Can Sustainability Intersect with Luxury? | Julie Wainwright, TheRealReal CEO

In this episode of TD Cowen’s Retail Visionaries Podcast Series, Julie Wainwright, CEO & Founder of The RealReal speaks with Oliver Chen, Retail & Luxury Analyst. They discuss the state of the recommerce market and its implications on the growing focus of Environmental, Social, Governance (ESG) standards, drivers of growth in the resale market, and top priorities for sustainability. They also discuss inclusion & diversity and the role stores play in sales & eCommerce. Press play to listen to the podcast.

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:

Hi, everybody. It’s Oliver Chen. I’m Cowen’s retail and luxury analyst. This is our third episode of our retail and luxury podcast series, and we’ll be continuing on the topic of recommerce and resell today, as I am thrilled to be hosting Julie Wainwright, the founder and CEO of The RealReal, a leading third-party resale marketplace that focuses distinctly on luxury goods. This is a visionary series about visionary ideas, and, Julie, thanks so much for joining us today. You’re both the CEO and founder, and I’m sure you’ve seen a lot since founding the public company, where you are today is very impressive. I’d love to kick off our conversation with your story and vision for starting The RealReal. And what is The RealReal for people who have never heard about it?

Julie Wainwright:

We are an online and now offline authenticated luxury consignment business. Right now we’re only domestic, we’re only in the U.S., and we’re public.

Oliver Chen:

Why and how did you start this? And what is your customer base like?

Julie Wainwright:

I really love e-commerce I really love marketplaces and I was looking for opportunities. So this is in the idea of formation. And my first thing I did was map out what Amazon’s good at and what they’re not good at, especially if I was going to go in the e-commerce space. I have all these wonderful quadrant maps. I had no ideas. And then, like any good little idea, when I was shopping with a girlfriend, I did go into a luxury boutique that had consignment in the back, and that’s what was keeping that boutique alive, and that’s where my friend shopped. I had never seen her shop any consignment store. And when we left the store, I started grilling her. I’m like, “I’ve never seen you buy consignment.” She said, “Who cares? I got Chanel and Gucci and Louis Vuitton at a great price. And they’re gently worn. It’s a beautiful store.”

Julie Wainwright:

“Would you ever go into a consignment store?” “No, I hate them.” Yeah. She just bought consignment. “Would you ever shop on eBay?” “No, too many fakes. I don’t want to go back and forth with the sellers. I just want the product.” And all of a sudden a light bulb went on and I spent the next six to eight weeks researching both the luxury market, the installed base of luxury goods by country, which there were good McKinsey reports out there, some Bain reports out, trying to understand how much volume Ebay was doing. Very hard to determine, but, clearly, they were leaving a lot of opportunity. I also looked at that time, there were only pawn shops for fine jewelry. So went and experienced a pawn shop experience and looked at watches and where you could buy and sell watches.

Julie Wainwright:

And I even called up the galleries where I’d bought some art and asked if they would take it back and resell it and they sort of laughed at me. So I kept thinking, this is a huge opportunity and it’s a white space that no one is playing in and it’s going to require a different way of doing business though. For every person I talked to about consigning, they said it was really hard. And I consigned in brick and mortar stores, I consigned online. Like I said, I took my tools to a pawn shop, which was really undesirable, to say the least, until I tried all these experiences and I thought, “We have to offer it a great service to containers, make it easy to do all the work for them,” and literally come to your house to remove the goods, because otherwise you have too much friction.

Julie Wainwright:

Now we also offer drop-offs. So that was the key thing to begin with. And then for the consumer we had to authenticate. So from day one, we knew that selling fakes is not the business we wanted to be in. We were the first one to say authentication was important. And we started putting up guard rails for authentication and to learning actually about how to authenticate. We hired people that had been doing it for other businesses to get started. That was 10 years ago, Oliver, and you fast forward now and we have an incredible library of knowledge and technology to support authentication and we’ve offered more ways for the consigner to remove friction, from store drop-offs, to come view, shipping label. And during COVID, we really introduced virtual appointments with curbside pickups. So yet another tool.

Oliver Chen:

Julie, what would you say are your core competencies or competitive advantages and the secret sauce has really made this platform very successful?

Julie Wainwright:

Well, there’s so many. We are not a peer-to-peer. We’re a consumer-to-business-to-consumer platform. So what that means is unlike anyone else, we actually take the goods and authenticate them and then shoot the photograph. We use now really deep pricing algorithms to get optimal price. So we price it and we sell it and we pay you. So we do all the work in the luxury space. We have over a hundred gemologists and watch experts on staff, along with other brand experts on staff. So we can actually safely take from your art, to your fine jewelry, to your watches, to your handbags, and all apparel and other accessories in the luxury space, and then ensure it for the customer buying it that those items have authenticated.

Julie Wainwright:

So we’re the only one focused, A, in the segment of the market, has the infrastructure in this segment of the market, has a deep technology moat around our business that allows us to both move quickly, but also expertly in processing the goods. So everyone else in the resell space has really gone more downmarket or single category focused. And we’re a broad category, do all the work at business and we were first. So that helps, that helps.

Oliver Chen:

You definitely were a one-stop shop with a high degree of service. I’m wearing clothes and jewelry and have art, TheRealReal. So recommerce at Cowen, we forecast it could reach 14% of the apparel, footwear, and accessories market, doubling and growing at 25% and higher. Julie, what are some of the broad drivers that are driving outsized growth in the resell market from your perspective?

Julie Wainwright:

I think there’s a heightened awareness by millennials and Gen Z of the importance of recirculating goods. We’ve certainly been waving that banner for a long time. And when I say importance, I mean as an applies to the positive environmental impact of recirculating goods. So I think even today, I may be misquoting him, but I think Joe Biden even said the planet’s crying out and that is not lost on people who are living on the planet, given the environmental changes we’re going through. And then you combine that with the values of the millennials and Gen Zs, which really are more environmentally sound values. So we circulate in goods just makes sense.

Julie Wainwright:

The fashion industry, sadly, is one of the biggest polluters. Some say the second largest polluter behind big oil in the world. And that has been driven by all of them with old supply chains, but fast fashion really accelerated that. And so people are starting to see the downside of fast fashion and throw-away fashion, when you get something like a truckload every minute of fashion ending up in a landfill, it’s really unacceptable. So I’d say values are changing. And then also it’s a smart thing to do. These are smart, informed buyers and now consigner. And so consequently environmental impact plus intelligence of buying value has led to a different kind of shopper. That’s not going away. In fact, it’s gaining momentum.

Oliver Chen:

Sustainability is already at the forefront for consumers, increasingly one for investors. I really see you as a pioneer on the sustainability frontier, with your carbon neutrality pledge by 2021 and other factors, what are the top priorities for sustainability and what’s your advice to the industry, at large, as a leader in the industry?

Julie Wainwright:

There’s two different things for us for sustainability. We did put out a sustainability calculator years ago, so you can start measuring the impact of both consigning and buying resale. But we are looking at expanding the sustainability calculator to other businesses, so they can measure the impact of resale. But we were the first to do that and we really feel great about that. Internally, when we really took a hard look at our own internal practices, we had other things we had to work on. We had to work on our packaging to reduce that footprint. And we had to work on just the basic nature of our business. We ship things. So our shipping costs, how we ship, the vendors we work with, the values of those vendors and their pledge to sustainability.

Julie Wainwright:

And then, although COVID sort of helped us here, I think our single biggest net negative environmental impact was commuting. And certainly no one’s going into the offices now because of COVID. But when we come back, we’re going to put those in place for people to ride share where it’s safe or go through alternative methods, like riding your bike, or public transportation, because the cost of driving your own car by yourself in a gas car is really high.

Oliver Chen:

Julie, what do you think about the future of the retail industry and the broader topic of sustainability as well as diversity and inclusion? Would love your thoughts on how it’s shaping, how you think about, priorities and how the industry should move as well.

Julie Wainwright:

Well, we’re a lot younger than most of the industry, so we can move faster. And certainly now being a public company, we could also start changing on our board to reflect more diversity. We have a very diverse workforce. Our board did not reflect our employee population. So my focus in the last year, since we’ve gone public, year and a half, is to, as people come off, to actually get a much more diverse board and you’re going to be hearing about more of the people. But I would say pretty soon, we’re going to be over 60% women on the board and half of them they’re diverse women. So I’m really excited about that. That is a big change in the way, I believe, our corporate governance will go too. We also changed the reporting structure for the sustainability actions in our company that now the person in charge of that reports directly to me. The board’s holding me accountable for a sustainability metrics along with diversity metrics in the company and inclusion. So we’re starting to measure what our words say. We’re now measuring it at the board level. So I’m excited about that.

Julie Wainwright:

The industry is a different story. It’s going to take a long time to reverse engineer their supply chains to be really sustainable. Sustainable fabrics are really hard. I think it’s going to be even harder now that COVID hit, because they’re going to be getting back to ground zero on their business before they can then add another thinking of sustainability. I’m hoping it doesn’t push off sustainability for an incremental year or two, as they regain their footing. It’s pretty hard to put that front and center when your business may have dropped by 40 to 60%. What will really change things, there’s two different things that will change things for the retail industry. One is if consumers really do spend their dollars where their values are. That’s yet to be seen.

Julie Wainwright:

It certainly isn’t yet to be seen in the resell market, but that’s also a value decision against buying goods. So that’s got that combo, but if people start spending money against their values, the retailers will get the message. But the single biggest thing that can happen are laws that actually both changed the way businesses have to work, gives them an incentive to be more sustainable and a penalty if they don’t. The E.U. is always taking the lead on this. I’m hoping they’re strict for businesses that sell worldwide, and most do, and most of the luxury brands are based in Europe. When you start thinking of the guidelines they’re going to have to follow, that will have a very positive impact on the rest of the markets they sell into it’s. If the U.S. decides, if our country decides to start following some of the E.U. regulations, especially as it pertains to fashion and the goals, for instance, no more burning, no putting restrictions on landfill, giving them a date to hit different levels with fabric that actually is sustainable or materials that are sustainable. Then we could actually start seeing real change.

Julie Wainwright:

I don’t believe, even under this new administration, we’re going to see that happen quickly. And the fashion industry has done a very good job of keeping it quiet in terms of their level of contributing to a negative environmental impact. My goal isn’t to raise awareness of the negative impact of the fashion industry, but to raise awareness of the positive, immediate impact of recirculating goods. Because that’s here and now, we don’t have to wait for supply chain reinvention, that companies will do as they need to do mostly for legal compliance.

Oliver Chen:

Yeah, [crosstalk 00:14:24].

Julie Wainwright:

But I am trying to work, on a government level, to give consumers an incentive, even if it’s a small tax break to consign. So if you just think about it, it’s like, “Yes, prove that you can sign.” Maybe it’s only $50 off your federal taxes, but it will get people thinking about it. It’s changing their behavior, which I think will be incredibly positive.

Oliver Chen:

Yeah. There’s many aspects, from transparency, to accountability, to the geopolitical and this idea of profits and purpose and consumers wanting to vote with their dollars, because a lot of luxury is also emotional too, and that’s an aspect. So another topic, Julie, is luxury going online. The luxury market has generally had a lower online penetration versus other parts of the retail market and brands that RealReal has don’t necessarily allocate a lot of capital towards scaling their own e-commerce capabilities. What’s the opportunity here and what’s happening with luxury going online?

Julie Wainwright:

Well, the COVVID’s really forced them to get online faster. I would say most brands have done that because otherwise they would have been down to zero sales for different months of the year, this last year. But what you’re not seeing is their full selection of products. There’s still some hesitancy. There’s still some pullback or like, “We still want you to come in the store.” So even the ones that are progressive haven’t completely embraced it. The contemporary brands and more the mid-luxury brands are doing some really interesting things. So I think of Stella as being a progressive luxury brand. Her price points are not as crazy high as some of the top tier, but she’s definitely not a contemporary brand. And Stella started releasing a lot of small collections all the time.

Julie Wainwright:

So she’s innovating all the time. When I say Stella, I mean Stella McCartney. She’s always innovating. You see Gucci innovating with how they’re trying to create experiences online and yet their full product selection isn’t quite online. But people are doing more testing. I think they’re embracing it. They’re looking at how they present things. The first fashion show was virtual. Now there’s talk that this year everyone’s going to be back and fashion weeks in Paris, Milan and New York are going to go on as before. But I bet you, there’s going to be a combination of virtual and in-person, because the environmental impact is huge of fashion week, negatively. And the value is yet to be seen. So I think people are going to figure out how to find a better balance going forward.

Julie Wainwright:

But you got to give it to an industry that really was a laggard industry, how quickly they did pop up and do some really great experimentation during this time. And I’m sure there’s great learning for the whole fashion industry.

Oliver Chen:

Yeah. The experiential component, live streaming culture, cooking, drinks with luxury brands. We’ve seen a lot of innovation quickly. So I enjoy going to The RealReal stores. You’ve a really innovative format here in Soho, in New York. And we are big believers at Cowen of bricks meets clicks. What about The RealReal in stores and what you’ve been doing there? I know you’ve been testing new formats as well. And how do stores fit into your vision and ecosystem?

Julie Wainwright:

Wow, we’re so excited about this. So thanks for asking. Last year and this year, we started committing to a new format. We’re calling them core stores. Now you have one in New York and that’s on Madison and Madison is significantly smaller than our store in Soho. But it’s probably a third of the cost to operate. It has about a third of the SKUs, but it does about 80% of both the revenue and also the consigned value coming in of the Soho store. So when you start looking at that footprint, what’s unique about it? It’s in a neighborhood, it’s a convenience to the people there. We’ve been able to tailor the merchandise in the store to the neighborhood as closely as possible. And we thought, “Okay, we’ve got a great store in Soho, which does phenomenally well. We’ve got an amazing store in LA, in west Hollywood, which we call WeHo. We did open another flagship store in Chicago, which Michigan Avenue, right before winter hit, but it still is doing quite well, better than we thought during COVID times. Let’s roll out more neighborhood stores.”

Julie Wainwright:

So we rolled out, and I think we decided in August, we opened our Palo Alto store in November. It is off to a phenomenal start. It is limited due to COVID restrictions in the State of California in terms of shoppers and consigner. But even with that in mind, it’s, right now, equal to the same volume we’re doing in Chicago. Now, granted it’s nicer weather here than it is in Chicago right now, but it’s really off to a great start. So we’ve committed to roll out 10 core stores in the next six months. The next one opening is Brooklyn.

Oliver Chen:

Julie, how do you think about inventory management? There’s a lot of unique attributes here in terms of single SKU and also having inventories in stores versus your DCs and, at the same time, working to minimize split shipments and maximize speed to the customer.

Julie Wainwright:

So we’ve been doing this for a while. So we have a lot of good experience with this and we’ve been able to, most recently, drive our shipping costs down. So from the beginning, we’ve always had the item be the focus. So it’s available everywhere, online, in the store, same time. So that whole idea of an omni-channel, we were there before there was a term for it, because we do have only one. So if you only have one, you want to move that item and you don’t want it landlocked. You want it to be available on the internet. So we’ve sort of perfected that over time, split shipments. We do have inventory on both sides of the coast. So we already have split shipments. Split shipments have not gone up with this at all. So we feel good about it. It is more of an inventory management issue, but, logistically, we’d been doing that for a while. So it’s more just rolling out what we’ve been doing along with all the checks and balances to make sure that financially it makes sense and that the customer service is still great.

Oliver Chen:

Yeah. Julie, you’ve also moved really quickly with innovation and virtual appointments and consigning virtually. Could you elaborate on that? And what else would you say has really accelerated with innovation amidst the pandemic?

Julie Wainwright:

Well, a couple of things were underway already. Let me just talk about what accelerated. We already had a big technology push to move our ops centers into more of a technology-driven op centers, less dependent on humans. Although we still employ a lot of people and they’re very important, but whatever we could automate there for them where the people doing the work then became QA and added value, not necessarily typing in the description. So right now I think we’re up to 80% of all of our photos that were edited before are now done automatically. There’s still some human interaction and photo editing, especially with fine jewelry and watches. I think 80% of our copy is written by machines. We’ve used AI and machine learning to enhance and move our level of authentication in another direction. Even with fine jewelry, specifically diamonds, we’ve employed some new technology to measure the depth of diamonds. That’s state-of-the-art. In fact, incredibly unique and we’re expanding that. So all of that work really continued and exceeded our expectations last year.

Julie Wainwright:

Virtual appointments were a necessity for us. We were prohibited to going into people’s homes in the state, plus we didn’t understand COVID enough, so we didn’t want to expose either our customers, our consigners, or our employees to COVID without understanding the right protocols. And as you remember early on, the protocols kept changing. “You don’t need a mask. You need a mass. You just wash your hands.” Anyway, now I think it’s pretty well known what one has to do to keep people safe. Many people would prefer just to talk to someone to a FaceTime situation. Go over and then us send a van for curbside pickup. So we’ve actually changed the way we work with consigners.

Julie Wainwright:

What we’re finding really interesting is that’s working well, but when we add a neighborhood store they’re using both. So they may want to just have a quick virtual appointment and then they do a drop-off. So both are working hand in hand, which, one, when you just think about it logically, it makes sense. But we did have to completely pivot our business and we did it fairly quickly. We’re still learning how to optimize our tool, but we’ve come a long way.

Oliver Chen:

Yeah. Yeah. It’s been impressive. Congrats. I wanted to ask you, from another perspective, we have entrepreneurs and retail students listening as well. What’s your advice generally for people who are either of those buckets looking to join or innovate in the industry?

Julie Wainwright:

There are so many opportunities for innovation. And I think, especially if you wanted to be an entrepreneur, there’s always a white space. And when you’re not in a business, usually see them a lot clearer than when you’re running the operating business. So there’s always an opportunity to disrupt. And I would say, if you move in that direction, you have to make sure that the category you want to disrupt is worth disrupting. Meaning it’s big enough, your total actualized marketplace, your TAM, is big enough for you to actually create a substantial business. So, I would say, there’s always new opportunities. If you think about it, tech retail as technology and retail, we’re at the infancy stages, so there’s phenomenal opportunities there. For retail. I have a bet and I could be wrong, but I’m like, “I’m not going to be that wrong.”

Julie Wainwright:

When we get through COVID, I think people will want to normalize. If you can create a really great shopping experience and you’re comfortable with shopping with your friends and going into a store. And like, for instance, in our flagship stores, we have coffee bars, we serve food. We’ve been doing coffee to go, but we haven’t been able to create that in store environment like we used to have in the flagship. So people are picking up coffees and leaving, but if you can create an environment where people want to be in your store, unique experiences. We used to have events all the time. We had entrepreneurs and fashion people, and sustainability people, and our own experts week. All of that is gone right now. I think we want to get the stores to be communities again. And there’s a tremendous opportunity for anyone with a retail store to create a sense of community. I think people are really going to want it. People are fed up with… We’re fed up with the virus. They’re fed up with being isolated. We’re communal species.

Oliver Chen:

Yeah. The roaring twenties and the pent up.

Julie Wainwright:

Yeah. There you go. I don’t know if we’ll go that far, but… and it sounds fun right now.

Oliver Chen:

For sure. So what about students and academics and coursework? Like what are the skillsets that may be required for the next generation, because we’re in a very different state with AI and the merchant.

Julie Wainwright:

Personally, I actually… TheRealReal has a scholarship program, but I set up three scholarship programs and I set one up at Purdue, which is my alma mater, one at Parsons for sustainable fashion, and one at, just recently, San Francisco Art Institute. And I would say what’s happened last year, which is sort of what you’re asking, but more tangentially, the universities are really cognizant of creating a university that honors diversity and inclusion. And they’re looking at their stats. They’re looking at the scholarships they’re giving out, and it’s really been good for them to think differently on that. And I put that as a criteria for my scholarships when I gave out the money. I don’t administer them, I just give them the money with guidelines. But I’ve seen art schools, which you would have thought were more enlightened, they were giving a lot of scholarships to white guys.

Julie Wainwright:

Now there’s an initiative where there’s like, “No, we’re going to set it up. It’s going to be a diversity scholarship.” Purdue was not equipping women in tech go into business. So my scholarship is for women in tech to also get another degree in business. And there were so few, we couldn’t give out enough. Purdue was an engineering school, but still, there were very few crossovers. So I want to encourage cross over and with Parsons it’s sustainability. Well, let me tell you what binds all these people together. When I asked them, some of them are taking entrepreneurial classes and I would say, again, this is a gender issue. What I’ve observed, the women always think they need to learn more. The guys are ready to jump in. So that’s not great. We have some ways to go and reeducating women that you can learn on the job. You don’t need to know everything when you become an entrepreneur.

Julie Wainwright:

But what I find is they’re really good creative problem solvers. Really good creative problem solvers. They’re pragmatic. Business is a pragmatic business, but the first is they’re thinking creatively, they’re pragmatic. There’s also a big need for them to put their stamp in the world in a positive way. And it could be self-selected, but what I’ve seen is people want to do something that actually does not do harm. It’s a business that does have a double purpose. It is about a purpose and a profit. They’re looking for ways to have a positive impact in the world, not just open another business for the business sake. If any of that happens, we’re in better shape.

Julie Wainwright:

I would say then the generation coming up is, oddly enough, given everything coming at them and all of social media, they’re oddly, delightfully, naive and incredibly positive about what they can accomplish and creative. And creative problem solving is always the high order bit when you’re an entrepreneur or a retail executive. And also you really want to understand your customer. So understanding who you’re selling to, what you’re offering to that customer, doing it better than anybody else and doing it in a way that it delights them. I think people are going to win. I think you’re going to see a lot of really cool stuff come out.

Julie Wainwright:

The other thing that’s happened is… And we’ll see the long-term effect of this, but leisure, where an athlete or look like they’re here to stay. These are no longer like just cool trends. They’re trends that are actually now part of the mix. And they’re part of the mix in a way that actually is going to get cooler and cooler and more interesting. And the other thing that I think people will find a lot of opportunity is non-gender clothing. We sell quite a bit of our men’s products to women. So thinking of instead of typing, “This as a woman’s thing. This is a man’s… These are clothes and they’re really cool.” I think you’re going to see more of that coming out. But the next generation coming up has, I would say, nothing but opportunity to reinvent things. Whenever you have some kind of a halt, which we do with COVID, which has been horrible, in business and in health, new things always come out. And the people that are hungry, that want to put their stamp on the world, will come up with new ways. And it’s really going to be exciting.

Oliver Chen:

Yeah. Gender fluidity and thinking about inclusiveness, and also personal style. Those are big topics for us and Cowen believes, as a firm, that diversity will and can, and should drive performance, given the need for retail and others, and this intellectual capital to really reflect a client as well as creativity. So I totally understand where you’re coming from. We’d love your thoughts, Julie, on what’s exciting to you ahead. You’ve done a great job navigating this environment. What really excites you most?

Julie Wainwright:

Look, I often say this, but we’re such a baby company. We have such a long way to go. So I think this year is going to be a year of excitement, possibly. Not like last year, where it was negative excitement. But there is a light at the end of the tunnel. Our four stores are so promising. So I think we can deliver a really great experience and help drive the business. And we always have international in our crosshair, so we want to get through COVID before we lay down the plans. But it’s not in the short term, but it’s going to be within the near term that we’ll go through that kind of expansion. But I have to say, everything in front of us looks really good. Last year was a hard year. Our high-touch business combined with, especially in California, four shutdowns, put a really temporary, huge damper on the business, which caused us to innovate in ways that now we have new ways to work.

Julie Wainwright:

So ultimately what we learned in 2020 is going to serve us going forward. So I’m looking forward to more growth, more fun. It is darn fun. This is a great business. It’s so much fun.

Oliver Chen:

Well, Julie, thanks for spending so much time with us on a range of exciting topics. Change yields opportunity. And you’re a key leader in a growing and important industry and also a changemaker with respect to diversity and inclusion. So thanks for being with us now.

Julie Wainwright:

Thanks so much, Oliver. Happy new year.

Speaker 1:

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

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