Rent the Runway has more than 5 million users, but CEO and co-founder Jennifer Hyman still fields calls on the phone.
"It's essential to know what your customers are experiencing. All the most sophisticated data in the world, all of which we have, won't give you the same insight as talking on the phone," 34-year old Hyman said during a recent interview in her SoHo office.
It's an example of the entrepreneurial spirit that has helped the startup—it lets women rent designer clothing (mainly dresses) rather than own—upend the foundations of the high-end apparel industry, but it's a style becoming more tailored to the company as it grows.
A simple idea Hyman had six years ago during Thanksgiving break from Harvard Business School—her sister was showing her a new designer dress she had bought while standing in front of a closet already full of dresses—is now a company that employs 350 people to serve its five million users.
Rent the Runway shipped more orders last year than in its previous four years combined. The company rented $809 million in retail value of dresses and accessories last year alone.
"It's definitely more challenging today than it was five years ago," Hyman said. "The opportunity is bigger but the responsibility is bigger too. … I'm always thinking about work. Always."
The company has raised $116 million in venture capital funding from investors include Bain Capital Ventures, Highland Capital Partners and Advance Publications, the parent company of Condé Nast. That level of venture capital funding is a rare feat for a female CEO. Companies with a female CEO received only 3 percent of the total venture capital dollars invested between 2011 and 2013, or $1.5 billion out of a total $50.8 billion, according to research from Babson College. Forbes places the startup's value at between $400 million and $600 million.
"I'm stressed about continuing to grow this company, and I'm stressed that if I don't succeed it might be harder for women to have the opportunities they need to start companies," Hyman said. "It's not all about me anymore."
Hyman has launched an online series called "The Real Runway" to feature stories of female entrepreneurs. "I want to shine a light on what other women are doing with the desire being to help other women succeed," she said. The company's first profile was about the founder of Boutique Bites, a Chicago-based catering company.
The company's biggest challenge is occurring right now—it's turning its own online-only business model inside out.
After six years of steady expansion online, Rent The Runway is opening retail stores in major cities, which will serve as mini distribution centers for particular regions. Every online order is shipped from the company's 160,000 square foot warehouse in Secaucus, New Jersey.
A Chicago store that opened in April adds to the company's four other bricks-and-mortar stores in New York City, Washington D.C. and Las Vegas. In all of these stores, pricing is the same as online— four-day apparel rentals are $30 to $800 and come in sizes 0 to 22. Accessory rentals run $5 to $400.
The move from online to physical stores is a move other prominent startups have made, such as eyeglass company Warby Parker.
"Retail stores open up more exposure, and more frequency from the current customers we have," Hyman said. "We haven't eliminated any part of our business model … we're adding retail because sometimes you get a product, and it doesn't fit to your liking, so the stores allow us to provide last minute guarantees to a customer."
The consumer psychology behind the new strategy is also key. Stores help appease fears women have when trying new brands and also allows them to explore more styles than they would discover online. Less than 10 percent of customers who order online report having had an issue with fit, but Hyman said, "Stores help people get over the psychological hump of ordering online."
The company also debuted a subscription service last year, called Unlimited. It charges $99 monthly (the first month is $49) to rent up to three items at a time. Geared to women who want to refresh their wardrobe midweek—maybe multiple times during the week—the service lets customers create a queue of desired items that will ship based on when other items are returned. Hyman said Unlimited delivers roughly $1,500 worth of designer items for the $99 monthly fee.
Rent the Runway would not exist without a key shift in the millennial generation's mindset—they care less and less about owning and more about how experiences are delivered and access to a wide range of items.
The fashion world was among the industries not properly serving this new breed of consumer, Hyman said. Especially in fashion, the word "renting" wasn't a socially accepted idea. Most customers are professional women in their 20s, 30s and 40s, who use the service primarily to get outfits for weddings, work events, vacations and dates.
"It was clear to me that women's closets around the country were trapped in a prior century," Hyman said.
In creating Rent the Runway, Hyman said the experiment was to link that millennial mindset with a direct attack on the success of "fast fashion"—chains like H&M, Zara and Forever 21. Amid a recession and stagnant wages, she saw that there was a way to get young women into higher quality clothing.
Ilse Metcheck, president of California Fashion Association, said Rent the Runway's growth has been driven by the democratization and high-speed of style changes in fashion, now intensified by social media. Rent the Runway customers include Kelly Osbourne, the newest star from the Kardashian clan, Kendall Jenner, women from the TV show "The Bachelor" and even Beyoncé.
"Trends happen on average every 10 weeks, so if you really want to feel in step with fashion you need to change it every 10 weeks," Metchek said. In other words, the transience of renting matches the transience of what a person (and society) may consider fashionable at any given moment, she said.
Hyman predicts that in five to 10 years, women's closets will look a lot different. There will still be a portion of the closet filled with clothes that are owned, but another portion will be in constant rotation, filled with rented items. "Our customer represents a new world order of woman, not defined by age but by being active and busy in every aspect of life," Hyman said. "It's a woman who wants to reinvent herself."
One of Hyman's favorite customer stories came from a 30-year-old woman in Washington, D.C. who was introduced to Rent the Runway by her grandmother, who wanted to look her best for her husband on Sunday when they attended church. She saw how confident her grandmother looked and decided to rent herself. "If Beyoncé and a grandma who goes to church rent from Rent the Runway, any woman can," Hyman said.
—By Paula Vasan, Special to CNBC.com