Inside the Lawsuit Threatening Rent the Runway’s $1 Billion Business
FashionPass is accusing Rent the Runway of attempting to create a monopoly over the clothing subscription service market, and is suing the larger company for $3 million in damages.
When CEO Brittany Johnson heard that fashion brands were refusing to sell to her clothing rental startup FashionPass because they had entered into exclusive agreements with Rent the Runway, she felt “almost flattered.”
“[I thought] ‘Whoa, Rent the Runway actually sees us as a competitor? This is crazy!” Johnson told The Daily Beast.
After all, Rent the Runway is a heavyweight in the fledgling industry of clothing subscription services. The model allows customers to book an outfit for a day at a fraction of the retail cost, and return the piece after wearing it once. Just this week, Forbes reported that Rent the Runway, which was founded 10 years ago, had hit $1 billion in valuation.
For a startup like FashionPass, which only launched in 2016, the thought of being a threat to such a behemoth brand was exciting—at first.
But the butterflies in Johnson’s stomach soon turned into a pit. “People were refusing to sell to us, period,” Johnson said. “When I asked about it, they told me that Rent the Runway was demanding exclusivity, and they could not sell to us.”
As first reported by The Blast, FashionPass is now accusing Rent the Runway of attempting to create a monopoly over the clothing subscription service market.
A lawsuit filed this week by the Los Angeles-based brand alleges that its competitor conspired with labels like ASTR, Fifth Label, and Citizens of Humanity to rob smaller brands of their suppliers.
According to the complaint, FashionPass lost around $200,000 due to the dealings and will sue for $3 million in damages. (Representatives for the company declined to comment.)
From Johnson’s perspective, Rent the Runway’s reported scheme has hurt FashionPass where it matters—the relationships with clothing labels that she has spent three years developing.
“It was pretty difficult to start out,” Johnson said. “The first new brands that we got helped me to leverage and go to other ones and say, ‘So and so is working with us.’”
The name-dropping helped. “High-end brands give us some clout and credibility, and everyone wants to look at who is in your matrix.”
The lawsuit lists 20 brands as succumbing to Rent the Runway’s “coercive threats” for exclusive partnerships, but Johnson does not see those labels as culpable. After orbiting the buddy-buddy world of fashion networking, Johnson considers many of the brand reps personal friends.
“A lot of them were heartbroken and devastated that they could not sell to us,” Johnson said. “They were so broken up by it themselves that it was hard for them to tell me. That was actually the best, and it really showed me how much people actually cared beyond a business relationship.”
None of the companies listed in the suit responded to The Daily Beast’s request for comment.
But despite the niceties, Johnson insists that customers have begun to question why FashionPass’ stock has been limited since November of last year, when FashionPass alleges that Rent the Runway began their campaign for exclusivity.
“A lot of our customers are huge fans of these brands,” Johnson said. “They’re asking, ‘Why aren’t you getting more jackets?’ It’s tough because we haven’t had a great answer for them other than that we’re working on it.”
Simply put, Johnson said: “Without access to the inventory and brands customers are looking for, we would not be able to stay in business.”
As a California college student, Johnson said she was “constantly shopping on Revolve or Planet Blue, racking up my credit card so unnecessarily.”
Like other Instagram-minded millennials, Johnson “always wanted” to have new outfits. Unlike Rent the Runway customers, who often hit up the service when shopping for big event outfits, such as a wedding guest or prom dress, Johnson wanted things to wear for “silly things” like first dates.
Johnson tried other clothing subscription services, never getting what she wanted. Her sister ordered a prom dress from Rent the Runway, but Johnson was not into the gussied-up, glam styles it offered.
So Johnson decided to launch a company of her own. “I went after my own problem,” she said. Though Johnson declined to confirm past or present revenue or user demographics to The Daily Beast, FashionPass has curated a clientele of influencers through Instagram, the 2019 form of word-of-mouth marketing.
“A lot of girls want to post on Instagram and take a photo to make their feed look amazing. They want to look like they’re living this luxurious life, which is why they’ve really taken to this service.”
Indeed, a Vox piece by Gaby Del Valle posted just before news of the lawsuit broke was headlined, “Instagram influencers constantly need new clothing. This startup wants to rent it to them.”
FashionPass’ account (which, not unlike the microinfluencers it courts, has just over 15,000 followers), describes the company’s ethos as: “rent. wear. ‘gram. repeat.”
Much like the floral-printed, off-the-shoulder maxi dresses FashionPass sells, antitrust laws are very trendy right now, says Susan Scafidi, director of Fordham University’s Fashion Law department.
“To me, this case is interesting in part because we are concerned about antitrust culturally and legally right now,” Scafidi explained. “We are seeing scale-free aggregation in the tech sector, and giants like Amazon and Google have been charged with violations in the EU. Antitrust is in the air, and it has blown into the fashion sector.”
These types of suits are somewhat unusual in the fashion world, as the industry has historically been very fragmented, filled with small companies and designers. It is unusual for brands to take any kind of collective action, but not unheard of.
In 1941, a group of very frustrated, mid- to high-priced designers who were tired of getting knocked off formed the Fashion Originals Guild, agreeing as a group to stop delivering to any retailer who sold pirated looks.
Per the boycott, offending stores were listed on a red card circulated among guild members. The FTC found the collective in violation of the Sherman Act (and almost 80 years later, the problem of copycat designs still has yet to be solved).
According to Scafidi, lawyers for FashionPass have to prove that the loss of the 20 labels listed in the complaint will have a negative effect on consumers.
“What FashionPass is trying to say is that the market is rental fashion for women age 20 to 30,” Scafidi explained. If the court agrees, then the argument can be made that Rent the Runway is attempting to monopolize by restricting wholesales to FashionPass.
But according to Scafidi, there is a loophole: “What I imagine Rent the Runway will say is that the market is fashion, generally—contemporary women’s fashion.”
In that case, there are thousands of other retailers, from e-commerce stores and brick-and-mortar boutiques to department stores, that remain unbothered by Rent the Runway’s exclusive dealings.
The lawsuit also implies that FashionPass’ success hinges on just 20 brands. Some of them, like Likely, a line of simple, body-conscious dresses, or Yumi Kim, a sundress label and perennial wedding guest go-to, are no doubt desirable to a millennial fanbase. But of course, there are more labels the company can work with.
Harry First, a law professor at New York University who specializes in antitrust and business crime, said that restricted business relationships like the ones Rent the Runway set up are not inherently illegal.
“[FashionPass] will have to show something about those agreements that proves the deals were done in effect to exclude [them] from the market,” First said. “You would want to know more about the terms, what is going on in those contracts with the labels—something that says, ‘Let’s tie these suppliers up up so that we can put our competitors out of business.’”
If FashionPass were to shutter, Johnson says she would not be losing just a job, but a dream, too.
“I just want to be able to compete fairly,” she said. “This has been my life’s ambition, and I want to be able to compete in the same way Rent the Runway was able to when they first started.”