In the 2010s, investors poured hundreds of millions of dollars into start-ups that promised to reinvent how people shop for clothing. Stitch Fix and Rent the Runway were at the vanguard of one strain of this movement, popularising the idea that a subscription model could work in fashion. Though they had distinct approaches – boxes of clothes handpicked by stylists for Stitch Fix, rented luxury fashion for Rent the Runway – both held out the promise of infinite choices, delivered to customers’ doorsteps.

You know what happened next. There were unicorn valuations and initial public offerings, crashes and pivots. With both companies reporting earnings this week, it’s worth revisiting why they struggled and what the future may hold.

Stitch Fix and Rent the Runway are dealing with different versions of the same two problems:

• The “endless closet” circa 2018 was a good deal for consumers, but expensive and difficult to execute.
• Demand isn’t anywhere near high enough to justify those costs, or to meet investors’ expectations.

Both companies are making progress on problem No. 1: Stitch Fix has cut costs, laying off workers and dialling back some of its ambitions, including winding down its UK business. Rent the Runway closed its stores in 2020, cut staff and reduced shipping costs. Losses have narrowed at both companies, though neither is profitable. They must strike a delicate balance though. Customers who try rental, subscription boxes and other new-model retail have always complained about turnaround time and low inventory of desirable brands and styles. They won’t put up with further cuts to service.

Demand is a thornier problem. Both companies seem to have accepted that they won’t reshape global retail in their own image anytime soon. Rent the Runway is still growing – revenue in 2022 totalled $296.4 million, up 43 percent from the previous year and surpassing pre-pandemic levels. But an unexpected dip in second-quarter sales showed that further gains will be hard won. Competition is also fierce, with Urban Outfitters’ Nuuly, a competing rental service, as well as peer-to-peer rivals rapidly gaining ground. At Stitch Fix, the question is whether there’s a sizable market for subscription boxes at all; revenue fell 22 percent in its fiscal year ending in July, to $375.8 million.

The endless closet appears likely to remain a niche. Stitch Fix and Rent the Runway are hoping it’s at least a lucrative one.

What Else to Watch for This Week

Monday

The Fashion Awards are held in London. Sarah Burton, Daniel Lee, Jonathan Anderson, Matthieu Blazy and design duo Miuccia Prada and Raf Simons are up for designer of the year.

Tuesday

Signet Jewelers, Stitch Fix, Rent the Runway release quarterly results

Thursday

Chanel shows its Métiers d’art collection in Manchester

Lululemon reports results

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.