#107. Rebag wants to resell your baggage—just not the emotional kind. We talk with co-founder Charles Gorra about establishing a marketplace for secondhand, designer handbags, entering offline retail and launching a new type of loyalty subscription. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below.

Charles: [00:00:01] Once we can show people attractive inventory with authentication of the great brands of great quality, people will love it.

Richie: [00:00:12] That’s Charles Gorra, a co-founder of Rebag, a secondhand marketplace for designer bags. After working in private equity and enrolling at Harvard Business School, Charles founded the brand after meeting and interning with the founders of Rent the Runway, an experience that showed him the potential of secondhand luxury products. From there he started building up the supply and demand needed to get his new company off the ground, which meant buying Birkin bags from sellers in coffee shops.

Richie: [00:00:35] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, which provides retail strategy and infrastructure for leading brands and retailers. For our latest analysis and insights check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:56] I started the Loose Threads Podcast to spark engaging discussions with leaders across the consumer economy. That’s why I was excited to talk with Charles about how the brand has used outdoor advertising, a fast growing retail footprint, and a new type of loyalty subscription to bring luxury products to a wider audience of consumers. Here’s how it all began.

Charles: [00:01:23] The starting philosophy was: I’m 100% on board with the fact that there is a use case there, from a consumer standpoint. Meaning [that] there’s so much waste in fashion. You can look at it in however way you want, it’s only a minuscule fraction of the goods that make it back into the system. So, super on board with that. Super on board with the idea of people being okay to embrace, co-lead secondhand or, reselling their bag away.

Charles: [00:01:50] Then, my research was more in the model, right? And so, as much as I love Rent the Runway, rental is a very difficult model to operate, from a financial and operational standpoint. That’s when I started to look at the resale market, and when you break it down, there are various models that—[at] the time, most platforms were peer-to-peer or consignment. I had, somehow, this observation that, despite all of the options that were available, the use case was still minuscule compared to the opportunity. And so, that’s where I started chatting with people, and someday someone told me, “Stop bothering me. Just like, take my stuff, and then come back with the money.” And I was like, “That’s it. That’s how beautifully simple this should be.” Customers who are luxury-centric are not interested in the process of resale; they’re only interested in the outcome. And that’s essentially what Rebag became.

Richie: [00:02:52] It makes a lot of sense, right? ‘Cause everyone has stuff they don’t want. But I mean, it could take a dozen steps to get the money, at the end of the day. And so the insight was, how do we just collapse that into, “Get rid of ‘x’, have money in hand.” And the velocity would go.

Charles: [00:03:07] Absolutely. And we started about, “What do we need to do for the consumer?” And frankly, here, as “the consumer,” we always thought “the seller.” So that’s kind of an interesting mindset, if you will, that when I think about our customers or, of course, for the buyer, we need to do all these other things that I’m sure we talked about. You know, authenticity and certainty and creation. And we do that amazingly. But, to some extent in our market it’s always about, how do you convince someone who owns a luxury product that they love to part with it? And our insight was: If you want to do that, you have to reduce friction. And every time we remove a step in that process, every time we make, basically, dollars more accessible more easily, we get one more seller in this market.

Richie: [00:03:59] And I think that’s common, that marketplaces have generally a bias to them, right? Airbnb too, I guess, [to] a lot of people’s surprise is really a seller’s marketplace, right? If you have a problem with Airbnb they don’t really care because they’re there for the seller and they often protect the seller first. Not saying you are at that degree, necessarily, but generally you have to pick a side, almost. Or you have to pick a focus area.

Charles: [00:04:19] Yeah. And usually, to be honest, I would say the market picks a side, if you will.

Richie: [00:04:21] Fair.

Charles: [00:04:23] Because it depends [on] where is the bottleneck.

Richie: [00:04:24] Inefficiency, yeah.

Charles: [00:04:24] Exactly. So either you have too many suppliers, not enough demand, or vice versa. Somehow you have to triangulate where the bottleneck is.

Richie: [00:04:34] Okay. So you have this insight that we need to basically collapse the number of steps, remove the bottleneck on the seller’s side. How do you start going about that? Or, what are the first 90 days [looking] like, after that insight?

Charles: [00:04:47] I mean, technically, at [the] point I had that insight, we were still in business school. So the first step was somehow getting some financing going. And this, again, [I] got a little bit lucky, but I got introduced to someone called Fabrice Grinda, [who] is a pretty big marketplace entrepreneur and investor. He has multi-hundred-million-dollar exits, most recently OLX, which is the Craigslist of emerging markets, and he’s a very reputable guy. Turns out he’s also French, so I guess we somehow bonded there.

Charles: [00:05:19] That philosophy that I stumbled upon in this market, he somehow has theorized this in a much more macro-concept. When I met him I realized that I was somehow looking at this niche of this segment—really, what he saw is that what I’m trying to do there is a much bigger representation of a master theme across marketplaces. And he tends to call it—and there’s various names—but he calls it “end-to-end.” End-to-end marketplaces—some people call them “managed marketplaces,” right?—is the idea that in the evolution of marketplaces they move from purely horizontal peer-to-peer models to verticalized model to, then, vertically-integrated with almost merchant models, where the marketplace almost disappears and operates almost like a retailer. Like, if you operate with Rebag you don’t [ever] really talk to that other seller or that buyer. Your only interaction is with Rebag. So it almost feels like you’re not in a marketplace, right?

Charles: [00:06:21] And so, if you look at other models now—you know, there’s Opendoor in real estate, there’s a lot of models in cars, there’s AUTO1 in Europe, Vroom here. So all these models have these similarities. Fabrice saw that, and so he decided to seed us. So [we] got a little angel round, just under a million dollars from him, and then we moved to New York. Got somehow the first five, six people together, and then we were preparing for launch in November.

Charles: [00:06:48] So there were those three months of, I would say, pre-launch where, for us, it was very much about finding the first bags. Again, because we pay upfront. We couldn’t launch a site with like, you know, one bag. So we did want to collate—[it] probably was a couple hundred or something at the time—but we had to go one by one. So we used all sort[s] of guerrilla marketing to find those first hundred [bags].

Richie: [00:07:14] How’d you convince the first one to five people to do this?

Charlie: [00:07:18] What’s interesting is, because we’re buying the supply from a seller-perspective it doesn’t matter if we are a two-people company, or a two-billion-dollar company, it’s still someone buying your bag.  

Richie: [00:07:31] Right. As long as the money is real.  

Charles: [00:07:32] Very good point. And the money was real. So we had that checkbook. We were very serious from day one. Now, the issues at the time were around, what if I send you a bag, right? And then, we only pay after you send us the bag, so it is upfront payment. But, to be clear, we make the quote based on the photo, but then you ship it to us and we do have to audit quality and conditions.

Charles: [00:07:59] So, somehow, you are shipping a bag. Even if it’s only two or three days, you are shipping a bag. So, when no one knows Rebag, there’s no reviews. That’s a lot of work and it’s just trust-building. But what’s nice is we had one-on-one meetings. Like, all of these first ten sellers, I know them. We met them, we sat down with them. Some of them we even transacted, physically. I remember I was meeting people in coffee shops, I was running around New York writing checks to people. That’s literally what we were doing.

Richie: [00:08:33] Was it easy to get them to say “yes?” Were there people that met you and then were like, “No, no, no, this is not gonna to happen?” What was the sentiment early on with the first few people?

Charles: [00:08:41] We needed to find motivated sellers. It frankly goes down to the dollars. But it is true that in the early days, our first sellers, I would call [them] “motivated sellers.” Meaning some of them were going through, maybe, life situations. One of our first sellers, I think we got almost $15,000 from her. We got like four Birkins in our first five customers, and it’s probably still, to that date, one of our biggest closets. I mean, now we’ve done six digits, but it’s probably in our top 50 ever.

Charles: [00:09:16] You see, she was really nice. I still remember her. Unfortunately she was going through a divorce, she had to move out, and she was trying to essentially create some liquidity. And we were there. And, from her perspective, that’s where the model was very interesting, because she needed $50,000 really quickly. And who’s gonna do that? You’re gonna go, what, to some maybe dirty pawn shop that’s like a scary experience. So we’re doing this in a very noble, trustable way, so she liked that.

Richie: [00:09:46] So you get the first few bags, you pay out the money. So now you’re just spending money and collecting inventory. How does the other side start to come together, in terms of people that actually going to purchase those off your hands?

Charles: [00:09:58] That’s always, by the way, the challenge of our model. So what’s super, from a seller perspective, obviously creates this business challenge that now we own inventory. So we need to be pretty precise around what we’re buying, the price we’re paying, and so on. But you’re right, in the early days—the first 90 days, really, as you said earlier—we’re not even thinking of demand at that point. We’re literally spending three months, literally, it’s like, “Let’s just build the stock.” So we did this in a very sequential way, because our thought was always, “Once we can show people attractive inventory with authentication of the great brands of great quality, people will love it.” Because, again, we’re selling the handbag, which is the queen category curating this to the top 50 brands. It’s deeply off price.

Charles: [00:10:49] Our philosophy was always that there will be a long list of buyers. And so it’s more about, we need to start with [making] an impact upon launch and then—also, again, there’s always a bit of luck in all of this, but we launched in November which, you know, that’s holiday season. So there’s Thanksgiving, there’s Black Friday, that definitely helped us, because we launched at prime time, from a shopping perspective, and we had this starting inventory. It was nicely timed.

Richie: [00:11:19] Before we talk about the launch, how are you just, in a very manual way, pricing and deciding what you’re going to purchase these items for, back then? And how are you also determining authenticity and all that?  

Charles: [00:11:30] “Pricing,” you said? It’s pretty much the core IP of our company. The philosophy is always, this market is very opaque. Customers don’t really know what they own, from a technical spec perspective, right? Because it’s an aesthetic purchase, it’s a sentimental purchase. You go to a store and you see a black Chanel bag, and it’s beautiful and you buy it. But you don’t know the 27 words that [are] required to actually know, from a SKU perspective, what that is. And then, even less so do you know the secondary market of it. So at most what you would do is maybe collect anecdotes. Maybe you can collect a listing here or there but, again, mostly anecdotal data. And so that’s where the opportunity is for us.

Charles: [00:12:17] We’re trying to get a big picture view of that market. We’re basically looking at everything that sells; also, that doesn’t sell, because that’s also very informative. And you know, we like to call it the Kelley Blue Book, and it’s very much this philosophy. If you go to Kelley Blue Book for the car industry you can say, “I have a Toyota with a C turbo 2006,” and it’s like, “Market price $6.7k.” And that price is very sticky, and it’s referenced by the whole secondary economy. Internally, that’s what we had to build.

Charles: [00:12:52] So obviously, in the early days, it was a much more manual process. We started with the most-traveled SKUs and, you know, certainly much more manual—you fast-forward a few years, obviously now it’s much more mathematical, if you will. But the philosophy is still shared.

Charles: [00:13:07] And then, to your second question on authenticity, this has always been the cornerstone of the company. We are selling a luxury product. I mean, our average ticket resale is over four digits. People are usually very surprised by that because we’re a resale business but, the reality is, we are a luxury business first. Our average ticket is way higher than most firsthand commerce. When it comes to things you can put in a box, it’s pretty much as high as it gets. So we have to deliver all that this customer needs, and authenticity is one of them. So authenticity is a human skill at this stage. There’s a few technologies out there that are nascent, but nothing that is still strong enough.

Charles: [00:13:53] So, at this stage, it’s very much like art. You know, how maybe you go to an art house and someone [there] is an expert in Van Gogh or someone who is expert in a time period is very much the same. You have people who have developed that knowledge over the years usually just by seeing bags. There’s not really a school of authenticators of any sort, it’s usually product lovers that have seen hundreds and thousands and tens of thousands, and somehow tend to analyze patterns. And so, we gathered our authentication team—which we’re always growing, we’re always training our own authenticators—but this is bullet-proof for us. When you send a bag to us, we only pay after our authentication is done. If it’s not authentic it’s being sent back to you. As a buyer, of course, we have money-back guarantee, lifetime guarantee, when it comes to authenticity.  

Richie: [00:14:49] And, early on, who was doing that, when you were sitting in a coffee shop buying Birkin bags?

Charles: [00:14:52] We had one person.

Richie: [00:14:53] One person.

Charles: [00:14:54] Yeah. Exactly.

Richie: [00:14:54] So what was the plan for the launch, and then how did it end up going?

Charles: [00:15:00] First of all I would say we did a lot of non-scalable things which I still remember, and I’m like, “Oh my god, how did we do this?” But we were doing things like going on Madison Avenue and just handing out flyers all day, literally intercepting anyone going out of these stores on Madison Avenue, and having a chitchat conversation and handing flyers. Obviously [a] non-scalable approach but, at that time, we had like a hundred bags, 150 bags, and you get one of them to buy a Birkin, that’s a ten thousand dollar sale. So actually, from an ROI perspective, it worked out very well.

Charles: [00:15:41] The second thing that we did is we developed what we call our partnership program. This has, to this date, been a cornerstone of the company. What we do there—so, at the time we had one person that was on our full team payroll that we called “business development.” And so, this person was essentially connecting with third parties, but very targeted. Typically like, sales associate in store, personal stylist, image consultants. All of this galaxy of people who essentially are selling the product in the first place. So basically they have a client book, they know who loves these products, etc., and we’re basically paying them commissions. So think about it as a referral program with the sales approach to it. And that worked out incredibly well for us, because we only paid when we bought or sold a bag, and they were very incentivized to make the commission and to have the customer reuse the proceeds. So that philosophy, to this day, has been pretty core to what we do.

Charles: [00:16:42] And then, in the early days, we did a few other things including using third-party marketplaces. At the time there were actually many, many companies in the resale space—obviously, you know, eBay and a few others—and some of our earlier sales did come from those platforms. So call it growth hacking, if you will, where, obviously, we always service customers. We’re somehow agnostic. If people want to transact, we always service and fulfill the customer.

Richie: [00:17:12] So, after the company is kind of off to the races, where do you start to focus your own time and your own priorities continuing to build the business?

Charles: [00:17:20] For the first two months, really, it’s all about holiday season. So really, because this is pretty landmark—it’s our launch, it’s our first sales and it’s prime time. And then, as we all know, January, February, you start getting to retail deep, etc. So, not ideal for growth. And also, I remember, at the time we raised just under a million dollars, we were maybe like eight people. Pretty soon it became about fundraising again, as all startups, really. And the plan was, let’s crush holiday season as much as we can, and that was our proof of concept.

Charles: [00:17:55] For those first three months we had been very much stealth-building inventory, then the next three months we were about, you see, now that we proved that we can onboard inventory, and then we prove that we can sell it. And we were very lucky that the inventory, you know, we sold everything, so at some point we had nothing left to sell. But that was great.

Charles: [00:18:14] So, fundraising capital then. I started in January 2015 having those, you know, more seed conversation. And that led in March 2015 we did a $4 million seed, mostly led by General Catalyst, and that put us more on the radar to build at a bigger scale.

Richie: [00:18:31] And so, as you raised the money, what was the plan about how it would get spent?

Charles: [00:18:35] In the early days there’s a lot of infrastructure to build, so I would say we were pretty disciplined early on. The first year, there was reasonably limited marketing. The first year was more about, can we build the overall infrastructure for the company? Of course you have to grow sales, etc., but we basically didn’t really spend many dollars on Facebook digital or Google digital. It was very much about, can we find great buyers? Can we create these pricing algorithms that are robust, that we believe in? Can we create a web product that is slick, where people can buy and sell, and it only takes a few clicks?

Charles: [00:19:15] So the first year was really about the building blocks. It wasn’t so much about, let’s put it out there in a massive way, it’s just—okay, somehow we’ve proved the thesis, right? But it’s not really anything scalable yet, it needs all this robustness behind [it]. So it was about the first hires, the technology team, product team, buyers. So, really, we spent most of our first year on, I would say, people.

Richie: [00:19:41] What were some of the challenges of starting to build out and go from the unscalable to thee semi-scalable?

Charles:[00:19:47] I mean, in the first year, you sort of have to change your DNA a little bit. Like, at some point, when it comes to, especially data pricing, you can’t control all of it anymore. So that’s more of a personal leap of faith, if you will, that the first 50, first hundred bags, you know, I was seeing all of them. Literally, I was in the room. I probably priced, with our buyers, the first few hundred bags. We probably created those numbers together collectively, and then you sort of have to remove yourself. So it’s more of an organizational change, if you will.

Charles: [00:20:22] That’s obviously, you know, every company goes through that. But, [as a] founder, you have to somehow remove yourself from some of these. In the first six months, you’re a jack of all trades. You’re running around Madison, I’m building IKEA desks, whatever needs to be done. And then the first year is about, “Okay, can we find those five people that are going to be in charge of those threads.” So it was about, you know, we got a great buyer in place, we got a great authenticator. We had my partner in marketing at the time, so those first four or five people, they were pretty core.

Richie: [00:20:56] Given you had 100% sell-through in the first holiday, did you think that you underpriced everything?

Charles: [00:21:02] That’s a great question, and the answer is yes. Maybe we sold too fast. But, to be honest, that was also the thesis. Somehow this falls into margin conversations etc., but at the time we were less concerned about extracting the maximum amount of dollars and were just trying to see there’s excitement, you know? There’s interest.

Richie: [00:21:23] You raised the four million now, we’re going into year two. You’ve spent a lot of time building the people infrastructure. What comes next, after that, in terms of priorities once the foundation starts to be built?

Charles: [00:21:34] Somehow you’re always preparing your year for the next round so, the next round somehow, drives that. And so, what we find is that when you go to more like series A, people want to see, first of all, that the backbone of the company is ready, but they also want to see the premises of some scalability.

Charles: [00:21:54] So at that point we did have to start more scalable marketing, although still in small numbers, overall. But the idea is, we have the infrastructure in place and, you see, we’re starting to spend dollars there. If you’ll give us a whole [lot] more money we can scale massively, but you do need to show that. So this is the time when we started to basically experiment [with] traditional digital channels, starting to put a little spend on Facebook. Very early on we experimented with offline.

Charles: [00:22:26] So that was always something that we believed in, because people are not really looking for this use case. What we found pretty quickly—and, I guess, we failed, really—is that we were trying to buy keywords, you know? That’s the first thing you do. You’re like, “Yeah let’s go and buy the keywords of ‘sell my bag,’ sell this.” And then you realize—

Richie: [00:22:45] Which is buying intent, right?

Charles: [00:22:46] Exactly. So we’re like, “Oh yeah, of course.” This is so relevant because, by definition, people are searching for—again, some of this is long tail. And then you realize [that] there’s no magic. First of all, it’s extremely competitive. At the time we had no recognizable brand. So we discovered pretty quickly, at least at this stage, that the inventory of search, or for a round is very limited, and then it is very competitive. And so we couldn’t really make that work. So we’re really looking for other channels, and we spend a lot of time on offline. Again, the philosophy being, people are not really looking for it.

Charles: [00:23:25] A lot of the luxury market is still offline. Actually, compared to other categories, I think it’s like only 9% of the luxury market is online, which is about half of where overall e-commerce is. Which really means that 90% of our customers, they’re just walking in the streets somewhere. So that’s something that we experimented early on, frankly very much inspired by other startups. So if you if you take the metro now in New York City you’re bombarded with D2C advertising.

Richie: [00:23:56] They keep it running.

Charles: [00:23:57] Exactly. And actually, it’s very interesting, the price of ads in the metro has skyrocketed.

Richie: [00:24:01] It’s like a hundred thousand dollar minimum or something now?

Charles: [00:24:04] Yeah, there’s a few options. I mean, there is probably an entry level around $40K which is the very small one-eighths-in-cart units, but usually companies, there’s the, what is called the branded carts, where you take over half of a cart. So usually startups like to do that, but it’s pretty steep. It’s four digits so, at the time, we didn’t have these kind of dollars.

Charles: [00:24:25] But we assumed that other direct-to-consumer startups are also running our array analysis, etc. So if you’re going [on] the metro all day, and there’s Away and there’s Casper, and maybe it works for us. So that’s kind of where we made our first leap of faith, and we started that. Initially, we discovered what works best for us was outdoors rather than indoors. So by that I mean we are looking for luxury customers, right? So what works better for us, we did phone booths, we did taxi tops. And again, that hits a little bit more people who are outside. Also you can target a little bit more. So we put some on Fifth Avenue and Madison and Soho, versus the metro; obviously much, much broader.

Richie: [00:25:16] Moving target.

Charles: [00:25:17] Yeah, exactly. I mean the pitch, if you will, of the metro company is, you know, everyone takes the metro.

Richie: [00:25:23] But maybe not true for you.

Charles: [00:25:24] Exactly. So New York, right? I mean, their argument was everyone takes the metro, including luxury consumers. But you’re right that in proportions, our customers, we discovered, is a bit more outdoors, is a bit more in taxis, is a bit more in prime areas. The problem with outdoor is it’s very binary. There’s basically a minimal entry cost. On Facebook, you can get in, you can spend a thousand, and five thousand, and you can double your budget every month. It’s much more comfortable, versus—there’s no point in doing outdoors with $5,000, that doesn’t really give you anything.

Richie: [00:26:03] Yeah. So what side of the marketplace are you marketing for, as you go do this? Are you marketing that, “Hey, we buy the bags?” Are you marketing that, “Hey we bought the bags, you should come buy the bags?” How did you figure out what to focus on from a marketing and external messaging perspective?

Charles: [00:26:17] This goes back to our earlier point on where’s the bottleneck of the business, and for us it was sellers. And so, we always, always marketed sellers. So if you go back to all these ads that we were running at the time, it’s literally, “Sell your bags now, upfront quote, fast payment, Rebag.com.”

Charles: [00:26:38] And so, of course this direction would give us buyers, too, because once people are on the URL, they [will] find their way. And so we did find that there was sort of a logical funnel to that, but everything was seller-minded because it was so hard for us to find bags.

Richie: [00:26:55] How did the second holiday go, in terms of, you had the first one which was that test period going to the second one. Was it, run the same plan? What did the seasonality looks like, as well?

Charles: [00:27:06] Yeah. I mean, I guess in the earlier stages you’re growing so fast that it’s almost like every month is a holiday. Like, the seasonality barely impacted us in the early days, just because we’re starting from such a low base. You know, you can post really steep growth month-of-month. It’s more of a marginal effect or secondary effect. Sometimes it increases their normal volume, etc.

Charles: [00:27:32] I mean, I remember that second holiday we did have some fulfilling issues because yeah, you’re correct, around Black Friday, volumes are typically 3, 4x your daily volume. So this is something that we didn’t know and I think we thought we had planned [for]. You know, we’re like, “Yeah, let’s add 25% capacity.” And then it’s like 3, 4x, and you’re like, “Okay, we’re off by quite an order of magnitude, there.” And this is where, you know—I mean it’s a startup plan, but suddenly everyone becomes a fulfiller. Everything stops and literally our buyers, me—you know, at that point we’re probably like 20 people—and for those couple of days we’re probably somehow all at the warehouse fulfilling stuff for a couple days.

Richie: [00:28:18] So heading into 2016, what are your priorities in terms of growing the business at that point?

Charles: [00:28:23] At that point, we’re doing our series A at the time, so I think we did this right there. We showed some of these early numbers, and then we did an $8 million round at this stage, so certainly people are a bit more focused on how big does it get and can you create a whole scalable journey. And so, this is the time where we start spending much more serious dollars on our marketing. We actually, at the time, when we experimented—that was the time when we were doing offline, and that year we did a lot of TV advertising. So that certainly was going to a whole other level, pretty much adding a zero to everything that we’ve been doing. The idea, again, being in traditional digital channels, sort of low inventory, of motivated searches, and so on. So we’re kind of looking for someone who is not looking for us, especially a luxury user.

Charles: [00:29:18] So this is where we did a lot of direct TV. We were buying remnant cable inventory on E! and Bravo, and trying to target as much as possible some of these demos. So we spent pretty much that year [with a] significant budget—I think at that point we were already into multi-million dollar type of marketing budget. TV is probably even a step function, right? So you can run outdoors, you can run a $50k, $100k, $200k campaign outdoors. In TV I think the minimal dollar amount has shrunk. It used to be millions, and now you can probably have like a decent early test with $500k so that’s sort of—but obviously still a much bigger commitment.

Charles: [00:30:03] One of the challenges we had with TV is a few things. First of all analytics. As you said earlier, that becomes much more of a challenge, because it’s showing on all these TV channels at the same time, so we spend like three months with our TV partner here building analytics in a pretty advanced way. There’s companies out there that do this very well, but frankly I was amazed by this. I did not know that you could run TV essentially as a performance channel. So a lot of brand marketers or big brand, you know, they’re just like, “Oh you know. Let’s spend and build the brand and whatever.” But the reality is, we were very inspired again by a lot of other startups. If you do it the right way you can actually build it. It’s not too dissimilar than a digital channel, you can get pretty much all the ROI with instant reads, daily reads, monthly reads. So this was very sophisticated and sort of the first time we ran large scale marketing dollars.

Richie: [00:31:05] Talk us up to the point where you start to think about OFFLINE offline.

Charles: [00:31:09] Yeah. So that happened in 2017. At that point we’re a three-year-old company. In between we have done our series B, that was $15.5 million. I think definitely that was a step function. We’ve always talked about retail; actually, some of my investors, especially at General Catalyst, they’re invested in fantastic brands. They’re in Warby [Parker], they’re in Outdoor Voices, M.Gemi. All of these companies have created, somehow, a retail footprint. And if you look at the broader space there’s been this reverse retail trend; all of these companies that are digitally native, you know, the Bonobos and the likes, you fast-forward ten years later, five years later, they all have a retail footprint now. So, first of all, again, we’re always inspired by companies that are successful, that are—if it works for them, there’s probably something at least to experiment [with].

Charles: [00:32:01] So, again, retail was probably in that 20% test bucket, so it was never about, “For sure we’re gonna open 30 stores.” You know, it was more about, “Yeah. We gotta try this.” We gotta try, because 9% of luxury is online, 91% is offline. So the customer that we love most is probably out there.

Charles: [00:32:26] I still remember to this day, we were opening our second store in Madison Avenue, we were taking down the papers on the day before, and then this lady was bouncing on the doors. And we’re showing, you know, we’re not open. She was so insistent. I go and say, “I’m sorry,” you know. And then she tells us this story, that she was a few blocks away at the Hermès store and they did not want to sell her a Birkin, because Birkins are collectibles, you have to be on a waitlist, etc. And then she walked a few blocks, and then we have 40 Birkins on our wall that you can buy, and probably at even a better price. And so she was like, “I want this, I want it now.” It was like, literally—so I promise, come back tomorrow 10:00am, and we made a $10,000 sale the minute we opened. I guarantee you this is not someone we would have captured online, someone that was running around Madison Avenue in an offline construct. So, on that day, that second was already the proof that this would be interesting for us. But at the time we launched retail as all things, as an experiment.

Charles: [00:33:32] So in November 2017, we opened in Soho, and really it was a pop-up. We got it for a few months, it was a holiday shopping activation. But we did a party, we did some good press, etc., and it was massive. It was almost shocking. So it was so good that we made it permanent. So we renegotiated the lease, made it permanent, and that became our first store. And then, you know, as all things startup, if it works once it can probably work twice. So, we did that again. Until you do it a few times, you don’t know if you just got lucky. Is it just this one store, or one could also say, “Yeah it’s Soho, you know? It’s unique. How many Sohos [exist]?” And that’s a fair point too… Let’s go and do a second one. So we did Madison Avenue and 57th six months later, that was April 2018, and then the same thing, even better. You know, that’s where the story comes from. And now we’re like, “Okay, now we’re two out of two here.” So this starts feeling like its own little world.

Charles: [00:34:35] So then the next thing after that was okay, now we’re doing it in New York, which, you know, we are New York-based. Can we do that in a remote setting? So that’s when we open two stores in LA, Melrose and Beverly Hills. Again, another step function, not so different but, really, from an operational perspective, operating retail six hours flight from here, that was actually very challenging. Definitely took us some time to adjust to that, but fundamentally the stores vary in performance and size, etc. And they all have some pros and cons, etc. But, overall, I think now we’re definitely heading into, this is its own channel.

Richie: [00:35:17] What were some of the challenges but also, I guess, excitement, as you started to go through the first two to four stores?

Charles: [00:35:23] The reason I love stores is because you connect with customers. There’s nothing better. And I try to go at least once a week as much as I can, and then I just stick around because that’s the real truth. Of course, for digital companies you can do surveys and get on phone calls, etc., but retail is the ultimate truth. There’s someone in the store, you see the customer, you hear them. It’s really the best survey, the best learning, so that’s what I loved about it.

Charles: [00:35:53] I also learned that, from an operational perspective, it was quite difficult. Frankly, that’s why I was a bit scared to do that. And it did take us three years to even get comfortable with the idea of testing. Number one from a budget perspective, right? Because you are putting leases and, you know, people, so there’s a whole lot more liabilities. And then contrary to, I guess, other sorts of advertising, you’re somehow tied to that lease. You’re making a commitment, even if it’s short term, that’s certainly meaningful. So from a risk perspective it takes some convincing.

Charles: [00:36:29] The problem, I guess, that we have, or the challenge, is that we’re really seeing ourself as a luxury company and our whole model is built on customer satisfaction. Making the seller experience smooth, etc. And one of the challenges of the store besides just selling product is that we buy in the stores. So it’s actually quite unique, but in our stores you go to the Rebag bar and we can quote, price, authenticate, pay you in one hour. So no appointment, seven days a week. You just show up and we review this bag, and hopefully by the time we do that you’re looking for your next bag. And then you can use the proceeds and you know, somehow trade there. But it’s extremely challenging. We’re moving from something that takes a few days, or [that] we do in the shadows of our internal infrastructure to now needing to do that in front of the customer. So from an experience perspective it needs to be much more elevated, much more sophisticated, and that was incredibly complex, but we nailed down a pretty amazing process there.

Richie: [00:37:35] ‘Cause you’re also decentralizing something as well. Because the buyers have to be in the stores now, you’re fragmenting everything.

Charles: [00:37:41] Yeah. We did find ways to leverage technology. At this point, our internal tools are very robust, especially from the pricing perspective, etc. So we did find ways to make this a bit more scalable and less decentralized. But you’re correct, that you’re dealing now with 30 sales associate in five stores. How do you make it that everyone’s delivering the same message and experience?

Richie: [00:38:06] Right. Yeah. Or just saying, “Yeah, the Birkin? $20 dollars.”

Charles: [00:38:08] Absolutely.

Richie: [00:38:08] Yeah. How are you thinking about retail, as it stands now, as you have five stores. You also just raised some money recently, correct?

Charles: [00:38:17] Correct. So we just did $25 million series C about a couple months ago. One of the main proceeds there is to scale our retail footprint. So we want to build a footprint of 30 stores in the next three, four years. So call it, you know, five to seven stores per year. Every luxury ecosystem, at least in the U.S., for now, deserves a Rebag. Like, pretty much that’s where we’re going. So obviously we’re taking our own list, but think about any luxury market in the U.S. and we should probably be there sooner or later.

Richie: [00:38:49] What do you see as the biggest risk of expanding the footprint to that level for the business?

Charles: [00:38:54] I mean it’s a magnitude harder in terms of what we just discussed, which is three, four, five stores, you can somehow do what I would say, manually. Technically I can go there. You know, we have three stores in New York. If I want I can take the metro, even we have two in LA, I can be bi-coastal. I can feel like I have a good grasp on every single person who’s in the store. I know them by their names, I know what product’s moving. When you move to ten, 20, 30 [stores], this is over.

Charles: [00:39:27] So first of all, this is why we’re actually just hiring now an amazing retail V.P. who’s going to lead that. So he has 20+ years of experience in luxury and tech retail. That’s certainly something that we had to change. There’s so many things we can do. We’re still running these stores very much startup-minded, you know, being nimble, and a lot of what we’re trying to do there is build more luxury experiences. Also we have more budget now. So we still want to deliver in attractive ways, but I think we’re trying to elevate the game of the stores.

Richie: [00:40:04] There is an article in The Times which was basically titled, “Can the Birkin Survive the Resale Market.” Did you see this?

Charles: [00:40:11] Yeah.

Richie: [00:40:11] And the premise was, effectively, there are a number of new entry points into buying a bag of that stature now, versus—or imagine, the story you described is effectively the encapsulation of that woman who just went down the street to you and bought what she wanted. What are your general thoughts on how the brands are perceiving the retail market. I think The RealReal, which is somewhat category agnostic in this space, I think has a lot of brands that think nasty of them, for better or worse, if they’ve spoken about it. I think Chanel sees them as the enemy, from previous reporting that they’ve said, but what have you seen and heard from the brand side as the space itself has grown? And also what do you think of the article, specifically?

Charles: [00:40:49] This is a huge, huge topic, and I think it goes, yeah, way, way beyond any company. It’s about, what’s the value of resale? And you’re correct. First of all, a lot of brands, I wouldn’t put them all in the category. There is a spectrum.

Richie: [00:41:03] Right. And some have 100% embraced this model as well.

Charles: [00:41:07] Yeah. Not many yet, huh? But yeah, there are a few things, and interesting things like Stella McCartney did something, you know there’s—

Richie: [00:41:14] Eileen Fisher and, yeah.

Charles: [00:41:15] Yeah. So, definitely. But I would say, what’s interesting though is, I have seen a massive shift in the perspective of the brands. You know, five years, when we started the company, all of the brands were yes, somehow skeptical of the resale space. Now you fast-forward five years, everyone I think understands that this is here to stay.  

Richie: [00:41:35] Right. And that they don’t really have a choice, right? To the point of, you talking about the market before—the market has spoken.

Charles: [00:41:41] Yeah. I think you’re correct. But that’s also how change comes. You know, even if it’s forced, you’re correct, it may be positive or it may be more defensive. There’s been a lot of M&A action in the resale space over the last couple of years, and I think that translates that excitement.

Charles: [00:41:57] There’s one that’s very interesting in the UK, this company called Watchfinder. That’s pretty much Rebag for watches in the UK. They just got acquired by Richemont. So that’s very interesting. And if you read all the literature it says exactly that, it says, “We’re Richemont, the world’s leading watchmaker. And we see that millennial younger customer are somehow diverting to resale as the standard. And so, yes we can try to see the side but then we’re somehow missing out. So we want to be proactive about it.”

Charles: [00:42:31] And there is a benefit in owning that customer, and that’s really what we’re trying to explain to the brands, is two things: number one is, on the seller side, I always explain, Rebag is a financing tool. By that I mean we’re creating liquidity for the seller, and the price of items is skyrocketing over the last few years. And so now, if you’re in the market for a $5,000 bag, regardless of how wealthy or not you are, you’re gonna think about it. And so, if you know that there’s a good certainty that you can get, you know two or three thousand dollars, or whatever the price is, for that good, you know you’re gonna be much safer making that purchase. And, really, you’re gonna think about what I call “net price,” which is the full retail price minus the resellable value. Because that’s really what your cost is.

Charles: [00:43:25] And so that’s what we’re really trying to change. And to some extent we’re just onboarding in this market dynamics that are very much onboarded in the electronics market or in the car industry. You know, when you buy a car, you go and check Kelley Blue Book, and if your car is $20,000, and Kelley Blue Book says $6,000, you’re only paying $14,000. And so, once you onboard that mindset everything changes, because you can buy more items more frequently. You see, that’s where I guess the debate is, you know, it doesn’t mean you’re gonna stop spending—in my opinion, it means you’re gonna spend more. Because you know that you have that cash back, right?

Charles: [00:44:07] And then on the other side of things, we always say that we’re a customer acquisition channel for brands. So by that I mean we’re essentially product discovery, right? Because now you can spend $500 on Rebag and get a wonderful branded bag that’s probably at least 2x that in a retail price. And that’s very much comparable to accessible luxury. So now that’s your trade off. There’s a whole other journey of customers that we can upgrade. There is a benefit in talking and owning that customer because, yes it’s a resale product, yes it’s not full price, but maybe they can own that branded bag maybe five years before they get the full-price value. And then what’s gonna happen? If I own this bag and I love it, what’s gonna happen when I get my first bonus and I’m a few years in my good job, I’m like, “Ooh, now I want to treat myself, and I’m gonna go to the store and buy full price.” So once you think about it this way, I think this really reconciles the whole ecosystem.

Richie: [00:45:14] You touched on the circular nature of the buying and the reselling and so forth. Talk a bit about the genesis for Rebag Infinity, which seems very much like it grew out of that cycle.

Charles: [00:45:26] Rebag Infinity is essentially our take on somehow of an equivalent of what a rental or leasing model would be. Essentially how it works is: you can buy any product on Rebag, online or offline, and we guarantee that you can own it for up to six months, and then within six months sell it back to us at a guaranteed price of at least 70% of what you paid. And we would pay you, though, in Rebag credits towards your next bag. So really what that means is you’re spending a thousand dollars, for instance, for a bag, you own it six months, and then we’ll give you back $700 in Rebag credits. So, in essence, you’re only spending $300 for that one bag for a six months period, which really makes it, you know $50 a month, right?

Charles: [00:46:13] So, suddenly you’re moving into that mindset that’s sort of this biannual pattern which is very seasonal. That’s why we did the six months, is because our research shows that’s sort of the trigger point. You know, really what customers want is, there’s nice weather there, I want to invest now. For the next six months, I’ll go to the Hamptons this summer, and then I’ll come back in October, and I’ll get my dark or beige bag for the winter times. And then I’ll keep going in that cycle.

Richie: [00:46:42] So that model basically converts buyer to seller, and buyer to seller, and so forth. Are you finding that most of your customers are playing on both sides of the marketplace, or is it more fragmented? And, I guess, what do you want it to be?

Charles: [00:46:53] Yeah. Historically it’s more fragmented. Actually, in the very early days we even had two different platforms. You know, for the first year or so, […] certainly we’ve evolved, there’s definitely a value. And our favorite customers are the ones, definitely, who can transact on both sides. And so, what we’ve found is that, first of all, the retail footprint helps a lot from that perspective. So we see way, way more customers in a retail construct, just because of the simplicity. Because I can go to the store—and the reality is we say “an hour,” but, depending on what you have, you’re talking minutes. So this use case is very friendly in a retail construct.

Charles: [00:47:33] And then, on top of that, the Infinity tool here is pretty groundbreaking. Frankly, we think this is very transformative. It really changes the way you think about ownership, you know? And we think a lot of these businesses—and I used to work at Rent the Runway and I love what they’re doing with the rental that now moved into the subscription and, to some extent, resale is somehow the other angle, the other side of that. But if you make resale more simple, more actionable, you’re also creating a shorter ownership journey.

Richie: [00:48:06] So five years into the company, how close do you think you are to that original vision of undoing the bottleneck on the supply side. Like, do you feel like you’ve made a lot of progress, do you feel like there’s still a ton of work to do to get there? What’s your analysis of that?

Charles: [00:48:21] Yeah. I mean, certainly we’ve made a lot of progress there. I think our technology is very slick now, and the combination of also having a retail footprint where we do it, you know, the one hour. So certainly we’ve moved the needle. We do think that there’s way, way more we can and we will be doing. You know, ultimately our goal is immediacy. So we always discuss internally—I mean, one hour is great, but it should be one second. That’s really the ultimate goal. But that requires a lot of technology, a lot of new tools, which we’re building, and so I think later this year we’ll be disclosing pretty exciting tools that really move the needle in terms of providing immediacy in the resale market.

Richie: [00:49:04] Will that start to remove the human art form and the physical people from the process, or do you think that they will forever be a part of it?

Charles: [00:49:11] It’s a great question. I mean, of course we’ll always have, you know, our buyers are critical here, because at the end of the day you’re making a curated assessment. That being said, yeah, first of all, from a scalability perspective, it’s very much needed to build technology. And you’re right, we do want to move to more immediacy, more technologically driven processes, which is extremely challenging. And, you know, obviously our team is the ultimate curator, but we want them to be assisted with more unique tools.

Richie: [00:49:40] What’s been the cheapest and most expensive lesson you’ve learned building the business?

Charles: [00:49:44] I mean, expensive, you know, it’s pretty much maybe our TV ads, etc. That’s where we spent the most dollars, and we had to spend a good amount to know that it probably wasn’t for us. And so, cheapest lesson… I mean, I learn cheap lessons every day just by going to the stores. You know, we’re very analytical, etc., but at the end of [the] day I can spend an hour in the store. It’s free, and I literally just listen to what’s going on, and pretty much that becomes our product road map.

Richie: [00:50:14] People tell you what they want, if you listen.

Charles: [00:50:16] Yeah. Like, my favorite thing, literally, is [to] shadow [the] customer. Like, when I go to the stores I actually don’t really say “hi,” etc. Because otherwise it sort of creates a weird interaction. I just pretend, or I go with friends, and this is the best customer insights that you could ever dream of.

Richie: [00:50:35] What are you most excited about on the horizon, the next one to two years?

Charles: [00:50:39] I mean, I think we’re really at an exciting time, generally for the resale market. You know, we are at that time where that’s it, you know, resale is on the radar. It’s not this niche thing anymore that a few people do. It’s the fastest growing retail segment, and in the next five or ten years it’s gonna pretty much overtake a lot of that. So I’m very excited by where we are as a market.

Charles: [00:51:07] I think the next journey—beyond just keeping scaling what we do and, you know, our retail footprint and our technology tools, and there’s a lot more we can do there—the next frontier is really interactions with brands. I really think that in the next two to three years you’re gonna see huge movements in terms of strategic moves, just because brands and conglomerates or department stores, they will realize that they need to be part of this market. Pretty much how I spend most of my time now is, we pitched this idea that I call “resale as a service.” If you’re a luxury retailer or luxury brand we can plug Rebag into your ecosystem. They don’t want to do the dirty work of valuation and real authentication, and basically this infinite return path that we do. What they’re interested [in] as a brand is, there’s a customer they’re trying to move the product, they’re trying to create a readable resale outcome. And so now we’re basically discussing all these tools and we have pretty cool technology that we can plug there, and essentially we can facilitate the resale on third-party platforms, and that I think is the next frontier.

Charles: [00:52:21] You know when we can actually—you’re a luxury brand, or you’re a retail—and it could be digitally, it could also be offline. But what if you can actually go into a luxury store or a department store. We can have a Rebag bar there. We can have a Rebag bar where you bring a bag, you bring merchandise and we are the same thing that we already do, and we mastered the skill. And imagine if you were there. First of all it gives a reason for the customer to go to the store which, frankly, today they’re very much looking forward to. And then [those] customers, we’re giving them real dollar on the spot. So this is where I think all the synergies are. And you’re gonna see a whole lot more of that happen in the next few years.

Richie: [00:53:06] Where’s the name from, and then how much was the domain?

Charles: [00:53:08] You know, it’s funny we used to be “Rebagg” with two G’s. So the name was zero dollars. So that’s why it was “Rebagg” with two G’s. Actually, I get a lot of comments on that, and then we had to spend—I don’t remember the exact price. It was pretty decent, but we did make a multi-tens-of-thousand[-dollar] purchase on that. But that’s why we also waited a couple years.

Richie: [00:53:30] Given the name do you feel like you have enough runway to stay focused on the category you’re on, or do you think you will expand into other parts of the resale market?

Charles: [00:53:38] That’s a great question. I mean, we definitely get that question all the time, again, from customers. Because they’re like, “Oh I’m selling a bag, you know, can I sell you this, can I sell you my shoes, can you assume….” And so, we know there’s a lot of appetite, and we have that customer relationship. So it’s actually reasonably easy for us to action. The reason we’re not doing it yet, I would say, is because we’re very operationally-minded. So we want to really become experts.

Charles: [00:54:05] First of all, again, we believe in what’s hidden. So I built my personal conviction just by seeing closets and closets, and I know that there’s ten times, 20 times more. So there is this belief that if you add categories you increase the time, etc. Of course. But then we have this belief that if we are hyper-specialized customers also value that, because Rebag is only about bags so it sort of gives this legitimacy that we know all about it. And I think we can say now that we know all about it, at least from an internal perspective, and the journey that we’re on now actually in the next year or two is really much, how do we make all these learnings public? So a lot of what you’re gonna see is we’re gonna start sharing much more content about pricing, about bag knowledge. So really that we become the centerpiece of all things bag. And that is gonna keep us busy for the next year or two. Beyond that, you’re correct. There’s other categories that share the characteristics in accessories, so I think the time will come where we will look at it, but it’s probably in sort of a longer journey.

Richie: [00:55:15] Awesome. Thanks so much for talking.

Charles: [00:55:16] Yeah. Appreciate it.

Richie: [00:55:22] 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 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 and we hope you tune in next week.