#133. Espresso is a new talk show from Loose Threads where we analyze important developments in the consumer economy. In our first episode we discuss how Rebag’s new pricing index tool relates to what fractional ownership means today and Brooklinen’s new multi brand platform that presents an updated but twisted take on modern wholesale.

Check out the full transcript below. 

Richie: [00:00:01] Welcome to the first episode of Espresso, a new talk show from Loose Threads where we analyze important developments in the consumer economy.

Richie: [00:00:11] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights, check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:26] Joining me for our discussion this week is Rebekah Kondrat, a partner at FaceLift by Loose Threads, and Caroline Tibbetts, who leads our research at Loose Threads. Our first story this week is the launch of Clair, a pricing index from luxury resale company Rebag. Clair ties into the idea of fractional ownership, which platforms like Rally Rd. enable via owning shares and tangible assets like cars, watches and other memorabilia. It also relates to what platforms like StockX offer around dynamic pricing, along with Everlane’s choose-what-you-pay sale. We discussed the changing waves of what ownership means today.

Caroline: [00:01:03] It’s the first time that there is a set price reference for over 10,000 models and over 50 luxury brands, and it’s available via app as well as on the website. And you actually get notifications of when price changes happen, and Rebag will buy the bag from you within two weeks of the estimated market price.

Caroline: [00:01:24] Just because I’ve come from like, the technology world, and you’ve been able to do this with iPhones and iPads for, I want to say, 10 years. But like, companies like Gazelle that exist where you basically put in the condition of your item and then they’ll guarantee you that price for two weeks, if you ship it and it’s in the condition that you say it’s in. So I’m sure there’s some sort of caveat. It’s a little bit mind-boggling to me that this has not existed for something that is such a high value—I mean, you can resell an iPhone for a couple thousand dollars. You can resell a Birkin for tens of thousands of dollars, right? So it’s a little bit insane that it’s taken this long. It makes a lot of sense.

Caroline: [00:02:00] I’m just curious how this relates to the counterfeit dilemma. Because it’s as you’re saying: yes, we have the reference here. Although, what if my bag looks so similar, to the one that I’ve uploaded to the site, and yet it’s actually a fake?

Richie: [00:02:17] Well, that’s on them to filter out, right? Which, obviously, what you’re alluding to is a real, real challenge, is to do that recently. The underlying premise of this is price transparency, right? In that you’re taking an industry that was traditionally very opaque and starting to put transparency behind it, and that’s generally a good thing. But how did they arrive at this? Obviously, I assume there’s technology behind it. It’s doing indexing and so forth, they’re looking at their database. But there’s work to do for them to put trust behind those numbers, right? Because not everyone, I think, will take it for granted. And, given there are other options—you alluded to The RealReal before—what if The RealReal says something’s worth 30% less or 50% more? There’s still asymmetries from a pricing perspective that are quite interesting.

Rebekah: [00:02:58] That’s true. I mean, another platform is StockX, where it’s on them to authenticate the items. But there are some items on there—I was looking at sneakers the other day—that are below what they’re being sold in the store for. But then there are some that are much, much higher. And I think a lot of that has to do with scarcity, whether it’s artificial or not. But yeah, I think it is interesting to watch these different platforms pop up and kind of see how people then think of their purchases as stocks. You can, “IPO them,” quote-unquote.

Richie: [00:03:28] Which again, ties in—so, Rally Rd., which is another concept in the space, we’ve had them on the podcast—they’re in what’s considered like, the fractional ownership space, where instead of buying a pair of sneakers that you can then go wear, you buy a share, in what started as cars and is now watches. And it’s interesting to think of like, generally you would want to buy a watch, so you could wear the watch. But instead, what does it mean to have one of 300 shares in Rolex, which you never can touch? Maybe you can see it somewhere, ’cause you own a little piece of it. But it’s not yours. And there is something interesting, too, about the fact that as you turn more these things into investments, you’re kind of encouraging them to sit in a closet more or sit in a display case or sit on a safety deposit box. It’s interesting, through a sustainability lens as well, of like, is something worth making just so it could be an asset and just sit there? Is it actually better to make something that gets used?

Rebekah: [00:04:16] And generally, depending on how the market tracks, it’s maybe better invested in something else. And time will tell with this, in particular, ’cause it will track. You can actually enter your entire bag collection into it, whether or not you plan on doing an exchange on the product. And you can actually see—almost like you would look in your investment portfolio—you can actually see how much all of your stuff is worth. And then as those price fluctuation changes, you can actually track, “Oh, over the last ten years, Birkins have generally gone up 7%,” or whatever it is. So it almost becomes like a mini-market.

Caroline: [00:04:49] Yeah. But I am interested in learning more about their process of how they got to these numbers. In the sense of, luxury brands aren’t willing to share intel. It’s why it’s been so difficult for companies like The RealReal to have proper authentication processes, because the brands are totally hands-off and don’t want to be involved.

Richie: [00:05:10] And some are suing them.

Caroline: [00:05:10] Exactly. Chanel has placed a lawsuit saying, “Please don’t count on any Chanel products here actually being authentic.”

Richie: [00:05:18] Is price transparency good for the luxury industry? Does it fly in the face of what it stands for? Like, I assume Chanel would be very pissed if there is an index of what all their stuff is worth.

Caroline: [00:05:29] Pissed, beyond. Luxury is so ambiguous, and it’s changing constantly; a new designer can change the price of something in the drop of a hat, and make something else plummet. So that’s why I personally wouldn’t invest my bag collection, and I’m of the school of wearing my things and showing them. But I see some women love their bags and love collecting things, and it makes sense for them to invest.

Richie: [00:05:54] How many people going to use this as a one-off thing versus, “I’m trading handbags?”

Caroline: [00:05:58] Well, you know what’s funny is, the majority of people—in the U.S. anyways, maybe in Europe, too—who own these very expensive bags, don’t use apps and wouldn’t enter in these items. Do you know what I mean? And so, maybe their granddaughters who acquire the collections.

Rebekah: [00:06:13] Ah. I didn’t even think of that.

Caroline: [00:06:16] This is the case for my Aunt. And she has a series of Birkins and she has no idea. And she won’t know until she dies, most likely.

Richie: [00:06:21] There was that New Yorker piece on The RealReal, and they have a whole department that focuses on estates and trusts. There was a story in there of some woman said some guy offered her a thousand dollars for just everything, ’cause all they do is liquidate, and they called The RealReal in. And I don’t know what the final haul was, I don’t think it was announced in the article, but I’m sure it was tens of thousands of dollars worth of stuff. But it’s like, pretty genius to have a whole department that only does estate sales, and goes and scoops up inventory off of that. It’s morbid, but fascinating part of the business.

Richie: [00:06:50] What about in terms of sustainability? Is considering them more of an investable financial instrument a good thing in terms of long-term sustainability? Is it more just like, trafficking stuff that isn’t getting used, and just moving it from one shelf to another shelf? How do you think about that?

Rebekah: [00:07:06] I mean, the thing for me about resale is it’s already made. So it’s already produced. You can’t un-produce it, right? Like, you can’t put the toothpaste back in the tube. So someone might as well, I guess, have it. This makes me wonder, then, what is the difference between art and a Birkin, which you could argue, some people view as art. And so, in that respect, should you then collect it and treat it like a financial asset?

Richie: [00:07:31] It’s an interesting question, I guess, in terms of the use. Because, generally speaking, when art is quote-unquote “used,” people look at it.

Rebekah: [00:07:38] Sure.

Richie: [00:07:38] Right. There’s nothing that—save damage or whatever—like, nothing should deteriorate the object. But when something like a Birkin or whatever is used, it—

Caroline: [00:07:47] The value decreases.

Richie: [00:07:47] Well, it’s a weird seesaw, right? In terms of, the value increases over time, but the more you use it, the more you’re slowing that increase in value. Right? Versus a totally untouched one is worth a lot more than one that’s like, very broken in and so forth.

Rebekah: [00:08:00] Okay. Fair point.

Caroline: [00:08:00] And, ultimately, this tool is fantastic. Because, before, I think people were walking around to various resellers and getting different prices. And now you have, in your pocket, a reference point at least.

Richie: [00:08:14] What do you think the inputs are to the system? Are they only looking at their own platform?

Caroline: [00:08:18] They can’t be.

Richie: [00:08:19] ‘Cause if it didn’t exist, what else are they relying on?

Rebekah: [00:08:24] I mean, I guess it must be a combination of like, what is the actual resale value? And then, I mean, I’m sure these things probably go up for auction. What was the last known sale of a used good condition bag or used bag in similar condition?

Richie: [00:08:39] Maybe Google search terms?

Caroline: [00:08:41] Maybe.

Richie: [00:08:42] This is a lot of intent

Rebekah: [00:08:42] Well, right. Because then you also have to have people that want to buy it. So then, I guess, where Google search terms would come in is like, “How many people have googled ‘used Birkin’ in the last 60 days,” right?

Rebekah: [00:08:53] So, the other thing that’s really interesting and related to that in this just, whole resale market in general is, it allows the customer almost to like, set the price. So I’m thinking about StockX, but going back to where they recently had Adidas release, a limited edition remake of the Campus 80 sneaker. And it was a completely blind bidding process. And so, they basically let the potential customer base set the price. They take the top ten highest bids. They take the lowest of the top ten.

Richie: [00:09:32] If the ninth-highest was $1,000 and the tenth-highest was $900, the price is $900.

Rebekah: [00:09:38] The price is $900. And so, the majority of the people who bid purchased the item for a lower amount than what they bid. And the other thing that’s interesting about this is it was a direct release onto a resale site that was not a used item. Right out the gate, they get to see how much is this worth to our customer, new.

Richie: [00:09:57] So they’re basically using it to find their own price elasticity.

Rebekah: [00:09:59] Yes.

Richie: [00:09:59] Which is really interesting.

Rebekah: [00:10:01] I think it kind of relates, in so far as like, the customer determines the value a little bit. I mean, I’m sure they wouldn’t go below a certain amount.

Caroline: [00:10:09] So, is this a new trend? That’s my question.

Rebekah: [00:10:11] That’s what I’m wondering.

Richie: [00:10:12] I think it’s great. I mean, anyone who’s ever priced something knows how hard it is to price something. And so, to use the market as a tool for that is really interesting. I guess it’s almost weird to think about, well, why do people just have to demand the price? Why is bidding only relegated to the secondary market?

Caroline: [00:10:28] Yeah.

Richie: [00:10:28] It doesn’t actually make sense, except for tradition. But the idea of a retail price is a construct in itself.

Rebekah: [00:10:35] Oh yeah. A hundred percent. But then you also have to consider all of the overhead that it takes, and you have to at least be able to cover your own costs. But Everlane does this with the choose-your-own-price thing, which is a little different ’cause it’s their kind of way of pushing out excess inventory, essentially. But I often wonder how many people choose to pay higher than the lowest price. I bet it’s more than we think. They don’t report on it, but…

Richie: [00:10:59] Right. So just, as background, they give you a range of options. Whether it’s a t-shirt, and it’s like, you can pay six bucks, nine bucks, $12 bucks. Have they ever released any information on what people choose? I haven’t seen any.

Caroline: [00:11:11] No, not that I’ve ever seen.

Richie: [00:11:14] I would guess it’s lower-middle. Maybe someone’s trying to make a point, is like, “I’m going to pay $12 bucks for this.” But most people are like, “Give me this thing for as cheap as possible.”

Caroline: [00:11:21] Exactly. But the difference with the Adidas StockX and the Chanel jacket is the art aspect and the brand cap.

Richie: [00:11:29] You’re saying Everlane isn’t art?

Caroline: [00:11:31] Like, you know that they just made a purple jacket for some reason, and they need to get rid of it. So, of course, I’m going to elect to choose the lowest price. I’m helping them out. I’m giving them something.

Richie: [00:11:42] But there’s clearly this development happening around this idea of like, fractional ownership, and just kind of a reformulation of what people want to pay for things and feel that they should pay for things, and what they should rent and not pay. And it’s interesting, it’s all kind of swirling together.

Richie: [00:12:03] Our second story this week is the launch of Brooklinen Spaces, a new platform from the bedding company that showcases adjacent products from other brands on its website. This is an updated, but twisted, take on modern wholesale. Since Brooklinen will sell and ship the third-party products with its own packaging, it will also be responsible for returns and customer service. We discussed the risks and rewards of this aggregation-based approach.

Caroline: [00:12:29] It seems so revolutionary in this concept, although it really is just an updated concept store.

Richie: [00:12:36] Why does it seem revolutionary?

Caroline: [00:12:37] Well, people are writing about it and remarking on it, and feeling excited about this chance to discover direct-to-consumer products at Brooklinen.com, which I agree. That’s interesting. That’s a shock. Before, up until now, it’s only Brooklinen products. But that was the role of the traditional department store. That was what Barney’s was. And we’re just back there again.

Richie: [00:12:58] Well, I think Brooklinen has expanded their product assortment solidly. I’d say Parachute probably has done it much more, into home and bath and bed and baby and all these other things. They’ve turned to bringing other brands in that support their ecosystem, whether it was bed frames, they talked about blankets. A lot of like, tangential home and kind of bed products, as a way to bring more people to the site. Increase average order value, somewhat amortize marketing costs.

Rebekah: [00:13:27] Right. But the thing about this is, they say in the article, whenever possible, they’re gonna ship things from their warehouse in their packaging. They’re not really saving on any logistics. I mean, they’re saving on logistics in so far as like, they’re not creating a product. Like, they don’t worry about supply chain of that product. But they do have to use their packaging, they have to use their shipping. And then, for the customer, it can—and I don’t think there’s any information yet—about how like, returns or exchanges would work. But then, because they don’t produce that product, can the customer return it to the store? And then if they do, then they do have to handle like, extra logistics, because they have to get it back to whatever the—

Richie: [00:14:02] “Hey, guys, here’s my bed frame.”.

Rebekah: [00:14:04] Right? Like, “Here. Can you ship this back to Floyd for me or whatever?” And then if they say “No. Actually, you need to contact Floyd about that.” Then the customer’s like, “Oh, I bought this from you.” And so it just becomes a little bit confusing whenever this type of thing happens. So, I don’t know. I’m a little bit like, “What is really happening here?”

Caroline: [00:14:23] I think that they’ll be able to work out the kinks, and it could end up scaling or being a mainstay. But what’s really interesting is the data that they get to collect from this. So, despite the bed frame that’s gonna end up in their store, they’ll see how many of their customers want bed frames in black or blue or brown or in whatever aesthetic. So I think that’s worth it for them, even if it is relatively temporary.

Richie: [00:14:47] Do you need to sell that stuff, though, to get that data? If the goal is data, could you learn from a survey? Of course, there are limits to asking people what they want that doesn’t yet exist. It seems the primary goal’s revenue. And, of course, data leads to more revenue, ’cause they can say, “Let’s go into these categories.” But then, if they know that bed frames are selling, then they go, “We’re gonna go make a bed frame.” And now the bed frame company’s pissed because they don’t need to sell your bed frame anymore. They’re gonna sell their bed frame. Like, they’re gonna private-label themselves, and they’re gonna just be back, like, this little mini-Amazon.

Caroline: [00:15:18] So do you feel that everyone should stick to their own lane?

Richie: [00:15:22] I think it’s just a question of how far it goes, and like, what the actual goal is. Amazon’s goals are revenue, but revenue happens in so many different ways. It can happen from ripping people off. That’s how you make revenue for some companies. Like, if you look at Primark or a Zara, or like—they built business models on just ripping stuff off. I guess the question is, too, how proprietary is that data? Like, if we know the mattress economy is booming, I assume people need some bed frames, right? I assume they need end tables.

Rebekah: [00:15:50] I also wonder about what it means for the partners. Like, a Floyd, for example, a natural next step could be to make a mattress and to make bedding. But like, are they agreeing to now not do that, in entering this kind of partnership with Brooklinen? I mean, I guess like, what is the scalability on both sides? If Brooklinen wants to grow their offering or if Floyd wants to grow its offering, are they cutting themselves off at the knees, both of them?

Caroline: [00:16:16] But I like this idea of what you’re saying, that everyone’s small, so no one’s looking to rip each other off. Like that’s the difference between them and Amazon. This type of marketplace. Misha Nonoo, she’s a famous British designer. She became famous for her shirts. And she did a pop-up in Soho a couple months ago. And she did the same model. She was like, “I’m never going to go into shoes and jewelry and candles like everyone tells me to. So I’m just gonna bring in people that I like.” So she brought in Negative Underwear and great direct-to-consumer brands, and just gives them the spotlight, and they kind of work together on—maybe I’m too kumbaya? I don’t know.

Rebekah: [00:16:53] Well, but did she sell them under the Misha Nonoo brand?

Richie: [00:16:55] Right? That’s the thing, is Brooklinen starting to aggregate over them?

Caroline: [00:16:59] Yes. It’s like a halfway between white-labeling and just selling them as a third-party product.

Richie: [00:17:05] Yeah. It’s like a half-Amazon.

Caroline: [00:17:06] Yeah, true.

Caroline: [00:17:06] If they were saying, “These guys are gonna come in, we’re gonna build a Marketplace. Floyd is gonna sell their Floyd stuff, this vase company is gonna sell their vase stuff. Everybody…”

Richie: [00:17:14] Or, “We’re gonna redirect to their site.”

Caroline: [00:17:15] Right.

Caroline: [00:17:16] So what are the benefits of them shipping things out in Brooklinen packaging?

Richie: [00:17:20] I assume it’s supply chain efficiency and brand consistency, but the risk of that is the opposite. Which is, if any of those go awry, everything is Brooklinen’s fault now. It’s the same way that if you buy a pair of New Balances from Nordstrom, it’s Nordstrom’s fault. You go blame Nordstrom’s, you deal with it at Nordstrom’s. At a certain point, you just gotta take responsibility or not, and they are straddling the line. And it seems like, in the next, call it six months to a year, they’re gonna have to pick a lane. ‘Cause all the other examples of this are just like, a neighborhood good style thing, which is just another version of a department store pop-up. Or, I mean, Apple—

Rebekah: [00:17:53] Apple does it, for sure. But the thing about Apple is, up until several years ago, though, if you wanted to return your Bose headphones that you bought in the Apple store, they would send you to Bose. And that was not a great experience as a customer. And so, they’ve changed that since then. But it took years.

Richie: [00:18:17] Thanks for listening to Espresso, a 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’ll be back in a few weeks with more.