Why Lovevery Is the Future of Children’s Toys

Insight by

Rod Morris, Co-Founder & President of Lovevery, joins Cowen’s Retail, New Platforms, & Luxury Analyst Oliver Chen for a discussion focusing on Lovevery’s revolution of child development through innovative playtime essentials rooted in neuroscience. The podcast also highlights consumer centricity and retention in Lovevery’s subscription model, which carries an impressive net promoter score of 85.

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Transcript

Announcer:

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:

This is a retail visionary podcast series, a podcast about visionary ideas and people. My name is Oliver Chen, Cowen’s new platform, retail and luxury analyst. In this episode, we’ll explore the intersection of stage-based learning and neuroscience development and children’s toys.

Oliver Chen:

Today, we’re excited to be featuring Rod Morris, the Co-founder and President of Lovevery. What is Lovevery it’s a child development startup known for stage based learning and playtime essentials. Rod, it’s great to be here with you.

Rod Morris:

Yeah. Thanks for having me, Oliver.

Oliver Chen:

I’d love for you to highlight the origins of Lovevery. What is stage-based learning?

Rod Morris:

So how do we intersect learning and play time with neuroscience and what children are hungry to learn just based on their biology and how they’re growing? I guess it all comes down to our origin story. So my co-founder, Jessica, and I started working on Lovevery back in 2015. We launched a couple years later in late 2017, but Jessica was actually starting to think about the idea that would turn into Lovevery before that. She’d previously co-founded the number one, organic baby food company in the country, Happy Baby. And she’d had her first child and was starting to play with him using the toys and other products that had been sent to her home by relatives. And it was a lot of plastic. It was a lot of electronic bells and whistles. And when she sat down to play with her son, she realized that there wasn’t really a connection there and it wasn’t clear what he was learning.

Rod Morris:

So she started talking to experts, and a friend handed her a PhD thesis that was a survey of all the child development research. And what that revealed to her were three key things. So first off, she hadn’t realized … and this is more common knowledge now. But back when she was exploring this, it wasn’t. That basically 90% of the brain, by mass and by neural connections, is formed by age five, right? So there’s a massive amount of who we’re going to be in life that’s determined in those first early years, so childhood’s super important for learning.

Rod Morris:

And then second thing that she learned was that while a lot of us just figure, you get what you get, a lot of it’s down to genetics. It actually turns out that the experts pretty consistently say around half of it’s down to genetics, but half of it is down to the environment that you set up for your child to learn. And that environment can be many different things, depending upon just where you’re living and how engaged you are in this. And then the third thing she learned was there were specific things you could do around these micro-development windows, every couple months, that would speak to exactly how your child was learning and how they were developing along different lines. Whether it was learning to communicate or solve problems or building other functions in their brain and their body.

Rod Morris:

She had that notion. I came from recurring revenue startups before, and we talked about a way to make this into a subscription. Because we thought we could do something fundamentally different and more helpful to parents if we created an offering that was a real program where, for your child, based on their birth date, we were providing you with exactly the products that science would say your child was hungry to play with, because it would help them learn naturally. And then exactly the information you as a parent needed to help them along in that journey.

Rod Morris:

And so that’s what we built and launched. And now we’ve been in market for just under five years. And really happy with how the business has developed and all the families we’ve been able to help.

Oliver Chen:

Rod, what are some of the core product offerings? Which packages have you seen the most traction in? And what’s the pricing like?

Rod Morris:

We started with one product. Our first product that we brought to market was called the Play Gym. And it’s still in market today, it’s a category leader. That is a baby gym that’s good for the first year of life, that also includes developmental information for the parents. It’s unique in that it’s designed to last a whole year of childhood. Most of these baby gyms don’t last quite that long. They aren’t built with the same scope and content that ours is. We introduced it into market as our first product in late 2017. And it quickly became a revenue leader in the category because it was taking a different approach.

Rod Morris:

Now, all along, we had intended to launch our flagship subscription program. This was a way of validating the brand and market. Shortly after launching the Play Gym, we launched the first year of subscription. We now have four years of our Play Kit subscription in market, and we’ll launch our fifth next year. So the Play Kit subscription is really designed around these developmental windows from birth until age four, right now. You get a Play Kit every two months if you have a baby, and then after your child turns one, you get one every three months. And the pricing works out at full MSRP to about $40 a month.

Rod Morris:

You can get discounts if you prepay. About 38% of our customers prepay. But what you get in each of those kits is products that are specifically designed to all the different ways in which your child is learning at that time if they’re on a typical development path. If they’re not on a typical development path, we can adjust your schedule. We have our own purpose-built software for unique subscription journeys. But if you’re on a typical development path, you get the products that your kid is going to be eager to play with because of how they’re learning in that two or three month window.

Rod Morris:

And you’re also going to get content from us in a booklet, a play guide that comes with the kit in physical form. We also have weekly developmental emails and a mobile app that also give parents ideas for ways that they can play with the products and other things that they can do outside of our universal products to help their child.

Oliver Chen:

That’s a great topic, Rod, in terms of community and engagement. It’s a big topic that we think is so important for the future of retail. How are you driving content engagement? How do you think about the resources you more broadly offer parents? And what does that do to churn, which is such an important driver of customer lifetime value?

Rod Morris:

Thanks for asking. We’re really proud of customer loyalty and love of the brand. So I’ll give you examples of just what I mean when I say that, to start. With our most popular Play Kit, which is the Newborn Kit in terms of most popular for entering into the subscription … about 20%, a little more than 20% of our customers start on that kit. After a year, more than 70% of our customers are still subscribing with us if they start on that kit. Then after two years, more than 50%, and a large percentage of customers are with us for three full years after starting on that first kit. So retention is very high for a consumer product subscription business. Brand love is also high, so our NPS, our net promoter score for our subscribers around the brand is 85, which as you know, is quite high. We believe that essential to that is our connection, our direct connection to our customers. And the content we produce for parents is a big part of that.

Rod Morris:

So one thing that we’re doing different here is we’re serving both customers when it comes to parenthood and early childhood with products for the child, and then content for the parents that is often associated with those products, but in many cases also it’s augmented around big issues that parents might be grappling with. And so we serve that up in lots of different ways. And we consistently get feedback from parents through our developmental emails, which have an incredibly high open-rate. Our mobile app, which is seeing engagement levels similar to Netflix’s mobile app right now. And we’re continuing strive to drive the engagement higher to our podcast, which has great listen-through rates. And our organic social channels, which also have high engagement.

Rod Morris:

In all of those cases, we’re not only communicating with our customers, but we’re also getting feedback from them. In many cases, we’re co-creating products with them. So we’re genuinely having a relationship here, right? I think with some direct-to-consumer businesses, you’ll hear about a relationship that’s direct, but there’s not as much of a reason in some categories to have an ongoing relationship with the company that you’re working with like there is when you’re raising your child. We have relevant information we can give you every single day, every single week that’s of service to you. Not just, in air quotes, content marketing to drive more acquisition, it’s truly of service. And I think it shows up in the retention, it shows up in the NPS.

Oliver Chen:

Yeah, Rod. That engagement and that NPS score is quite elite. I just spent a week at Stanford, and artificial intelligence and data is really the oil in thinking about training sets and also personalization. How does data impact Lovevery, as you have very innovative studies and survey data and customer interaction data, as well as unique software?

Rod Morris:

About 20% of our employees at Lovevery are associated with software development, whether they’re software engineers, development around data platform, user experience, product management, and so forth. We have a goal of serving every family in the unique way that they need to be served. And to do that, we need data. We need data around what their situation is, what their buying behavior is, how they’re interacting with our content on our mobile app or elsewhere. We capture third-party data, which we append to it as well, just to understand exactly how we can serve those customers better. Long-term, we’re endeavoring to build the most advanced data set around early learning and families in the world. That’s our goal when it comes to data.

Rod Morris:

And so we saw no choice but to launch our own subscription software, build our own account model that overlays eCommerce and mobile app activity. Have the ability to do it globally as well. So we run subscription on our own software in Europe and the UK, in addition to North America. And we’re going to use that same software for launching in Asia. So data’s incredibly important to us, because it helps us serve these customers, but with a more personal approach. Because every developmental journey is personal and unique, ultimately.

Oliver Chen:

Yeah. That data set will just become more and more valuable as you expand the sample. That’s so critical to refining these models.

Rod Morris:

Thanks. Yeah, I agree.

Oliver Chen:

Rod, Lovevery, your net promoter score is so high. I guess, what’s on the horizon? How can you enhance that more, and or, what do your consumers want from Lovevery?

Rod Morris:

Our consumers, for one thing, want us to continue to roll out more years of subscription and other kinds of products. As we’re aging up, we’re getting closer to things for preschool readiness, elementary school readiness. So you can see for instance, in our three year old Play Kits already, there’s things we’re doing around pre-literacy, pre-math skills, social, emotional learning to get kids ready for school. We’re seeing all kinds of interest around product like that, that can age up with children so that parents can stay with us for longer. We’re also seeing incredible interest in more content from us, whether it’s in physical or digital form. So in response to customer demand, we’re going to be expanding the years of life that we cover, for instance, in our mobile app.

Rod Morris:

I’ll give you another example of an add-on that we’ve done in response to customer demand. A lot of customers asked us to give them more of our books. Customers love the books that we create ourselves, that we roll out with our Play Kits. And in particular, customers were interested in books themed around inclusion and equity. And so we built out a whole suite of books that you can add on to your subscription with us if you’re a Play Kit subscriber. And we’ve seen tremendous take rate on that, attach rate on new subs of 20%, sometimes better. We’re seeing five points of gross margin increase in all of those customers when we do that. And just incredible customer delight on that as well.

Rod Morris:

So we’re trying to find ways to co-create with our customers, to add things on that they’re demanding and age up with them. Other thing I would say is we do have global ambitions. So we launched subscription in Europe and UK last year, and we’re working on Australia coming up, hopefully in Q4. And then other Asian countries next year, hopefully.

Oliver Chen:

Rod, so who is your customer? What kind of customer do you appeal to? This product really seems important to society given the importance of brain development so early.

Rod Morris:

Thank you. Yeah, we feel the same way. And it’s been gratifying to see the way in which our customer base has increasingly looked like a cross section of society. So if we look at our traction in North America, for example, we’ve seen ourselves, in less than five years, go from being a business that was serving mostly on the coasts, mostly high income, to a business where we’re in more than 50% of the zip codes around the US. We have roughly half of our customers in households making household income less than $100,000. Fastest growing categories of customers are making less than $50,000 a year. Haven’t even completed high school.

Rod Morris:

And that’s really exciting to see if you just come from a perspective that this is something that’s really of service to their family and their children. It just reaffirms that regardless of where you come from, educationally, income wise, you want the best for your baby. You don’t want to give your baby second best. You want to prepare them. And so what we’re finding in that and all that data and the spend patterns, et cetera, is that people see this as a utility. As a non-discretionary, very important solution for their family to help their children have the best opportunity that they can.

Oliver Chen:

Rod, what about the competitive landscape within what you operate in? It’s a very unique perspective. How do you fit in?

Rod Morris:

Yeah. So I think it’s interesting if we break down this products and content combination that makes us special. On one extreme, if we were talking about just companies that are making products for children without any content whatsoever, then you’re talking about mainly like old school toy retailers. Their business model is really predicated on working through retail channels. Having enough margin there to create room for retail markup, not having product that’s set on specific tight age windows because they want to move inventory on the shelf space. And not having a direct relationship with the customer.

Rod Morris:

We’re a little bit different because we’re driving to a direct relationship with the customer. We’re trying to build a bridge into retail with our exclusive partnership with Target, for example, where we’ve got SKUs that are aligned with specific age windows, much more specifically than typical products in Target. And that give you access to digital information if you register with us. So we’re trying to build a bridge. But we think that we’re unique in our content orientation, our age range orientation. We also think we’re hitting a different kind of quality level.

Rod Morris:

If you look at companies that are just doing content and no product, what you see is an inability in many cases, for companies to go past a pretty low ceiling on revenue and reach. So there are mobile apps out there for child development. There are sites with e-courses and content, but they are typically oriented around one specific discipline in child development, like sleep or feeding. Or if it’s a mobile app, it tends to be much more oriented around checklists and things that you can do. But it doesn’t have the ease of being connected to a program with actual product that is coming to your home. And we feel that with physical product, with physical elements and our overall solution, it makes digital engagement higher too. And it’s just a different, actually more confidence-instilling solution.

Rod Morris:

If we look at people who are combining both, we are not the only ones. So there’s two ways you can look at this. So one way is to look at the folks who probably started it, which is Montessori schools. So Montessori schools, Montessori daycares, they have defined sets of products. They have a curriculum, they have a program. They’re also informing parents around what they need to do. They’re also experts that are working with children. Unfortunately for society, that’s not a broad-based solution. So Montessori schools and daycares are often cost prohibitive for most families. They’re also not accessible in most parts of the US, for example. I mentioned to you already, we’re in more than half the zip codes in the US. According to Montessori census Montessori schools and daycares are only in about 7% of the zip codes in the US. So, quite a gap.

Rod Morris:

Now, on the other hand, there are companies that sell subscriptions of toys or projects for children and their parents, and they’re endeavoring to put some information together. We don’t think that they’re bringing the same level of science and testing and obsession to this that we are, and the data bears it out. So Bloomberg Second Measure did some research a while back that demonstrated that our customer is staying with us two to three times longer, spending two to three times as much with us as they are with these other kinds of companies. And I don’t know this for a fact, but I would guess that the NPS and the retention just doesn’t stack up compared to us, when I look at that second measure data.

Oliver Chen:

Rod, what are you seeing from your perspective with the health of the consumer? As you know, there’s many cross currents here. And is back to school a big deal for you, Rod? Any thoughts that you have there as well?

Rod Morris:

Yeah, so I mean, September is big for us just because it’s typically, I think the highest birth rate month. There are lots of kids being born and that’s a really important time for us to access new customers. I mentioned before that we do as our kits age up, try to make them especially relevant for pre-literacy, pre-math, and other kinds of skills. We don’t see the kind of surge that some companies see where you’re buying school supplies, but we do have opportunities for relevance. And we do have more customers being born around that time, in back to school.

Rod Morris:

With respect to your question around health of the customer and price and things like that, we have not seen a degradation in our cohort retention, including when we cut it by income level. So we continue to see strong retention through this year. We do see in feedback from customers and comments on social media that the American consumer in many cases, is going through a tough, tough time right now. Prices are higher. And for that reason, we haven’t taken any price action with our products, to date. Now, we face our own challenges with supply chain and margin from time to time, just like everybody else is. But to date, we’ve chosen not to take price action, out of empathy for our customer base. And I think they’ve rewarded us by giving us good retention numbers through this tough time.

Oliver Chen:

Rod, another topic that’s important to Cowen and me is ESG. What ESG considerations are top of mind for Lovevery, and initiatives in terms of how you’re thinking about product life cycle, employees, and other stakeholders?

Rod Morris:

Yeah. It’s incredibly important to Jessica and me that we run and are building a company that’s built with the values that we bring home to our own families, and that our customers expect us to be operating with. So to begin with, Lovevery is a certified B corporation, just because of things that we were already doing running the business. So whether we’re talking about climate, we’ve offset more than 13,000 metric tons of carbon in the business. Electricity, we rely on wind power and do offsets around renewable energy where we need to the way in which we make our products.

Rod Morris:

So using sustainably forested wood, sustainably forested paper. A majority of our products that use plastics are using bio-based plastics. We use organic cottons everywhere where we can do it affordably. And then finally, we tight-pack all of our products. So one thing that our packaging engineers are very focused on is finding ways to reduce the carbon footprint in our Play Kits by tight-packing ever tighter, so then we’re not shipping air.

Rod Morris:

So there’s a lot of things that we’re doing all around that. And then beyond that, we’re incredibly just focused on being a values driven business, right? So I mentioned before that add-on book subscription, which we co-created with a lot of our customers. Which is in many cases, giving customers their first opportunity to have a children’s book that involves say, a ceremony for a First Nation’s family, or a child with a limb difference. And gives an opportunity for families to have a conversation, either around a family that’s different from theirs, or often it’s really exciting when we hear back from a family that for the first time, got to look at a book with their child that is reflective of their family. So there’s just a lot that we’re doing here to try to be a good company and do the right things in society.

Oliver Chen:

Very powerful. And personalization in data can help inform performance, as well.

Rod Morris:

100%

Oliver Chen:

Rod, I’d love to hear about what’s ahead for Lovevery. What are the two or three priorities that you have for what’s next?

Rod Morris:

I’ll go with three things. Our three main growth levers are, first, extending the life of our services for families. So there’s a number of different physical product projects that we have going on right now to figure out how our products evolve for later years. Second, is just adding more support for parents and just adding more product and content for the base. I think primary in that is growing our digital product, so our mobile app and different digital courses for parents that we think are going to be very, very helpful.

Rod Morris:

And then third, is really taking this to markets around the world, right? Because are babies everywhere. It’s not just the case for all demographics in the US, it’s also the case in Europe and the UK and different Asian countries. And actually the way in which babies are developing, it’s basically the same. And it’s really just about localizing the product a little bit. And more importantly, localizing the marketing and the content so that we can be relevant and capital efficient in all of those markets. And so that’s something we’re continuing to work on as well.

Oliver Chen:

Rod, last question. Which aspects of the business have been most fun for you? And do you have any closing remarks? Thank you.

Rod Morris:

Yeah. I mean, I would say that nothing beats hearing from somebody who you know, family or friend or one of their friends, or just somebody who comes in through our customer support line or social media, telling us about the difference that our products and our information have made for their family. We get countless messages like this every single week. And we can tell that we’re really making a difference. When you’re aligned with a mission like this, and you’re getting feedback like this from real families, it’s a force multiplier. It allows you to have talent, an incredible level of talent in your company, and really make an impact because you just feed off that.

Rod Morris:

It’s different from feeding off of, some kind of like financial result, and we’re proud of our results. It’s something that just has deeper meaning. And so for me, that’s the thing that’s most meaningful and the thing I’m most proud of with this company. And what I would say is if you’re listening to this and thinking about starting a company, that you should look within yourself and think about what’s got the most meaning to you if you want to build a truly unique business. Because it’s in that meaning that you’ll find the heart of your business and provide the best service to customers and really make a difference.

Oliver Chen:

That’s great advice. And Rod, the future of retail is really thinking about mission and purpose, and stakeholders at large, for bettering the world as well as individuals and families. So Rod, thank you for being with us here, and transforming child development. We appreciate your time.

Rod Morris:

Thanks, Oliver. Always enjoy talking to you.

Announcer:

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


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