bain Capital Ventures, which pursued RTR vigorously. Bain had missed an opportunity to invest in Gilt Groupe, an invitation-only luxury shopping website, and saw in RTR a chance to capitalize on the rapid growth in online fashion. For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. 812-077 Rent the Runway 6 “A Bain partner, Scott Friend, liked the way we were learning through trials and networking. He saw that we had a bias for action, not business planning,” said Fleiss, adding, “We debated whether to get initial funding from angels instead, because we’d heard so many bad stories about VCs. But we knew that if we were successful, we’d need a lot of capital for inventory—more than angels could provide. We also knew what we didn’t know and recognized the value of a VC’s connections.” Hyman said, “We were immediately comfortable with Scott; we didn’t feel like we had to be on guard with him. We’d labored over our financial projections, but he barely looked at them in our first meeting. From the questions Scott asked, it was clear that he wanted to work together to figure out if we’d found a good opportunity. Because he shared our commitment to learning-by-doing, it was okay with Scott that we didn’t have all the answers right away. How could we? After all, we weren’t experts about fashion, technology, or operations.” Bain led a $1.75 million seed round that included some angels. Fleiss and Hyman also recruited a board of advisers during spring 2009 that included Carley Roney, CEO and founder of The Knot, a wedding planning website; Alexandra Wilkis-Wilson, co- founder of Gilt Groupe; Matt Diamond, co-founder of Alloy Media and creator of the hit television series, Gossip Girl; and Catherine Levine, COO of DailyCandy, a style and fashion news site. Fran Hauser, president of People magazine’s InStyle online edition, and Jim Gold, president and CEO of high-end department store Bergdorf Goodman, also offered extensive advice during RTR’s early stages. Merchandising and Operations With designers on board and initial funding in hand, RTR began to buy dress inventory. Hyman and Fleiss had considered trying to borrow dresses from designers through a profit-sharing arrangement, but they determined that designers would prefer a straightforward purchase by RTR. “E-commerce was a fairly new concept within the fashion industry, so we had to be careful about pacing our interactions with designers in a way that made them comfortable,” said Fleiss. Most dresses were purchased from designers at wholesale prices—which averaged about 40\% to 50\% of retail prices—at the same time that high-end department stores bought their seasonal inventory. At Gold’s suggestion, RTR initially gave department stores an exclusive selling window of several weeks before offering a new style for rent. After launch, however, RTR collected data that proved that opportunities for incremental retail sales through broader exposure far outweighed cannibalization risks: 98\% of RTR’s customers rented brands they had never owned, and 90\% reported after their rental that they either had purchased or had high intent to purchase that brand. Based on this data, only a small fraction of designers subsequently requested an exclusive selling window for department stores. Fleiss and Hyman considered outsourcing warehouse operations but decided that they should keep this function in-house. They inventoried and shipped dresses from a warehouse in lower Manhattan, and sent the dresses to a nearby high-end dry cleaner. “In every part of the process we knew there was so much to learn. If we’d outsourced, we wouldn’t get insights about fit issues, how to work with our dry cleaner to reduce wear and tear on the dresses, or how to make smart substitutions when a reserved dress is not in stock because its return was delayed,” said Fleiss. Designing and Building the Website In February 2009, the team hired a designer to develop the “look and feel” of RTR’s website, marketing materials, and packaging concepts. The designer, whom Hyman had worked with before attending business school, was the former creative director of a marketing agency and had extensive For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. Rent the Runway 812-077 7 luxury-brand experience. “Unfortunately, the look he created was all wrong,” said Fleiss. “The imagery was orange and pink: too young, teenybopper, girly.” (See Exhibit 2a for an image of the initial design and Exhibit 2b for an image of the launch design.) Hyman and Fleiss tried to work with the designer to overhaul the design because they were under pressure to hand it off to a website development firm. “It was hard, but we had to fire him,” said Hyman. “He had 20 years of experience and he thought his designs were perfect. Our philosophy is to iterate, make mistakes, learn, and change. He was never going to be someone who had the flexibility to make changes that way,” she said. After securing VC funding, RTR shifted design work to New York City–based Hard Candy Shell, which previously had worked with Hulu, an online video service, and with Gilt Groupe. To find a firm to build their site, Fleiss and Hyman relied on an HBS classmate. The classmate, who had a computer science background and had worked as a project manager in two technology companies, referred RTR to a nine-person firm in Canada, which purported to have extensive experience in website development, retail content management, and inventory control/logistics systems. RTR hired the firm and paid $45,000 to initiate the project, but by August, just three months before the site’s scheduled launch date, Fleiss discovered that the firm had made little progress. “Because we lacked technical backgrounds, we’d assumed that there’d be little value in visiting the firm and requesting interim code reviews,” said Fleiss. “We figured we wouldn’t understand what they were doing because we couldn’t read the code. But we could have gotten a sense for the personality and quality of the developers and seen if they were doing something. Once we visited, we realized that we were way behind schedule. With only two developers actually doing any work, it would be impossible to meet our targeted launch date. At that point we decided to pull the project from the Canadian team and start anew,” she said. “The lesson I learned from trusting this classmate was to always check your peers’ references,” added Hyman. RTR shifted development work to a firm located in India, based on an investor’s referral. At the same time, RTR hired an engineer through a Craigslist posting, but the fit proved to be poor, so they fired him in October. With the launch looming in just two weeks, RTR hired Abhishek Sachdeva, a developer found through a recruiter, as director of technology. Sachdeva scrambled to integrate the software developed in India. He recalled: When I arrived, I quickly saw that 1,000 things were wrong with the code. The firm in India did a solid job building the consumer-facing website, but they lacked deep expertise with back- end server software for booking reservations and tracking orders. Our reservation system is like an airline’s. It’s much more complex than a standard off-the-shelf e-commerce engine. So, we received a very wobbly set of back-end systems. But we had to launch with what we had. If something was 20\% okay, we kept it; otherwise, we wrote new code as fast as possible and made daily fixes. How to Rent the Runway RTR was an “invitation only” website; women received an invitation—an e-mail with a link that allowed them to register for free membership—through a referral by a current member or after adding their name to a waiting list via RTR’s registration web page. Only members (who provided their e-mail address upon registration) could shop for dresses. To do so, a member entered the date for her rental, the shipping zip code, and her dress size (0 to 12). She could further filter results by rental fee, dress color, type of occasion (e.g., wedding, cocktail party), dress style, and designer. The member could select any dress, read a detailed description, see additional images, and review stylist notes and fit guidelines. Fees ranged from $50 to $300 for a four-day rental—about 10\% to 15\% of For the exclusive use of C. Sun, 2021. This document is authorized for use only by Chenglong Sun in MGT 246 Fall 2021 taught by HAIBO LIU, University of California - Riverside from Sep 2021 to Dec 2021. 812-077 Rent the Runway 8 designers’ suggested retail price, which was displayed alongside the rental fee. For a premium, members could rent a dress for eight days. Late fees were charged to members who did not return dresses on time. After reserving a dress, the checkout process began. To improve the odds that the dress would fit, RTR shipped members the same style in a second size, free of charge. Members were also given the option to order a second, less expensive style for an additional $25. Members were required to pay shipping charges of $12.95 (which covered return shipping as well) and a $5 insurance fee that covered reasonable “wear and tear,” including spills and stains, broken zippers, and similar minor damage. RTR orders were shipped via UPS in custom-designed garment bags bearing the RTR logo. “The dresses look and feel new when they arrive,” said Fleiss. RTR asked members to return dresses by dropping them in a mailbox, using an RTR-supplied package with prepaid …