Lease the Runway quadruples inventory worth after doubling down on AI

The corporate’s inventory quadrupled this week after it reported optimistic earnings on Wednesday, hovering at round $5 per share earlier than leaping over $20. Lease the Runway posted income of $298.2 million for 2023 on Wednesday, a modest year-over-year enhance from $296.4 million in 2022. 

In comparison with the 2023 fiscal yr, Lease the Runway predicts income progress from 1% to six%. The corporate has but to show a revenue, but it surely hopes 2024 will likely be its breakeven yr. To make it occur, it’s placing a higher give attention to leveraging expertise to enhance advertising and marketing.

“In 2023, we made major strides on site performance and speed across all of our surfaces, and we made it easier for users to find inventory they love via enhanced discovery features like Rent the Look, AI search, new filtering and upgraded photography and styling,” CEO Jennifer Hyman stated in a Thursday investors call.

Based in 2009, Lease the Runway went public in 2021. However regardless of a great first impression on the stock market, the clothes e-commerce model was hit arduous by the pandemic, which halted all events the place luxurious clothes was needed. Lease the Runway additionally had a historical past of poor customer service and delayed orders. Together with a lackluster clothes number of casualwear that did not curiosity clients, its fame soured. Lease the Runway stalled at about 130,000 subscribers, whereas opponents like Urban Outfitters have continued to develop. Throughout the pandemic, 60% of its audience paused or canceled subscriptions.

However Lease the Runway refocused over the previous yr: It hired Natalie McGrath as CMO in February, a month after slicing 10% of its company workforce. Skating by as a penny inventory, the corporate final week applied a one-for-20 reverse stock split, releasing up 2.6 million shares with a view to regain Nasdaq compliance for its minimal itemizing worth.

However one among its most enjoyable prospects is its leap into AI. In June, the corporate started testing an AI search feature that generated product listings based mostly on search phrases like “Miami vibes.”

“It is the biggest thing to happen to consumer-facing businesses since the launch of the iPhone,” Hyman stated. “You’re either going to be a beneficiary of AI as a consumer-facing company or you’re going to die because of AI. Fashion overall is going to benefit.”

Lease the Runway didn’t reply to Fortune’s request for remark.

E-commerce is leaning on AI

Leveraging AI expertise has the potential to ease the cognitive load of shoppers, retail consultants stated, decreasing the power they put into on the lookout for a particular merchandise on the positioning. 

“Rent the Runway has just become the poster girl for investors that believe AI can help small businesses and not just large behemoths,” Michael Ashley Schulman, chief funding officer at Operating Level Capital Advisors, told Reuters.

And extra retailers are prepared to take the chance with AI. Twilio’s 2024 State of Customer Engagement Report launched on Wednesday recognized AI as a instrument to “greatly improve customer engagement,” with 70% of the 4,750 firms surveyed reporting they’ve already used AI to personalize advertising and marketing. Elevated personalization has struck a chord with shoppers: Greater than half of respondents in Twilio’s survey stated they’d spend more cash on a customized procuring expertise, and virtually half of the 6,300 shoppers surveyed stated they’d return to a enterprise based mostly on the extent of customized advertising and marketing they acquired.

E-commerce juggernauts like Alibaba have demonstrated that AI has a spot within the sector past advertising and marketing and shopper engagement. In March, the corporate announced a campaign to develop cross-border e-commerce with AI instruments, together with a sensible help chatbot and AI software program to automate gross sales processes. In keeping with Alibaba, AI-optimized merchandise on the positioning have elevated by 37%.

Although Alibaba’s curiosity in AI expands far past its retail arm to massive language fashions that might compete with the likes of Amazon and Microsoft, co-founder Jack Ma extolled the virtues of the expertise, urging the corporate to proceed to lean into AI hype.
“The AI era has just arrived,” Ma wrote in a Wednesday memo. “Everything has just begun, and we are in the moment!”