Building a Fewer, Better, and More Responsible Wardrobe with Cuyana’s CEO

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Cuyana’s CEO and Co-Founder, Karla Gallardo, speaks with Cowen’s Retailing, Broadline and Department Stores Analyst, Oliver Chen. on building a brand with a mission of sustainability and elegant design in mind. The podcast covers topics such as responsible material sourcing, educating the consumer, and managing growth while maintaining product quality and the shopping experience.

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Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us, as we converse with the top minds who are influencing our global sectors.

Oliver Chen:

Fewer and better essentials, a powerful lifestyle brand it’s Cuyana. This is a visionary podcast series about visionary ideas and people. My name is Oliver Chen, I’m Cowen’s new platforms, retail and luxury analyst. And this episode of our retail and luxury visionary podcast series will dive into sustainability and how consumers can shop for fewer better pieces. We’re really excited here to have Karla Gallardo, the Co-Founder and CEO of Cuyana. Cuyana launched in 2011 with the mission of curating timeless apparel and accessories made from high quality materials, inspired by a philosophy of fewer and better things. To kick things off, Karla, you didn’t necessarily have a background in fashion when you first started this journey. How did you come up with a concept and what sets it apart?

Karla Gallardo:

Great start. I did not have a background in retail and that actually really helped build Cuyana. A lot of the business model and how we go about making product is nonconventional. But the idea really came about as a customer. I had recently moved to the U.S. and I had grown up in a way that was different than what I realized many of my classmates then in college, in the U.S., and how they had been raised or how they approached shopping. One of the biggest shocking moments for me was Thanksgiving weekend, Black Friday, and people sleeping outside of Macy’s to be able to get in and buy product at a discount, I’d never seen something like that before. But the second moment I was also shocked and surprised was about my own behavior and how quickly I became an unintentional shopper. And the big disappointment I had with the purchases I had made, I realized that I didn’t think twice about quality before purchasing.

              I didn’t even know what I bought in those short, quick mall trips that we would make with my new college friends, and I was just embarrassed and I felt the sense of dissatisfaction and that was the beginning of it. Fast forward to a few years of college and working in New York later, the dissatisfaction hadn’t changed, but rather the idea of building a brand that actually helped customers buy better, that exposed the stories of how products were made. That actually taught customers what my parents taught me, when it come to buying products intentionally, was something that I thought would be amazing if it existed, it would just make people happier. Those wardrobes that were full then of stuff would actually be filled with things that people loved and the feeling of satisfaction and just joy would be greater.

Oliver Chen:

Karla, one of the main aspects we’re focused here on Cowen is transparency. What does transparency mean to your brand? And we believe consumers really care about this, what do you think?

Karla Gallardo:

Yeah. Transparency starts by doing things right, and not only by sharing a message. It really starts with the behind the scenes and authentically doing what you eventually will preach. One of the things about Cuyana that as we think back about our history, geez, we’ve been sustainable from day one. We’ve cared about quality from day one. There have been all of these layers to our brand that are incredibly relevant today. And that we now are sharing with our customers, right, as we are, of course, being transparent about how we make our product and now that the customer has become curious about how products are made. But back in the day, it was just the way we worked. That’s the type of business model that we wanted to build a type of product that we wanted to make and create.

              And so for us, transparency really is about sharing all of that with our customer in a way that’s not overwhelming, in a way that is certainly educational, and also in a way that inspires them to share more with us, right? Because our goal is to create for your better product, to enable her to have more time for her day today and not overthink what she’s buying or be disappointed about what she’s bought, but we also want to learn from her, right? And so transparency it’s not only one way, for us it’s also being able to collect more thoughts that would inspire us to be better in the future and give her what matters going forward.

Oliver Chen:

Karla, Cuyana has a really unique portfolio between iconic products and bags and also lifestyle. So for those who don’t know the brand, how did you evolve? What’s your product mix look like? And what are some of your most iconic products and price points?

Karla Gallardo:

Cuyana now is focused on our customers wardrobe, and that’s what our assortment offers her. We offer her those perfect day to day essential suit to get her through her busy days. Our most iconic products are our leather goods and that’s what Cuyana is known for. And the reason for that is our value proposition there is best in market, the level of quality of our leather goods and the price point at which we sell them is just pretty incredible. We always look at price per wear, that’s one of our metrics of success. And so we’re not putting products out there that are incredibly affordable because for us, the level of quality that we sell actually doesn’t allow us to sell bags at 50, 80, a $100. Our average price point of our leather bag is about 200 to 300.

              That’s our sweet spot, but it is still an incredible price point for the level of quality we put to market. And when we think about price per wear, because the way we designed those bags, those bags are worn every day by most of our customers and they were worn for years. And so when you think about the cost per wear of that product, it’s pretty minimal. So that’s really where we win and what we are known for. Our customers tell us, you’re the bag I reach out for every morning. That’s what we are, when she doesn’t have time to think or as she’s leaving her house, she grabs us and she’s out, and she just feels confident and goes with her day.

Oliver Chen:

Karla, we’ve also been really impressed with supply chain in Cuyana. Which parts of the supply chain excite you the most? We think a lot about magic and logic, and the logic of supply chain is so important to driving magic as well and real impact.

Karla Gallardo:

Yeah. This is part of not coming from retail that was actually instrumental in building the supply chain we have today, because we started to produce product without knowing how. Traditionally it was produced without knowing the traditional timelines for making product and know the more traditional ways. And so you can think of our supply chain as first, there’s a micro supply chain model embedded in it. And so we start with the material, it all starts there. And we go to the source of the material, in the country of source that’s best at making that material. So if we enter the leather bags market, which is what we did, we went to the countries that made the best leather in the world, and that actually are known for craftsmanship of that material. And the two countries that were top of our list were Italy and Argentina.

              We really cared about the hand making aspect of a leather good. And those were countries that have been just exceptional and have a lot of heritage in that. And so when I say micro supply chain, it starts with the material, but it then moves into the factor. And the way that our supply chain works by material it’s all consolidated in one country. So the leather comes from Italy, the leather good is made in Italy. The cashmere comes from Scotland and then the cashmere is knitted or woven in Scotland. So the way that we’ve built our supply chain is really material focused and we have micro supply chains throughout the world. So that’s one of the premises of it. And how is that a reason for success?

              One, we are working with the real experts, right? It’s just the expertise there is incredible. It has a cost, and that’s why our goods are not the cheapest ones in the market. So it’s certainly more expensive to make a bag in Italy than it is to make a bag in Asia, for example, but we’ve made that choice intentionally so that the craftsmanship of that bag is done with the best hands. Then there’s a sustainability aspect to that. We’re not transporting materials from one end of the world to the other one and then to our warehouse, it all happens there. So there are a lot of benefits there with the micro supply chain model. The second piece that I think is key to our supply chain is our merchandise model, and it impacts our supply chain.

              And that is because we are a business of bestsellers. 80% of our sales are products that we’ve made for many, many years. And so you can think about how beneficial that is number one, we’ve become experts of predicting demand for those products, right? We have so much data from past years, that we’re not putting a product to market that then at the end of the season gets discounted, and we have data for address, but that dress is gone, and so then we have to, right, use comps to build the predictions for the demand of the upcoming dress that we’re going to launch. No, we have the tote, for example, that we’ve been selling since 2011, now 10 years of data. So the ability to predict quantities of sales of that product that also sells year round is pretty incredible.

              And then that directly impacts our supply chain, because the factories that are making our products have the ability to forecast also the capacity of their own plants, they’re able to plan for labor, and the partnership we have with them is so, so, so strong, because we’re both growing and building together. They don’t get the choppy that they usually get from the traditional retailer, who’s placing orders once a quarter, right? They get a steady monthly replenishment business with us for most of our orders. And so the relationship and just strength that we have there is incredible. That allows us to navigate hard times like COVID as partners, as opposed to, right, in a different way, as opposed to just having a business contract, we actually have a partnership with them. And then lastly, I’ll tell you, we don’t make big mistakes in inventory buys. We have a limited edition model where when we put a new product to market, we make a smaller batch than the larger quantities that we’re placing in the background for our bestseller products.

              And we see how it goes, and if it’s a hit, then it becomes a part of our core assortment and we make of it. So this small batch model has also really helped us introduce new products and then penetrate those categories in a way that we’re not over producing.

Oliver Chen:

Karla, you also have really beautiful stores that look like homes and are very indicative of your brand. What about your growth strategies? How are you thinking about different channels and where you want ahead over the next five years?

Karla Gallardo:

Just like we innovated on how we make product, we are constantly innovating on how we sell that product. We launched as an omnichannel brand in 2013, mostly focused on digital, but we also had a first store back then. And the vision is, or it continues to be building a brand without a physical touchpoint is really difficult, especially when we’re building a brand that’s all about quality. That’s all about intentional buying, right? A physical channel is needed there. So retail has been an important part of our strategy since the beginning. Retail however, more traditionally was not a very attractive model. When we first started and for us, it was all about figuring out the perfect size of the store, the perfect model within the store, so that each one of our stores would number one, help us build brand, but more importantly, be a profitable channel for us. Right.

              And have the terms with our landlords that will allow us to be more flexible, and, or test into the market, and if it doesn’t work, be able to exit without big costs. And so retail has been a channel that we’ve grown from one store in San Francisco in 2013 to eight stores right when COVID hit in 2020, and that’s where we’ve paused. In between we did a lot of tests, popups, we have a strong framework that we use to pick where we open new stores. And by then we had eight stores with COVID hitting, that’s one of the channels that we actually paused on. And we haven’t opened new stores since, except for one in San Francisco, which is Fillmore, and we recently opened it post the hardest time of the pandemic. But there’s more to see about this channel.

              Look, we believe in retail, we stopped the velocity of growth there due to COVID, and now we are seeing how the customers coming back. It’s really important for us to make sure that the experience we’re providing her in this store today, which is the same one that we designed pre COVID continues to be right for her. We want to really be observant and make sure that her shopping behaviors haven’t changed. And once we are ready, we will continue to focus on the channel, but for now, we’re in a little bit of learning mode and innovation mode and we’ll see what happens next year.

Oliver Chen:

Karla, on the topic of better, retail can be much better with sustainability. What do you think the industry should do? What is your advice in terms of where we’re headed and what can and should be done in this immense challenge?

Karla Gallardo:

Yeah. You say it right. It’s an immense challenge. There’s so much to do really, but every participant of the retail industry can actually be doing something. Look, for us as a brand, right? We are yet another brand that’s creating more product and putting more product to market, right? How do we view our responsibility? We’ve simplified the way we explain what sustainability is to us, by saying that we produce for your better product with the goal of the product, not ending in landfill. Our goal is to make product that will last for many, many years, and for it not to end up in landfill, and we do this through different steps. First, we produce responsibly and I shared with you our supply chain model, right? We are really focused on only making what we sell, right.

              And really being smart about how we read the data. Right. We have a best sellers model working with our factories to make sure we make the right quantities, having a small batch model for new products, right? So that’s the number one, produce responsibly from a quantity standpoint, but also from the type of product we make. Nearly a 100% of our materials meet sustainability standards, and we have really close relationships with our factories, so that we can enforce and really be good about just sustainable production overall. So that’s number one, produce responsibly. Two, once we make product, we want to make sure our customer buys what she loves and that’s where fewer better really comes into play. We don’t want her to buy unintentionally, want her buy that product that she’s going to wear over and over and over again. We don’t make products that you wear once.

              We don’t make gala dresses, right. That’s not our business. Our business is those products that you reach for all the time. And that’s our second category under sustainability, it’s maximizing wear. Designing versatile items that she’ll reach for many times and also providing her enough content so that it gives her ideas of how to style and wear it and always feel fresh [inaudible 00:18:07]. And then the last of our sustainability efforts focus on extending life. At some point, she is going to feel like there’s an end to the relationship that she has with that specific product. And that is okay. We’ve done our job to produce high quality product that can last through time, we’ve helped her maximize her wear, but at some point it’s time to part ways.

              We have different ways of giving that product a new life. One, maybe she’s ready to part ways because the product has wear and tear. We’ve developed a care line, for example, for our leather products, you can go into our stores, give your leather goods a spa moment, right. We refurbish the product. There’s repair moments that we are actually starting to work on in a deeper way. Perhaps a button came out, right. There’s usual wear and tear that we can just refurbish that product and make it feel fresh again. But if she’s really ready to let go from the very beginning, we launched a program called Lean Closet back in 2011. Now a lot of this is more common and you’re seeing it in other retailers, but we give her a way of sending back her products to us and we would donate it and give those products a second and third life.

              So extending the life of that product and not letting it, sorry, end up in landfill. So donation has been a big part of the way that we extend the life of our products, and we are super excited to very soon announce in April, another way of extending products through Cuyana. And we’re going to be launching a new program called Revive. And I’m not sure if I’m going to share more details today, maybe I will, but it’s a new way for customers to keep giving new lives to their Cuyana goods and ultimately us reaching our mission of sustainability and not letting those items end up in landfill.

Oliver Chen:

Congratulations, every item we own goes through a different journey, so rethinking what that really means, it’s quite powerful and innovative. Another great topic is you, Karla as a female leader, congratulations on Entrepreneur’s 100 Most Powerful Women. Diversity, inclusion, it’s a big topic for me personally and professionally. What has been your advice to other women as you look to make a broader impact on how this evolves in the industry and in business at large?

Karla Gallardo:

Oh, well, I always say we have superpowers and so many superpowers, and I think being a woman is an advantage. I’ve never seen it as a disadvantage and that enables confidence, and so I always suggest that advice using our superpowers example, Cuyana is built for women, it’s a brand by women for women. Only we have the deepest insights of why a product makes us feel confident, why we grab a product over and over again. And with those insights, we’re able to, right, build a brand with the offering we have, that’s a super power. We are multifaceted. We can juggle emotional and logical things, we’re mothers, there’s just so much to us that we can use as tools to face challenges and get through them. I think being a woman is an advantage, that’s what I can say to the subject. And I think together we empower each other and we are able to articulate what those superpowers are and enable each other to use them to be better.

Oliver Chen:

[inaudible 00:22:01] very moving and thinking about the left and right brain and magic and logic, and also how to lead a complex organization. Thanks for sharing that. Finally, I wanted to ask you, Karla, which parts of the business are the most challenging for you as you think about strategy and other factors and which parts have you had the most fun doing as well? And any closing remarks you may have?

Karla Gallardo:

Yeah. The challenging part is growing a brand that will last for decades. If you just focus on growth, you may not build a brand that last through the years. There are a lot of trade ups that you make, if you just focus on growing. Building a brand that makes products is really hard. Everything needs to be orchestrated perfectly for you to continue to grow and not disappoint your customer, right? The quality of the product needs to continue to be at the same level, despite volumes duplicating, right, or tripling. The experience the customer has through the channels has to continue to be the same and or better. You also need to continue to update how you communicate to the customer based on what’s going on in the world. And in order to do all of that, there’s just so much in the behind the scenes, right?

              There’s a tech stack that you need to be managing. There’s a supply chain that you need to manage. We own our own distribution center, right? Customer experience. There’s just so much and so everything working together, I always say, we’re orchestrating this, right, and moving and growing together is what creates the magic of the customer, not really feeling the growth happening. Because the thing about the retail industry in particularly fashion is that if we disappoint her once she will leave and not come back. And it is in those breaking moments, right? When you perhaps open too many stores and you’re not hiring well or da, da, I don’t know, I’m making this up, but the tote business is growing so fast that we are really pressuring our supplier to make totes faster. The stitching isn’t working well, and then you start selling totes that after a few wears, start to show a little wear and tear, those are the moment that you can just break and disappoint your customer, and we just don’t want to do that.

              And so growing fast, but thoughtfully is the biggest challenge that we face, and bringing that balance and just orchestrating everything to me is what keeps me up at night, because it’s very exciting, right? To think of this grander vision, how we get there as fast as we can, but also how we do it and doing it well is the key recipe. And then you mentioned what excites me the most, I’m one of those CEOs that is really deep in the product. So I work really closely with the product team and coming up with the new product concepts, ideas, well, we go through all the samples together, all the prototypes, talk to our suppliers, our suppliers, we WhatsApp like you’d share family photos with each other. I’m really close to the products, it’s part that really excites me the most.

              It’s interesting because I have a math majoring, I’m not a designer by the way, so I don’t have the ability to think of an idea and then create it. But being a part of that process and helping drive that process really, really excites me, because ultimately that’s when I look at the other end and I’m walking on the street and I see a customer wearing a Cuyana bag and I see that reality come true, those are the most gratifying moments for me. It’s all comes back full circle.

Oliver Chen:

Well, Karla, it’s amazing to hear your story and also thinking about retail as an orchestra or a theater or a restaurant in terms of the whole experience is so important, as well as product innovation and truly being culturally relevant and respectful of what’s happening in the world around us. So thanks for sharing so many topics with us and we’re looking forward to your continued innovation. Thanks, Karla.

Karla Gallardo:

Thank you. Thanks for having me.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.


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