Cos-Designer Warehouse: Cheap Costume Rental
Cos-Designer Warehouse (CDW) offers costume-rental services for customers temporarily looking for outfits to wear at parties or other occasions but not wanting to spend lots of money buying a new one.
To rent costumes, customers visit CDW’s website to browse available costumes and check corresponding rental prices. Once they find the costume they want, they can place an order online. On average, CDW receives 300 rental orders per day. Two-thirds of customers rent a single costume per order, while the remaining third rent two costumes per order (the maximum allowed per order according to CDW’s rental policy).
Once a customer places a rental order, one or two costumes (depending on the customer’s request) are shipped to them via UPS next-day delivery. CDW pays for the $3 shipping fee per order. Customers have ten days to hold onto the costumes before returning them in a pre-labeled UPS package. Return shipping also takes one day and costs $3 per order, which CDW also bears.
Due to the high demand for costume rentals and various costume preferences, CDW needs to maintain a large inventory of costumes to ensure that customers can find the outfits they need. On average, CDW has around 2,000 costumes ready for rental (as known as Rental-Ready Inventory).
Once customers return their rented costumes to CDW’s fulfillment center, they are inspected and sorted into two categories: good or damaged. CDW hires workers to perform these tasks manually, and on average, 60% of returned costumes are in good condition and require only basic cleaning. These costumes are sent to General Laundry, located next to CDW’s fulfillment center; the costumes are cleaned for a fee of $5 per costume. After cleaning, the costumes are immediately sent back to the Rental-Ready Inventory.
If a costume is damaged, it requires more extensive cleaning or repair. CDW sends these costumes to Laundry Expert, which is located farther from CDW’s fulfillment center but specializes in cleaning and repairing costumes. Due to the far distance, CDW batches multiple damaged costumes before sending them to Laundry Expert. The cost for thorough cleaning and repair at Laundry Expert is $10 per costume. Once the costumes are cleaned and repaired, Laundry Expert also batches them and sends them back to CDW until the batch size achieves a certain amount. CDW then puts the costumes into the Rental-Ready Inventory.
To meet the need for costumes in current fashion trends without wear and tear, CDW regularly purchases new costumes and writes off old ones. The cost of purchasing an average new costume is $650, a substantial discount from the average retail price of $1,000. A new costume has an average lifespan of 100 days, That is, it can be used in CDW’s rental business for 100 days. To take it into account, CDW depreciates the cost of a new costume over its 100-day lifespan using a straight-line method. This means that CDW incurs a cost of $6.5 per day on each costume it owns ($650/100 days).