We’re going even deeper for 2024. And we think that the full extent of all of the changes we’re making on customer experience will be felt by those early term subs once the in-stock rate is higher and they’re getting the inventory that they really signed up to get.
Andrew Boone: And then as we get further away from the launch of the era of Extra, can you talk about just top of funnel trends, what are you guys seeing now versus, say, last year? How does top funnel relate? And then how are you thinking about top funnel now that you’re pulling that marketing for the back half of this year and potentially into ’24? Thanks so much.
Jennifer Hyman: Yes. I mean, top of funnel continues to be strong. We continue to see very high interest for subscription for our reserve offering, we feel that the market is growing. And that’s why it’s so critical for us to have and offer an experience that continues to improve. Now of course, over 80% of our acquisitions come in be a word of mouth. And so it’s even more important for us to have that positive flywheel coming out of those early term customers. So the focus on improving in-stock rate, which improves the experience of early term customers, we think, will help to accelerate the organic growth of the business. Taking away some marketing dollars, marketing dollars traditionally have been kind of a small percentage of how we acquire customers.
We also feel that right now is not the time to promote people into an experience where the in-stock rate really isn’t there yet. So we feel good about top of funnel. We think that the market continues to be there. It continues to grow and that we’re making the right changes for the medium and long-term health of this business to drive it to profitability.
SidThacker: Yes. I think it’s useful to just some context, right? Obviously, we’re changing our promotional strategy. We talked about the marketing changes we’re making. And it’s – I want to – it’s helpful to reiterate how we’re thinking about this business. One way to grow this business and get this business to free cash flow would be acquire lots and lots of customers, yes, you’d have we’d report very high subscriber growth, we report high revenue growth, but we also have to provision significant amounts of inventory and a portion of those customers that we acquire are less qualified and we’re provisioning all this inventory it’s just a less efficient way to grow. And in some ways, what we have now is we recognize that we have limited resources.
We recognize that we want to get to free cash flow breakeven as quickly as possible. And for us, that means in fiscal ’24, and so we’re taking the actions that we need to fundamentally not only improve the quality of acquisitions coming in, being more efficient about product acquisition for those qualified customers and then making sure that we can actually deliver the best experience possible for both customers. If we do all of those things right, that feedback loop, given that 80% of our customers come to us organically, will end up driving additional organic acquisitions in a more efficient way. I mean I spent many years in investment business, and I saw lots of situations where companies ranging from McDonald’s to others that we’re very focused on growth at points in time that actually went and thought about their business critically, thought about what really mattered and actually fundamentally stopped growth or slowed growth down to improve the quality of the business and those businesses came out significantly stronger.
And for us, this is an opportunity to breakeven before cash interest in ’24, create a very solid foundation and create the best experience for our customers. And if you do that well, we’re pretty confident given the market opportunity that we have that we can grow significantly well into the future.
Jennifer Hyman: I just want to add one thing to what Sid said, which is that the nature of our business model is we have one pool of inventory, right? So if we promotionalize the lower margin customer to come in to Rent the Runway, not only are we provisioning extra inventory for them, but they may very well take the best inventory. And they may take the best inventory away from some of our more loyal higher-margin customers. So it’s really about thinking that we are prioritizing the higher-margin customers, we’re prioritizing the overall customer experience and we don’t want to kind of either market into or promotionalize into lower-margin customers coming in and grabbing the very inventory that is critical for the customer experience of the better customers.
Andrew Boone: Thank you.
Operator: Thank you. Next question today is coming from Ross Sandler from Barclays. Your line is now live.
Ross Sandler: Just one for Jen and one for Sid. Jen, so on this new customer retention, is there like a precedent looking back at different times in the past when you had better depth of inventory for in-season around like how far off is the retention rate today versus back then? And then subsequently, like how quickly you expect that to kind of pick back up to a normal level? Is that a matter of a couple of quarters? Or is it going to take longer than that? And then, Sid, you talked about reducing fixed costs and also some variable costs in fulfillment. Can you just elaborate on both of those? Like is it the UPS deal that’s allowing better fulfillment leverage or walk us through those assumptions for ’24? Thanks a lot.
SidThacker: So let’s start with focus and expenses. So it’s twofold, right? The first there is an impact from the UPS contract that will be sold into the back half of this year and into next year. That’s one. The second thing is if you look at what we have done historically, and this is not just true for fiscal ’23, but it’s true for a number of years now, which is we have fundamentally improved our ability to process units with the same labor pool continually, right So I think we can – we have continued to make progress on efficiencies then we expect to continue on that path in – and we have some specific initiatives that we’re working on now that we think will impact fiscal ’24. So that’s fulfillment. The – on the fixed cost side, our teams have reviewed – we’re reviewing our cost structure.
We want to make sure that – we get the free cash flow breakeven in fiscal ’24 under a variety of sales scenarios, and we’re going to take the right actions to make sure that, that happens.
Jennifer Hyman: So on the in-stock rate, first of all, the in-stock rate already is going up between 700 and 1,000 basis points in the second half of the year. In terms of tactically when that’s going to be felt by customers. We think it’s going to be felt towards the end of Q3 and into Q4 when all of that inventory is really in our warehouse and kind of circulating amongst the customer base. We’re making even more improvements in this first half by we’re making for ’24 to get in stock rate up even further than that 700 basis points to 1,000 basis points. We think that the combination of the changes that we’re making for second half and first half of 2024, will have marked improvements on customer experience year-over-year and that these are fundamentally the right levels of in-stock.
