Rent the Runway just reached unicorn status — it is now valued at $1 billion — but the fashion retailer may have new problems that put its business tactics into question. FashionPass, an apparel rental business founded in 2016, filed a lawsuit against Rent the Runway on March 26, alleging that the retailer used “coercive tactics to pressure the manufacturers with which FashionPass conducts business, to refuse to sell merchandise to FashionPass.”
FashionPass is suing for damages in excess of $3 million, which is the amount of profits the retailer alleges it would have gained had the manufacturers conducted business as usual.
FashionPass specifically named 20 manufacturers in the lawsuit, alleging that “in or around October 2018 and November 2018, and continuing thereafter,” Rent The Runway demanded that manufacturers grant them “an exclusive right to buy” and refuse to sell merchandise to FashionPass. If these terms were not met, Rent The Runway would not purchase any merchandise from the manufacturers, FashionPass alleges.
In the suit, filed in California Superior Court in Los Angeles, FashionPass also alleges that it “has suffered, and will continue to suffer, damages as a result of Rent the Runway’s monopolistic and anti-competitive conduct.”
Although Rent the Runway, whose customer is an average age of 29, primarily targeted professional and formalwear needs such as wedding and cocktail dresses, the company has since expanded its rental offerings to include pants, jackets and sweaters. Since FashionPass is geared to appeal to women in their 20s and 30s and is focused on casual everyday appeal, wedding guest dresses, vacation wear and work attire, the two companies are in direct competition with one another.
Whether Rent the Runway crossed a legal line in staving off this competition will be up to the court to decide, but the news comes at an already eventful time for the rental business. The company revealed its $1 billion valuation after securing a $125 million funding round co-led by Franklin Templeton Investments and Bain Capital Ventures, less than week after it was reported that DTC beauty brand Glossier generated a $1.2 billion valuation of its own.
Founded in 2009, Rent the Runway built its brand on a subscription service that lets members order four garments at any given time, eventually growing to nearly 11 million members. The company has partnered with more than 600 brands, including Kate Spade, Levi’s and Diane von Furstenberg.
The capital infusion is designed to enable the company to accelerate the growth of its subscription service, innovate its proprietary technology, broaden its assortment and expand its infrastructure with an immediate focus on the company’s second fulfillment facility, opening in Texas this spring.