The DTC Economy Faces Its Biggest Test Yet

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Photo Credit:The Business of Fashion

This week, everyone will be talking about Rent the Runway’s IPO and Shopify’s growth plans.

Rent the Runway Goes Public
Rent the Runway is expected to hold its IPO on Oct. 27
The company is aiming for a valuation of
up to $1.5 billion
, double its value to investors last year
The rental platform has struggled to win back customers and ran a loss of $84.7 million in the six months ending July 31
Fashion start-ups that have gone public this year were mostly met with a
borderline ecstatic reception
from investors. Rent the Runway may test the limits of Wall Street’s appetite. The start-up has a strong case to make for its future: it’s the undeniable leader in clothing rentals, and wearing second-hand clothes has gone from niche to normal. But the company’s business was badly damaged by the pandemic, as demand for fresh outfits to wear to the office or to parties cratered. Active subscribers hit a low of 54,000 in the summer of 2020, compared with 133,000 pre-Covid.

The Delta variant indefinitely put off the mass return to the office that could have been a boost to Rent the Runway’s short-term prospects.
Used clothing is an expensive business, whether it’s to rent or to own. The post-IPO track record of online second-hand platforms is mixed — and profitability elusive.
Rent the Runway’s decision to exclude depreciation of its clothing from its gross profit margin. The cost of shipping, labour, warehouse space and other integral elements of the rental business is rising.
The Bottom Line:
In some ways, Rent the Runway’s IPO is a self-fulfilling prophecy: by raising hundreds of millions of dollars, the company grants itself the time and resources needed to wait for offices to reopen, or to

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