#75. The Renewal Workshop partners with apparel brands to recycle and resell surplus inventory and damaged products. We talk with co-founder Jeff Denby about building a circular business model, as well as the factory and the technology necessary to breathe new life into apparel headed for the landfill. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below.

Richie: [00:00:07] Welcome to the 75th episode of the Loose Threads Podcast, a show about the rapidly changing consumer economy. This episode is brought to you by Loose Threads Membership, which gives you actionable analysis, insights and events that drive growth, and Loose Threads Espresso, your energizing and high-pressure filter for consumer news—in context. We also have a newsletter that features the latest open letter to CEOs, podcast with industry leaders, and news from Loose Threads. Check it all out at LooseThreads.com.

Richie: [00:00:35] Joining me today is Jeff Denby, a co-founder of The Renewal Workshop, a company that’s creating a vertically integrated supply chain for renewing and reselling apparel.

Jeff: [00:00:43] The reasoning behind The Renewal Workshop was to try to address this linear system of manufacturing consumption that the apparel industry is built on. It’s take, make, use, dump.

Richie: [00:00:57] Jeff and his co-founder Nicole Bassett founded the company after knowing firsthand that no solutions existed to extend the life of totally acceptable apparel when they really needed to. For the past few years, they’ve been building factories and technology to fill the void. Here’s my talk with Jeff Denby.

Richie: [00:01:17] Why don’t we start. Just talk a bit about your background—then we can work our way up to Renewal Workshop existing.

Jeff: [00:01:23] Yeah. So I’ve had a background in the apparel industry for many, many years, but I’ve always been in the industry of making things. So everything from forks to furniture. I started out in product design and development and worked overseas in factories in China and Vietnam just trying to get things into production and that was really, a really eye opening experience for me to go over there, 15 years ago, and be able to see how our forks are manufactured, how table legs are made. Things that we don’t even think about that we take for granted every single day have to be mass produced. So that was a really exciting part of understanding how stuff gets made and then also connecting that to sustainability for really the first time and thinking about the materials we’re using and the impact that these massive industrial factories are having there. And then also thinking about, “Where does all of this stuff go?”

Jeff: [00:02:23] So I went to do my MBA at Berkeley at the Haas School of Business because I felt like I needed some sort of business background besides the manufacturing and design part of it and, out of that experience, I created the company Pact Apparel. Pact was initially launched as an underwear and socks company. Back in the day, in the organic space, there was nothing in that space in underwear that was organic. It’s funny because today there [are] many companies and there [are] a lot of sock companies out there but there was very few at that time. And so we launched it to really focus on transparency of supply chain and around good design. That was a really big piece of it too is that, back in that time, if it was organic it had to be [a] hippy-dippy, oatmeal colored, burlap sack kind of thing and we’re like, “Why can’t we make organic design come together?” That was an incredible experience that took me all over the world and really got a chance to see the underbelly of the apparel industry, all the way from the cotton fields in India working with subsistence farmers through every stage of the garment supply chain. The effort that goes into manufacturing the simple T-shirt is astounding when you go back to the seed of the cotton. People don’t even think about the fact that they’re wearing an agricultural product.

Richie: [00:03:49] Right.

Jeff: [00:03:49] And the movement of the goods from country to country and—

Richie: [00:03:53] It’s like the emissions bill.

Jeff: [00:03:55] Right. It’s absolutely astounding and so, what we really tried to do, is to minimize that movement within the supply chain, was to support organic cotton farmers, to support the workers through every single stage of the supply chain and be able to be transparent to our customers about what we were doing, to be able to tell that story, to take the customers on that journey. I remember I had a friend of mine say, “I never even thought about this. I just assumed that my clothes were made by robots.” And it was like, “No, you’re clothes are—”

Richie: [00:04:24] Wait, what year was this?

Jeff: [00:04:25] This was maybe 2010, 2011.

Richie: [00:04:27] Okay.

Jeff: [00:04:29] We don’t think about where our stuff is made. At that time, when I was over in India, we started working with a particular factory which became the pilot facility for Fair Trade apparel. It became the first facility in the world, garment factory in the world, to be Fair Trade Certified. That’s actually where I met my co-founder for The Renewal Workshop, Nicole Bassett. She was the director of sourcing and sustainability at prAna. prAna and Pact were the two largest companies in this factory and so we really worked together to get the certification for this factory. We would always have these conversations around sustainability and what we’re creating, what we’re making. It’s pretty incredible when you walk into a factory and see like 100,000 yoga pants and you think, “Okay, where are these going? What happens to these when they get off the boat in the U.S.?” And you hope they get sold. You hope they get used. But the reality was that we were discovering that the system, actually, wasn’t in place to ensure that all of them were getting sold and all of them used. And, certainly, when they were sold and used, that when someone was done with them, there was no system for where they went next. And that was the big reasoning behind The Renewal Workshop—was to try to address this linear system of manufacture and consumption that the apparel industry is built on. It’s take, make, use, dump. We realized that there is a much better opportunity to form business models in the apparel industry that are circular, that maximize the resources that we’ve pulled out of the ground and that we can actually make money doing so.

Richie: [00:06:10] Before going deeper, what other industries have that? Are there other industries you can point to that have some sort of circular nature to them that served as some sort of model or inspiration for the exact opposite in this industry?

Jeff: [00:06:24] Yeah, a good example is the used car industry. So car companies started off by making new cars and selling new cars, right. That was their business model. But the reality was that cars lasted longer than what the first consumer wanted. And we used to go buy used cars at Joe’s Used Car Lot down the street and there was always—a used car was a sketchy endeavor, perhaps, but it was becoming a massive market. And then the smart brands were like, “Wait a minute. Joe’s Used Cars is eating my lunch. They’re selling my product but we’re not involved. We’re not getting money and we’re also not involved in the branding side.” And so when they took back the concept of used cars, it made the certified pre-owned. They added value back into the process. They added trust. They rebuilt a customer relationship. They opened a door to an entirely new set of consumers. Get them earlier when they can afford a less expensive car. Move them into new cars eventually. And, ultimately, this has grown the industry to be now 50% used car sales and it all has to do with really creating that kind of business model that is about something other than just making new things and selling new things.

Richie: [00:07:40] I think that’s an amazing analogy. What is the incentive structure, then, on the buyer side? Or, I guess a different way to ask it, is what incentives drive that outcome?

Jeff: [00:07:49] For the brand or for the consumer?

Richie: [00:07:52] Maybe both. Because they both need incentives to make that system work where it’s half used, half new.

Jeff: [00:07:58] Right.

Richie: [00:07:58] I’m interested in setting this up, this analogy to them, back into the exact lack of manifestation of this in the clothing industry.

Jeff: [00:08:06] One of the things that has to exist is that there has to be a level of quality and there has to be a level of original retail price point that allows there to be a particular amount of value as we cascade through the cycles of use. If you make something new, the highest level of value exists and you’re going to have a customer that can afford that and want that particular experience. But then, when that consumer is finished with the product, it doesn’t mean that the value of it goes to zero. And so then the value of it, if it can be certified and checked and the quality is coming from the brand, then you have another consumer that can come in and afford that second purchase of it.

Jeff: [00:08:46] The other piece that really exists is there needs to be a take back, a circularity around getting the product, a system around getting the product back to the brand so that the brand can really own the re-commerce of the product to the next consumer. And so this whole infrastructure around used cars exists in a way that supports the overall business model and supports the customer experience. It’s easy. When you’re gonna sell your car and you’re going to trade it in, you go back to the dealership, they buy it from you and you get a new car.

Richie: [00:09:19] Right. It’s the same place, same people.

Jeff: [00:09:21] Same experience. They want to keep you engaged and, when you want to buy a new car now, you’re not going to a sketchy lot down the street. You’re going to the same place where you buy your new car. So you’re having a very elevated, branded experience, regardless of your level as a customer and so it makes you want to engage with that.

Richie: [00:09:38] And there’s a trade-in value.

Jeff: [00:09:40] Right.

Richie: [00:09:40] Right. Which you, likely, will just reinvest back into a new car from that same place.

Jeff: [00:09:45] And the reality is that what customers really understand and look at what the trade in value is—I mean, when we bought our Subaru, they told us, “Hey, we may actually call you in a year to buy back this product because your Forester, as a year-old product, has a really high value and, if there’s not a lot of miles on it, we’ll buy it back from you so that we can sell it to another customer.” So they’re already thinking about the future of this product in its second sale, third sale, and thinking about ways to keep us engaged. Because then we’re going to be like, “Sure, we’ll sell you back the car and get a new one.” We’re just making car payments. We’ll take a new one because we’re that level of consumer.

Richie: [00:10:23] And then you have something like Tesla where, I think, they actually will guarantee a minimum trade-in value with certain kind of requirements which seems even further than the fact that it’s accessible.

Jeff: [00:10:33] And that’s the thing that has to do with quality and luxury or particular price points or consumer demand is that you can actually create this secondary market from the very beginning.

Richie: [00:10:43] So, just to set the stage and then we can dive into the company, that’s such a perfect analogy. Why is it not anything like that in the apparel industry?

Jeff: [00:10:53] A couple of reasons. One is that the apparel industry has just been always set up as a very linear industry. Like I said: take, make, use, dump. There was a belief that our resources were endless and cheap and, when we sold something to the consumer—within the industry, once we sold something to the consumer, it was no longer our problem and that there would be other ways that the disposal of this product would happen. And so it happens through cities, it happens through charities. Really, the truth of the matter was that the industry wasn’t very smart about the investment that they put into their products on an individual basis. And then the other piece of it is there’s really no infrastructure in place to get products back from consumers and return them to the brand so that they can make use of them like the car industries do.

Richie: [00:11:46] Okay. So you met Nicole. You both had jobs. Talk to the point of—when was this? When did you say, “Okay, we should go do something together?” And then talk through the first six months of that beginning.

Jeff: [00:11:57] So when I left Pact, I was out looking for my next gig. I didn’t know what I was going to do. Nicole called me immediately and said, “I heard you’re on the market.” I said, “I am not on the market in any way” and she said, “I want to start this company” and I said, “No. It’s too hard to start a company.”

Richie: [00:12:13] Did she know what the company would be?

Jeff: [00:12:15] She had this idea. She was working at prAna, seeing the waste—prAna was owned by Columbia Sportswear—seeing the amount of product that was being made and the fact that there [were] no systems in place whatsoever for recapturing the value of that product. And the truth of the matter was seeing product go to landfill for really simple reasons. So she brought me in. She was like, “Can you help me think through this idea?” And I was like, “Yeah this is super interesting.” And it was sort of like a thought experiment for a while. It was like, can this be a real thing? Is there something here? Is there a business model here? And so we spent, probably, three to four months hammering out different business models and workshopping the idea.

Richie: [00:12:58] What were some of those?

Jeff: [00:12:59] Well, some of the things that were really interesting were, do we have to buy it? Do we take it? How do we think about processing and getting it back to specific customers? How much do we charge for the product? We assumed that we would give it all back to the brands. We would perform some sort of service, give it all back to them and expect them to sell it. Then there was like, wait, that’s not going to work. Maybe we have to be completely responsible for selling all of this product [ourselves]. The commercialization of this whole circular system was really the sort of crux of this. How are we going to make money off of this and how are the brands going to make money off of this? And, ultimately, I think we ended up getting to a really good business model.

Richie: [00:13:44] And so that took the first handful of months to come at. When did you say, “Okay, this is—I’m doing this?”

Jeff: [00:13:50] This is it? So, once we had nailed down a business model and we had a business model on paper, we went to the outdoor retailer show and we started meeting with brands that we had contacts inside of. Nicole’s a bit of a rockstar in the Outdoor Industry Association and we were able to sit down with at least the sustainability managers of every single brand, if not some of the VPs and CEOs and said, “Hey, this is something that we’re going to go do. Would you be interested in being a partner in this? Does this interest you?” And every single brand that we met with was like, “Are you kidding? You guys are going to do this? You guys are going to go build a factory and solve this problem for us?” And we’re like, “Yes.” And, at that point, we had brands signing on and we had no money, no factory and just an idea on paper. And that was like, okay. I said to Nicole, I was like, “This is go time. We’ve got a fish on the line here. This is pretty incredible. These are 100 million dollar-plus brands. We’ve got billion dollar brands here who are like, “Yeah, we have this problem and we want to see you guys go and do this.” That was the big thing for me to say, “Let’s go.”

Richie: [00:15:03] And so just talk through what that idea was. What was it on paper then just in terms of going from A to Z, just to set that stage?

Jeff: [00:15:10] We created The Renewal System. So we partner with brands. We take all of their unsellable returns, damages, warranty product, anything that they can’t sell as first quality. We take it all into our factory. We built this factory outside of Portland, Oregon. And we sort it, we grade it, we clean it using liquid CO2 cleaning technology and then we can repair anything that’s wrong with it to the point where you would never know there is something wrong with it to begin with. And then we certify the quality of it to the original brand standard and then we can, inside the factory, photograph the product for web sale and then sell it direct-to-consumer, online, or the brand can choose to pay a renewal fee and take that product back into their own sales channels to sell through their own online experience, their own stores, events, whatever it might be. The third way that we sell is that we actually white label our ecommerce experience, on behalf of brands, so that they can have a fully branded ecomm channel that, to the customer, looks and feels like that brand’s renewed channel but, actually, is operated entirely on the back end by The Renewal Workshop.

Richie: [00:16:28] And so that was all there on paper, mostly?

Jeff: [00:16:30] Yeah, that was all there on paper. What was interesting though was that all of the brands loved the third option because they were like, “Wait. You’re offering me a turnkey solution of taking what is essentially my written-off waste and allowing me to turn it back in to a branded product and experience to connect with customers? And you’re going to run the entire thing for us? And all we need to do is marketing and customer acquisition? That sounds really interesting, but prove to me there is a customer for this product.” And that’s where we were in those conversations. And so we said, “Okay. Then we have to go and create the marketplace ourselves.” And so that’s where we started, was finding the right brands who wanted to partner with us, once we’d actually built the factory, the systems and had a physical space and could show them that we could make the product. And, when we showed the brands the product, they were blown away. They’re like, “You took our waste, processed it and turned it back into a sellable product? That’s incredible.”

Jeff: [00:17:35] And then we launched our own direct-to-consumer site and started sales. We shared all of that data with our first brand partners. We shared the sales data. We shared all of the impact data. We shared all of the repair data. And, suddenly, they were like, “Oh. Now we get it. We see the power and the opportunity that exists in renewing our product and selling it back to customers.”

Richie: [00:18:04] Talk through what came out of that data. What were some of the things you were surprised or excited or floored about that you had literal proof of now?

Jeff: [00:18:11] One of the things that was really interesting was that we were able to see how customers were using product or where the quality issues were. So we were able to go back to an outdoor brand that we worked with early on and say, “Actually, on this particular style of jacket, you used the wrong zipper and we are seeing, coming through, broken zippers on all of these same styles that we have to keep replacing.” [For] another brand it was just snaps were coming off of their cowboy-style shirts and they were able to go back to the manufacturer overseas and discovered that they didn’t actually have the right equipment to apply these snaps properly. So they bought them the right machine. So it was fixing quality issues in the supply chain because we were the only ones really seeing and collecting the data on what was wrong with the product.

Jeff: [00:19:00] And the other piece that’s been super fascinating when we run this ecomm site has been connecting with customers for renewed product. It’s a really specific customer niche. It’s a really amazing opportunity to speak directly to our first customers, the people who are the ardent supporters of this idea of what we call a renewable lifestyle. And we have so much data, so many profiles on this kind of customer and that’s something that, now, the brands are like, “Hold up. Who are you selling to and what interests them?” And so we’re really showing them that there’s this entire new customer that they could be serving with their own products that they currently aren’t with their new product.

Richie: [00:19:49] So one of the things I was just thinking about is, for people that like to wear high quality clothing—and I’m the type of person where I’ll buy nicer things less frequently, so I’ll have a few pairs of pants or something like that. And the landscape right now is, basically, you buy something you wear it till it breaks and then you end up, I guess in a good case you go to a tailor, which is the existing local infrastructure. But it’s never the same after and sometimes they reject fixing it or something. But how do you view that kind of solution if it is one? Because that seems to be the best scenario before this, is take it to a local dry cleaner, see if they want to fix it. They’ll probably just put a huge patch on it anyway and so forth.

Jeff: [00:20:30] I think that’s the big thing is, before The Renewal Workshop came along, there really was no system at all. So all it was was a patchwork of whatever individual consumers decided to do. Repair is the best individual action that you can do to extend the life of the products that you have. And so, if you can have that great pair of pants that you love and get them fixed up when they break or they wear out, then that’s the best way to go about it. What we were looking at at The Renewal Workshop was the mass problem associated with this. So, at brands, we’re talking about tens of thousands to hundreds of thousands to millions of items every year that get returned to brands for a bunch of different reasons. When you think about something [that] gets dirty at the retail store, they can’t sell it. A button falls off a shirt. We don’t have a needle and thread in the U.S. to fix it anymore. There’s no system in place, so this become something that falls outside of the system. And then consumers buy things, use them and return them all the time. And, with the proliferation of free shipping both ways, this problem is getting exacerbated. And so we needed to be able to have a system in place that would actually serve the needs of the brand and that’s what we wanted to do was, not to become this new brand ourselves, but rather create an entire system, an operation that would enable the brands to recapture the value of this product.

Richie: [00:22:02] And the other part too is, for a lot of companies, it’s not just landfill but some will just burn stuff.

Jeff: [00:22:07] So a lot of people ask, “Well, what happens to this stuff now? So it’s piles of millions and millions of clothing sitting in warehouses across the country. Something has to happen to it right?” Yeah, well, some of it gets donated but donation is hard. There are some tricky things that go along with donation. There’s a lot of brands that won’t donate anything at all. Some of it gets sold off by pennies of the pound, de-branded, baled up, shipped overseas to developing countries. And now what’s happened is the East African community has banned the import of western used textiles. They no longer want our garbage over there either. It’s flooded their markets. It’s ruined their manufacturing. They certainly don’t have the infrastructure to deal with it. And so the easiest and cheapest thing to do is to shred it and send it to a landfill or incinerate it. And the reality is most of it ends up going to landfill. In this country it’s about 60-some-odd billion pounds of apparel goes to landfill every year and it’s the fastest growing component of municipal solid waste. We just don’t have a system. It is not recyclable. About three quarters of the product is blended fabric and there are no technologies, at an industrial scale, where you can recycle cotton-poly. And so it truly is just landfill when someone’s done with it.

Jeff: [00:23:26] And that’s the big reason why we created The Renewal Workshop: was a shirt that’s got dirt on it or a shirt missing a button or a broken hem or even a jacket with a busted zipper can be fixed and used again. The rest—it’s fine. We have to have a system here. You wouldn’t just throw a car out because it gets a flat tire.

Richie: [00:23:47] Yeah, or a ding.

Jeff: [00:23:47] Right. Exactly. There’s a ding on the car. Okay. There’s someone who is going to be willing to pay for that car with a ding on it. There’s a $400 outdoor ski jacket that has a tear sewn up on the back side that you can barely see. Someone’s going pay $300 for that jacket or something. There’s a market to be made here. There is margin to be made here and that’s the real, big opportunity for brands is to be able to see that, “Oh wait, owning my product and selling it multiple times to multiple consumers is a far more interesting business model than constantly having to make brand new things and sell brand new things.”

Richie: [00:24:28] I think one of the more interesting things is you approached this as a business, not as a nonprofit. Did you ever think that you would or there was no choice but to make this economically viable?

Jeff: [00:24:37] We had to make this a for-profit business and this had to be a market-based solution. A publicly traded, large apparel company is not going to—

Richie: [00:24:48] Go out of their way.

Jeff: [00:24:49] Go out of their way to strategically support some non-profit sustainability effort. But what we do is we show them that they have hundreds of thousands to millions of units that they could be selling and here is the number of how much revenue they could bring in and here’s the new customer and here are new ways that you can engage with your customer. And then that starts to become really interesting. There’s a cost to having that product and to engaging with that customer but there is a margin there to be made.

Richie: [00:25:23] Yeah. So how long did it take you to realize you needed to build a factory and then how do you go build a factory?

Jeff: [00:25:29] We knew right away that we had to go and build a factory.

Richie: [00:25:32] Were you concerned? Daunted?

Jeff: [00:25:34] Not at all. That is the funny part about this whole story is that Nicole and I spent our careers in factories overseas. I’ve been in so many factories all over the world. Same with Nicole. We both knew how factories worked. We’ve both been around product and designing product and making product for our entire careers. And so we were like, “Oh, yeah: factory. Let’s just go make a factory. It’s just sewing machines and racks and we know process.” And then, when we went out to raise money, investors were like, “You’re going to build a factory? In America? This is impossible.” But that was the part where we’re like, “We got this. Selling things is the hard part. Making them, we got.”

Richie: [00:26:17] What was your goal with the money raise and then how did you literally go build the factory? And what was the initial goal for here’s what we need, here’s how big it should be and so forth?

Jeff: [00:26:25] Well, we had an idea about how much product there was out there because we were able to canvas the brands and some of the early brands that we were working with. And we knew that, in order for us to be able to work with the biggest brands in the world, we had to have a really professional factory that they would be comfortable sending their product to. We knew what they expected the quality to be like from working with factories overseas and so we had to make sure that we had those systems and processes in place here. We needed to raise the money to go buy the equipment to develop the system that runs our factory. It is really, really unique because it manages product on a single SKU, item-by-item basis as it moves through the factory. We can collect data on every single product individually which is quite different than a regular factory or operating system for a brand. So that’s what we had to go and build.

Jeff: [00:27:16] We actually started in an accelerator program and, out of that, got our first large investment. And, after we had built the factory, invited some brands to see it and that was when they were like, “Okay, we’ll sign on. Let’s do this.”

Richie: [00:27:31] And what year was that? Or when was that?

Jeff: [00:27:32] 2016.

Richie: [00:27:33] So you have a factory now. You have buy-in. Where do you go from there?

Jeff: [00:27:37] Well, we started receiving product. It just started showing up at the door and it was in pallets. It was in mixed cartons. There’s no packing list that comes with this stuff. It literally is the stuff that is supposed to be headed for landfill, zero value, written off inside of the system. So what we get is just this big, huge shipment and we have to start going through it and figuring out where the value is. And that second half of 2016, we had a small team, a mighty team of about eight people at that point. It was really like an all-hands-on-deck to try to figure out how do we turn the process that’s on paper? We spent a lot of time doing the industrial engineering of the factory to set it up to be the most efficient as it could be. But then enacting that as a physical process, we, of course, ran into all sorts of issues with, “Well, wait a minute, that step actually should go before this step and that process is now too far apart physically from this process.” So it was a lot of changes that had to happen and we were probably the least efficient factory in the world. But that’s the only way that you get started is just by starting. And that’s what we did for the first six months was just, when I think of it, I’m like, “I can’t believe we made thousands and thousands and thousands of renewed pieces of apparel before we went live and launched the site in February of 2017.”

Richie: [00:29:02] So talk about that site because, one of the interesting things, right, is you’re at the really interesting position between your customer’s both a business, it’s also a consumer. There’s a lot of inter-flowing elements to this. And so how did you think about all of that of who’s the buyer, who’s the seller all that? And where did you need to be to support the system for working?

Jeff: [00:29:20] Yeah, a lot of investors asked us, “Are you a B2B company or are you a B2C company?” At the heart of what we do, we’re a B2B company. We are here to enable a circular economy for the apparel brands. But, as I was saying earlier, we have to prove that there is a market and a customer for that and we’re creating something, a whole category of apparel, for the first time ever. In doing that, we really needed to own the sales channel, at least for a while. But, launching the site, we instantly got calls from our brand partners. They were like, “Now we see what you were talking about.” Right? You can paint a picture for somebody but when you go and actually do it and launch it and you start selling product and engaging with customers, that’s really where the rubber meets the road and it changes everything. And so we started to really have some large brands come to us and be like, “You’ve done it. You can make the product but we want to sell it.” And I was like, “Perfect.”

Richie: [00:30:25] The master plan.

Jeff: [00:30:26] That’s the master plan all along. So we look at our website as a lab. We do not want to be this ecommerce marketplace. That’s a hard business and that’s not our business. We have it as a small, mini version because it’s our lab for engaging with this renewed customer. It allows us to try out different things. It allows us to gather data and, ultimately, that data is helpful in supporting those brands going out and owning the sales channel themselves.

Richie: [00:30:57] I’m curious to talk more about that because it would seem that that renewed customer base, as you call it, is very adamant and thoughtful about this. But that’s the minority of people. They are not part of that customer base. I guess it raises two questions. One—how do you see that audience growing? And then, two, from a messaging perspective, can you over-label this stuff as renewed? Is it actually counter-intuitive that you really just want to say, “Hey, this is just good product” and not need to make all these points about second-hand circle or blah, blah, blah? Or how deep do you go messaging that to people with the idea of growing the audience?

Jeff: [00:31:34] Yeah. You know what’s interesting is that when you introduce a new product category, there is no audience for it. So there are no customers. You have to build that customer base up from zero. As customers discover the product and the message, the core customer really starts to become a champion for what it is you’re building. We ascribe to a brand building strategy that really is all about that core customer. It’s about relationships not transactions. You will always lose on the transaction but you always win on the long term relationship. And so we talk directly to the customers. We spend a lot of time understanding exactly what their lives are like and why they are drawn to this. And the more and more we can develop messaging that is about that, like I said, renewable lifestyle—simpler living, respect for the planet, wanting to not necessarily always have to buy new, teaching your kids, that kind of thing—that becomes data and a way of branding that just reinforces itself and goes and gets more and more people and then it starts to grow out to the fringes of that. The online marketplace for brand new things from brand new apparel is about $40 billion dollars was the last number I saw and then used online marketplace has become a billion dollars in the past three years. So we sit in this in-between space where our product has been cleaned, certified, repaired. When we’re done with it, you can’t ever tell there was anything wrong with it.

Richie: [00:33:12] Right.

Jeff: [00:33:13] So we’re exploiting, now, this market of customers that are in between the used and the brand new and there’s a huge opportunity right there. There’s a Venn diagram and we’re in the middle there.

Richie: [00:33:23] Right. And then that was almost my question, which is, is there a counterintuitive situation where, if you just call it good clothing, does that actually bring you a bigger market than playing the renewal, eco-friendly thing because people just want good, price-competitive clothing?

Jeff: [00:33:38] It’s true. People do want good, price-competitive clothing, but we are not the cheapest. And so we have never set renewed product up as a discount play. If you want the cheapest product you could possibly get, you’re probably going to go searching for that online or at discount stores. That’s not who we are. We offer that certification to the customer. We offer the trust. We are not rebranding the product. Keep that in mind. So it is still very much the brand. It’s just the renewed version of that brand and we are in partnership with that brand so this didn’t just fall off the back of the truck and we grabbed it. We’re very much connected to the brand. They’re telling our story through their marketing. There’s a lot more value built into what we’re offering the customer. Generally, renewed apparel is about 30% off the original retail price. You can go find 50 to 70% off somewhere else if you want to but that’s not what’s drawing the customers to us. The number one thing we hear from customers is how much they love what we stand for and what we’re doing and then they come in and they buy a product from a brand that they know and love or that they covet.

Jeff: [00:34:52] And so we’re getting these brands that, in some cases, some brands that we have coming onboard in the near future don’t really have big, strong sustainability messages but this makes sense from a business model and now they’re able to connect with a customer that is out there looking for values-based brands. And millennials really are wanting to make sure that the brands they buy for are making public commitments to environmental or social goals. This is a way for our brand to do it in a really easy way. In the past, sustainability has meant some sort of programmatic add-on and, instead, this is actually just a business for them that has positive environmental benefits just built into it. The more you sell, the more positive environmental impact you have as a brand. So the integration of that is the biggest win.

Richie: [00:35:54] So, on a really specific level, you get a jacket that has, let’s say, a gaping hole in it or a rip or a missing zip or whatever: What does the material sourcing side look like to actually repair this? Because I’m sure there are some that are, yes, you can just repair with what you have. But I’m sure there are also some where you have to go find stuff that somehow fits, looks right. How does that even work? Because that sounds daunting.

Jeff: [00:36:18] I know it sounds really like how can you possibly have every zipper in the world, every button in the world, every piece of fabric in the world? Here’s the reality. You don’t need to have all of those things. There’s like three different kinds of zippers and all product is made on the same variety of sewing machines all around the world. What we had to do was commodify the process of manufacturing clothing. It’s not really that different when you’re making a cheap t-shirt or a really expensive jacket. There [are] a few kind of stitches. So we have a whole library of trims and notions and zippers and that’s what we use for all of our renewals. So if jacket came in and it had a broken zipper and that zipper was navy blue, we would replace it with a black zipper and it would look exactly the same except the color would be off. And that’s really the only place where what we produce is not perfectly matching what came in. But everything else we can match the thread colors. The buttons—we have a variety that are all close enough and we never put anything out that has a visible repair. So if you have a tear across the front of a shirt or something and if we were to sew that, you’d see the stitching or the patching—that’s not renewed apparel to us. That becomes a whole second sort of category. Now that’s a really cool, patched remade story to tell as well. But there is so much product that we can just easily fix the hems on and be able to sell again.

Richie: [00:37:57] Okay, so we’re in mid-2017. You launch this ecomm site. It starts to go well. Where do you go from there?

Jeff: [00:38:04] Where we go from here is bringing on more and more big brands.

Richie: [00:38:08] And what’s that process? What does bringing them on mean? How long does it take? What does that look like?

Jeff: [00:38:14] This is what’s really interesting, is that our business development cycle can be anywhere from three months to bring on a brand to two years. We work with brands [that] are startups, [that] are really small, [that] want to embed the concept of circularity and renewal into their business model from the very beginning and so they actually don’t even send us any product because they don’t have enough in the market. But we want to support that. All the way through small-, medium-sized brands to the big mega brands. Private companies are faster to make decisions. Big public companies take a long time to make those decisions. But we’re here to support all of them. The business models are the same. If you make apparel, you have this problem and we can solve it.

Jeff: [00:38:59] And so what we do is, when we start working with a brand, we do what we call our pilot program and the brand sends us product from their warehouse. Everyone’s got it, in the corner. And they’re like, “Oh, yeah. We know where those boxes are.” It shows up. We do an analysis of what it is. We also talk to stakeholders in every single department because this product touches everybody. It touches brand, product, marketing, finance, operations. And so we talk to those folks and we get the data that they do know about it and then talk to them about, “What would this program mean for you and your world? What are you scared about? What are you excited about?” And then we build a financial model for them that shows them how they could be making money off of this product and we do a full analysis of their product to show them how much of it could be renewed and put back into the market. That’s a presentation we put together for the brands and, every single time we do this presentation, the brands are like, “Wow, we had no idea.” And the bigger the brand, the wider the eyes when we give this presentation.

Richie: [00:40:06] Right. A lot of zeros.

Jeff: [00:40:08] A lot of zeros. And the smart ones now are starting to be like, “Oh, yeah. This is interesting. These circular business models are interesting. Rental and leasing of product and this concept of, obviously, of renewing. And where are we going to go next that’s not just about “make new stuff, sell new stuff”?

Richie: [00:40:28] So fast fashion is very much a culprit in a lot of this. Do you want to work with them?

Jeff: [00:40:33] Yes, absolutely. Fast fashion is a big, huge target for us as brand partners. I think that fast and fashion are not the problem. It’s resource use. The second layer of what we plan on doing is recycling. So renewal is the optimal area for us to start. It’s a financial incentive. We have the capabilities of doing it but we can’t renew everything. And so the product that we can’t renew, we channel, right now, into recycling streams and, really, those are pilots with technologies around the world to find ways to recycle cotton-poly, nylon, spandex-cotton product. Right now we can’t do that. We have to be able to get there in the future if we’re ever going to deal with this waste issue. So, if you’re a fast fashion brand that makes all of this cotton-poly product or inexpensive $6 cotton t-shirts, we need to develop a system of getting that product back from the consumer when they’re done with it and then channeling it into a trusted recycling stream and accessing the right technology, wherever it might be in the world, to turn that back into fibers, yarns and fabrics to make new products.

Jeff: [00:41:48] So imagine you’re H&M and you’re able to work with The Renewal Workshop. You have incentives for consumers to bring their product back to you at the stores. You send it to us. We do the sortation and have the technology partners to make sure that we can take all of those t-shirts in mass bulk, work with a partner to break those down into new fibers, yarns and fabrics, which then you buy to make your next round of t-shirts. That becomes an entirely circular business model that doesn’t extract new resources from the earth and keeps the money and the technical nutrients flowing to make new product. We can make products and fashion as fast as we want to be.

Richie: [00:42:29] You’re almost harnessing the speed in a way.

Jeff: [00:42:31] We’re creating jobs. We’re using technology. That’s the future. We are just on the very, very beginning of that road.

Richie: [00:42:37] Yeah. No, that’s so interesting. So one of the things I’ve just been thinking throughout this is there is such an ingrained mentality of “create more than you can sell in this industry.” Sales, discounting is very much the casualty or the result of that which wreaks an immense amount of havoc on just purely the business side if you forget even the sustainability side. There are a very small number of brands that don’t believe that and actually make intentionally less than they know they can sell and they sell out and they run these full-price businesses. Do you think you have the opportunity to obliterate sales and, therefore, allow these companies to have more full-price businesses? How do you think about that piece? Because it’s so ingrained but it’s so nonsensical because you think of all the cash flow that’s just tied up in these things over and over and over again.

Jeff: [00:43:17] I would like to see growth for these companies come from the renewal and resale of their products rather than growth come from the making and selling of new things. I just don’t believe that that is the financial or environmentally sustainable business model. Think about how much product is just sitting in customers’ closets, all across this country, not being used. Millions and millions of, let’s just take jackets, sitting there that you’ve purchased for $400. Maybe it’s overly dirty or maybe it’s actually broken and it’s just sitting there. If you were a brand that could incentivize, in some way, for the customer to bring it back to you so that you could put it through our renewal system and sell that product again—that is a much more interesting activity than saying, “Okay, guys. Spring 2019 is almost upon us. Let’s see. What color of red are we going to do this year?”

Richie: [00:44:26] It’s almost the same amount of energy.

Jeff: [00:44:26] I mean I think it’s more. You’ve got designers and marketers and product developers and sourcers and you to make this stuff on the other side of the world and get it here and market it. Instead, you already have product that you’ve made literally sitting there, not being used and you could get it back, renew it and resell it and you will have made a second margin on one product.

Richie: [00:44:50] Right.

Jeff: [00:44:51] That, to me, is a place where brands really need to start looking for growth.

Richie: [00:44:56] And I think Rent the Runway makes nine or ten times the retail price, per item, because of this. From a pure, capitalistic, dollar perspective, it’s so much better.

Jeff: [00:45:05] Yeah. Look at your product as having a system margin. And so, if you’re trying to get a 70% margin on a product because you’re going to sell it once. Now what if you were going to sell that product two or three times? Would your first margin have to be 70%? If you had a real system in place, maybe your first margin could be 50% which means maybe you can offer that product at a lower price to your customer.

Richie: [00:45:29] And sell more.

Jeff: [00:45:29] And sell more of them. So this is the part where the technology is there. The systems are now getting put in place where we can start to develop different business models. We’re much smarter than just “make new things, sell new things.”

Richie: [00:45:43] So how do you scale this? What does it look like? How many of these factories you need? What’s the end goal?

Jeff: [00:45:48] Empire. Global empire is the end goal. It’s funny to say that but we actually can see that in our future. We see ourselves as partnering with brands from tiny to large and building renewal facilities all across the country and across Europe and, eventually, into Asia because these renewal facilities need to be co-located with where the brands’ distribution centers are. It makes the most amount of sense for the brands to do the reverse logistic collection of the product and then, basically, just pitch it over the fence to us and we do all the renewal and handle all of that side of the business. And then, ultimately, too, getting into the recycling side. If we can’t renew it, it’ll go out the stream to our recycling facilities and we will either own or license technologies that will, essentially, turn this stuff that we can’t renew back into fibers, yarns and fabrics. And so that’s where we see this going over the next ten, 20 years.

Richie: [00:46:48] Do you want to end up with something like, as Amazon has fulfillment centers, you have renewal centers?

Jeff: [00:46:53] We want renewal centers all across the country. We want to be able to work with cities. We want municipalities not sending products to the landfill anymore. And there is technology that needs to actually be designed and developed that will allow us to sort automatically by material type. There’s a lot of work to be done ahead in the sortation side of this and the material type identification, but we have to get there unless we’re satisfied with just throwing stuff in the trash.

Richie: [00:47:22] What’s been the cheapest and most expensive lesson you’ve learned building this company?

Jeff: [00:47:27] So the cheapest lesson that we have learned is that you just have to keep going. I go to a lot of conferences and speak at conferences and we’re on a lot of circular economy working groups and I always walk away from those experiences really enlightened and have new ideas, but also realize that there’s nobody out there doing the perfect answer and we don’t know about it and I always go back to Nicole and I’m like, “Ugh, we just have to keep doing what we’re doing. Just everyday get up and—”

Richie: [00:48:02] Stay alive.

Jeff: [00:48:03] Yes, stay alive. Just keep pushing forward, keep this factory operating. We are making so much progress. There’s so many people and brands out there that are still having coffee about this idea and we have a factory that is pumping out product every single day. Just stay the course.

Jeff: [00:48:22] I think one of the expensive lessons is around technology, that there was no easy technology answer for us. We couldn’t just take an off-the-shelf factory operating system. And so we have had to develop it ourselves which means that you make a lot of mistakes when you’re doing that. Out of the gate, our ecommerce solution was not as robust as it could be and we knew that it was going to be challenging so we didn’t want to dump a bunch of money into developing the best ecommerce experience based on spec. So we put something out there but I think that it inhibited us from serving our customers as well as it could have. Luckily, now we’ve learned so much from that and we are re-platforming and about to launch a brand new site. So that part is really exciting, that we’re going to be able to start serving customers the way they deserve to be served.

Richie: [00:49:16] And the, as you look forward one, two, three years, what are you most excited about?

Jeff: [00:49:21] I am super excited about the brands that we have coming onboard, that we’re going to be launching. We are creating the category for some multi-billion dollar brands that are going to make some worldwide impact in the industry and that is really exciting. To just know that we’re working with some household names and they are going to change the way they make money and that is incredibly fascinating and exciting.

Richie: [00:49:51] Yeah. And how many items will you renew this year?

Jeff: [00:49:55] So in 2017, we diverted over 42,000 pounds of apparel from landfill and we saved the equivalent of over 36 million gallons of water and saved the usage of over 70,000 pounds of toxic chemicals and also saved the carbon equivalent of burning 25,000 gallons of gasoline in a car. So those were the impacts that we’re able to measure at our factory in 2017. And we’re well on our way to tripling those impact metrics in 2018.

Richie: [00:50:31] Awesome. Thanks so much talking.

Jeff: [00:50:33] Absolutely. What a pleasure.

Richie: [00:50:38] Thanks for listening to the Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to also leave a review on iTunes. We always appreciate it. And thanks to George Drake Jr. for editing this episode. We have a great roster of upcoming guests, including Ashley Merrill of Lunya, Michelle Toney and Stephanie Cleary of Morrow Soft Goods and Holly McWhorter of PLANT Apothecary. Thanks for listening and talk to you soon.