Richie:[00:00:01] Hey, it’s Richie Siegel, the founder of Loose Threads, I hope you and your family and your team are hanging in there during these challenging times. We’re running an audience survey right now that you can take at LooseThreads.com/Survey, which will help us better offer solutions to your most pressing business problems. 

Richie:[00:00:15] In our new podcast series Offense versus Defense, we’re talking with leaders across the consumer economy about how they’re managing their business, balancing playing offense with playing defense. Defense is about cutting back as much as possible to preserve cash. Offense means making calculated investments and taking a risk to put your company in a stronger position. Just like in sports, a team can’t win by only playing defense and the companies that can weather this storm and make opportunistic investments will emerge in a stronger position than where they entered. 

Richie: This week we spoke with Julia Hunter, the CEO of lifestyle brand Jenny Kane. While the company is dealing with a lot of operational challenges as a result of it, it has seen its online business take off, especially as people invest more in the spaces they live in. Julie and I spoke about how the brand compensated for a closed warehouse, her views on a rebalanced retail strategy and how the crisis has pushed her to realize how much of a business’ trajectory is outside of human control. 

Richie:[00:01:06] Here’s how Julia and her team have managed the crisis so far. 

Julia: [00:01:12] We’re in a bit of an interesting situation because Richard Kane, who is Jenny’s dad and the sole investor in the company, really knew that COVID was coming. And he was telling us in January to get ready, in February to get ready and in December he even started doing it. And I was really kind of trying to brush it off and said he was thinking about something that wasn’t going to come. And I didn’t think it was as extreme as he was saying. It was hard for me to accept that, our business was doing so well and he started asking me to rethink some of the retail stores that we were opening this year and try and get out of some leases. And I was really pushing back on that because we had no reason from the business perspective on our side to do that. And there was very little evidence at the time that anything would be happening in the United States. So it was a little contentious for a couple weeks, just him really wanting me to understand the risk and me really resisting that. And I think our business didn’t actually feel anything until we had to close all our stores, which happened over a 48 hour period on Friday. 

Julia: [00:02:11] People started getting worried about going into stores, the sales associates and store managers were nervous. We closed the office that day. And then by Monday, all the stores were closed and so it was a big surprise for us. And we thought at the time that that would only last for a week and then two weeks. And despite having been fairly warned, we were ill-prepared and have been kind of dealing with it the way that everyone else has, scrambling a bit. So we could have taken more precautions than we did based off of heads up. 

Richie: [00:02:40] And so you talked a little bit about retail, what about in terms of what was happening online the day after you closed the stores? 

Julia: [00:02:48] We started really realizing how much we would need to shift focus on ecommerce. And I’m a pretty cynical and skeptical person, so as soon as I realized this was a serious problem then I kind of went to catastrophe planning and what’s the worst case scenario? And so, in between the Monday and the Thursday when shelter-in-place happened, we decided on our new strategy for ecommerce, where we would move inventory out of our warehouse, which we manage by ourselves and was part of the shelter-in-place and it’s not an essential business and there’s no essential goods there. 

Richie: [00:03:18] So in California are warehouses not essential? Because in New York and New Jersey, they’ve been marked as essential, which is really interesting. 

Julia: They’re not unless they do essential goods. Garrett Leight, I think is actually in our warehouse and they make sunglasses, which are considered essential. So they’ve been allowed to book businesses that are not. I mean, that might be different for the size of the warehouse, but ours is all operated by our own team. So for us, we’ve not been not allowed, given that was the situation in a drastic and somewhat insane move, took all of the inventory that we thought we would need to support a month of sales from ecommerce and rented U-Hauls and moved it into my guest house and my house and our CFO’s guest house and her house and began order fulfillment from home with the team. We were trying to stagger everyone coming, but basically business was actually on fire on ecomm. Everyone was unpacking boxes and kind of we’d been all going back to basics. 

Julia: I now know how to process e-commerce orders, which I can’t say I knew how to do before. Ultimately, we ended up shifting everything a couple weeks later all over to the CFO’s house because she manages the operations team and the corporate team was at my house and we were getting horrible reviews on customer service for things breaking and wrong items shipped. So we were, you know, single handedly tanking the company’s NPS score over here. 

Julia: So we moved it all over to Anne’s house and it’s been there since then. But that was the biggest change immediately, it was to just try and make fulfillment possible. And then more broadly, we started taking a lot of steps on the digital side of the business. So business is awesome for us right now. April closed up 50 percent versus last year, total company. So we have six retail stores, four opening this year. And those are driving about half the company’s revenue, until COVID, with a great trend. They were all up again versus last year. But ecommerce has just more than offset the misses there. So we were planning to go from 24 million to 60 million this year, total company. And even if the stores all stay closed, we can get to 40 million, just off of ecommerce alone because it’s making up so much of the difference. So we’re super happy with what’s been going on with our business.

Julia: But I think the reason that that’s been happening from a product perspective, our first step since we’ve been warehousing out of our homes, we needed to make these orders smaller because we have a 20,000 square foot warehouse and thousands of SKUs. So we really immediately paired back to what we considered work from home essentials. And that’s just clothes, but obviously pillows, blankets, all the things that Jenny is really good at, cozy slippers, things that make you feel good. The basics are really well made and very nicely merchandise, really cohesively with visuals and content story around what you need in this time when you’re stuck at home and how to feel good. 

Julia: And then we really relied on our content strategy as well, because we do all the storytelling content about how to live well and help them help women live well. So for us, there was a lot of synergy between the way people were feeling and the message of the brand. So it’s not like a fashion company where, you know, it’s hard to sell high heels right now. We have kind of a very good assortment for that. And we just made a point to take off anything from the site. That didn’t sit with that. So the blazer, anything that was like a wear to work or fashion at all, we just removed. 

Julia: So we’ve actually dropped the size of the assortment from what it was. It’s now about 25 percent of what it was pre-COVID. But still doing insane business, and many of these products were core for us anyway. So we have a lot of depth behind them. And so that was kind of the first big step. We knew we needed to make-up sales and we were nervous about seeing a dip. So we did start a 20% off promo for over a week and saw a lot of success. 

Julia: We were pretty nervous about what would happen when we went off of promo. And we did have a couple of slower days, but then it picked right back up and we haven’t been on promo since. We’ve been doing little pops of things like a mock slide here and that we’ll do 20% off that. But we’re really just focused on making really strong storytelling and content that felt right for the time. And then the other thing that we’ve been really going after our digital marketing in a really big way. So cost per impressions has gone down considerably in our space. We’re not seeing a decrease in customer acquisition costs because we’re just buying back into all that opportunity. So we’ve been buying a lot of new customers. We’re pretty pleased with our repeat rate, last year was around 37% of the business and now it’s up almost 50 percent. 

Julia: So in general, we’ve been feeling bullish on an acquisition because there’s a lot of upside for us to be acquiring customers right now and they’re inexpensive and loyal. So that has been a big part of it. And then we also have been doing print in a big way. So we started doing direct mail last year, which was mostly just fold-out flyers, one-pagers with an update on what our core products were for the season. And then a 20% off coupon code. And we’re seeing really great results on that, but decided that now with COVID, I think some people are worried about touching their mail. 

Julia: But for me, getting the mail has become an important part of my life and I look forward to seeing what will come. So I think we’ve decided that we wanted to go after mail in a really big way. So we’re launching our first ever magazine, which will be out in a couple weeks. And then we’re starting to do real catalogs for home and apparel and those are all launching in the next month or two. So just really leaning into the ways we can get to our customer right now when they come to the retail stores, plus launching styling and interior design services on the website. 

Julia: We have a really nice experience at retail stores with customer service, which is an important part of our brand, but this has really encouraged us to lead into that digitally. We’ve been launching new programs that can be offered to people anywhere. And that’s easy for us to do because we have talented team members at the store level who can now help people because they have their time freed up. So those are some of the things that have been working for us. 

Richie: [00:09:07] You mentioned the inventory assortment, cutting it to 25% of what it was. I’m curious, what that tells you? How, if at all, is it going to force you to reevaluate, post this crisis, how you think about merch? 

Julia: [00:09:25] When I say 25% of this assortment, I mean, really the number of SKUs, it certainly isn’t the amount of depth in our strategy. And this comes from, you know, kind of working at J.Crew for a number of years and Mickey the CEO always said to build franchise businesses and try to really develop your core styles add colors. And that’s been our strategy at Jenny Kane. Because that’s a super healthy way to grow business and makes a lot of sense for our neutral and basics product. So it’s 25% of SKUs, but more like 60% of our inventory is still represented on the site. But now I think it has made us rethink the merchandising strategy for the company.

Julia: It’s hard because I think there’s always a balance. And we’ve been talking about this as our repeat customer rate grows, we really do need to introduce newness to customers and can’t keep offering them the same thing forever. But then we also see that 50% of our revenue, every single week, is driven by core styles. So I think it’s a mix, but I also think that this is a lesson that we are not at risk of going in the wrong direction and that we should. Paring back is a good thing that’s consistent with our story, it helps our margin. it’s good for us in so many ways. So I think refocusing on the essentials is something we always try to do. But especially after seeing this, we were all shocked that we were able to do this kind of business off of such a small number of SKUs. 

Julia: It just speaks to the power of storytelling and marketing and showing people the same thing over and over again. So they understand different ways to wear it or how functional it is in their lives, if they can see it in all these different contexts and have to focus on the same products over and over again and actually help to sell them. And because there are core styles, we know that they’re proven and going to work anyway. So it’s interesting. I don’t think we know the answer yet, but I certainly think it’s making us feel more bullish on growing home as a category going forward, because we’ve been growing so quickly the last few years, primarily out of sweaters and shoes. 

Julia: And now all of the sudden, finally our home mix, which we all feel really passionate about, is getting traction and the growth there is the biggest year to date. So that’s exciting and we will be going after that. But again, this is a reminder that we should be really purposeful about the SKUs that we include in the assortment and not try to do everything. We don’t need to tell a kitchen story. We don’t need to do a back story. We can do the things that make sense for our brand and just make really strong images that help sell those things. 

Richie: [00:11:32] On the other side of the coin then, there are new product launches. And I’m sure there is new stuff planning to be launched at some point in the time that we’re in. How did you guys approach what you will still launch, what you have to hold off on and then in terms in the future, are you in a place where you can develop new products now or are you kind of working out what you have, given the supply chain disruption and so forth? 

Julia: [00:11:52] It’s a mix. So I think our apparel collection, which is sort of ironic, we’ve been trying to shift away from China as a manufacturing partner for years, but especially when COVID happened, we were thinking now is really the time we need to stop, even though it ends up being the highest quality. They’re very talented, particularly knits. We import all the fabrics to China. But the craftsmanship is just amazing what we get back from our factories there. So we haven’t really actually made a pivot. I’m pretty scared about that. But China’s fully reopened. 

Julia: [00:12:25] I mean, it was really three or four weeks of us. They were closed for two and then started reopening and got back to full capacity, 70% capacity in a couple weeks and then up to full capacity and this is our seven factories there within a month or two. So on the apparel side of the business, which is 55% of the company’s mix, we’re fine. We’re developing new styles. They’ve been super flexible about giving us discounts just because we’re nervous. We don’t know if we’ll have the same demand for the quantities that we place orders, but we’ve been really hit in other areas. So Peru is where we make most of our home product and shipments are late. When I say business is great, we weren’t expecting the sales we had and sold out of a ton of key products. And we’re having a hard time restocking those in time for the next kind of big pushes, marketing wise. 

Julia: And then shoes it’s just very unknown right now because we make everything in Italy on the shoe side. And every week we get delayed another week. So that’s a big question for us. And it’s concerning at our size. Shoes make up about 25% of the mix, but it’s a really focused assortment. So we do have a lot of depth and probably six months of supply, but it might not last if this goes on, you know, we need a few months of order and things like that. It just seems very unknown. So the supply chain is certainly complicated right now. 

Richie: [00:13:40] And then in terms of developing new products, is that something you guys are thinking about or you’re just trying to go through what you have at this point? 

Julia: [00:13:46] No we are. So we’re on a calendar. We’re fortunate that for reasons fully unrelated to COVID this year, we decided that we were going to try and get really far ahead of the calendar so that we could integrate more content and execute more video, like things that were going to take more time. 

Julia: [00:14:03] So we actually shifted up all of our dates for design and development about six months last year so that we actually are finished with all of our development through fall holiday and have been done with that since January. So really we’re fine. I think figuring out what’s going to happen for next year is the tricky piece. So for us, we’ll just have to wait and see. But we are planning to go forward with our regular calendar, which means we need to start developing a new product in August. And I think we know we’ll be okay in certain categories and then others it’s going to be tricky. 

Richie: [00:14:33] I’m curious more about the retail front. You mentioned that you had a pretty aggressive strategy coming into this year. How much of that changes at this point? What do you want to change? What will your landlords let you change, if you’re thinking months out at this point, what does it look like? 

Julia: [00:14:52] For our existing retail stores, I didn’t want to do any deferment. I don’t like the idea of just oweing a bunch of people when we can reopen the company. So that was the thing I was most aggressive about. They were all saying defer and revisit later. And I made a pretty clear offer. We’ll pay you 50% of our base rent in triple net, depending on the office or the store, but I’m not paying more than that. And you need to agree to it now. And that’s going to happen until we’re allowed to reopen. And, you know, it took weeks of negotiating with each of the landlords. That’s probably what I was doing with 50% of my time. And a lot of it actually felt like fighting. But I was really persistent about it. 

Julia: [00:15:27] You know, we’re small potatoes in some places and in others we have more leverage. But it was really case by case. When will our lease expire? Can we threaten that? Are we on percentage rent? So it’s pretty much a big headache on the landlord side. But so far, almost everyone’s come around to the idea of taking 50% because they want the cash flow now. And that’s working for us because we did have quite a bit of percentage rent liability. And so not having to pay, that helps us too. Anyway, that was kind of a step. On the new store front it’s been more of a nightmare just because in our new store front in Marin, our new store opened just two days before everything had to close. So that’s a huge bummer. 

Julia: Seattle’s ready to go and they were the first to shut down so that store couldn’t open, but it will be ready as soon as we can reopen. And then Madison, Upper East side and Greenwich. We haven’t been able to do any construction, so new stores always went from feeling really positive. We were on like a 36% margin on an EBITDA basis for our retail stores. So they all felt amazing and this store expansion strategy could be really aggressive because it was super profitable. We know that it costs us $250,000 to build a store so the payback period is six months. We had the formula and it was really ready to go and we were ramped up to start with it for this year and maybe open 10 more next year. And all the sudden now, it just feels like a liability, leases just feel like a huge liability. 

Julia: And that’s not something that we’ve viewed the stores as at all until a month ago. And now it’s like the very top of mind that this is we’re not involving landlords in our business they get an opinion on everything. It’s much more difficult to scale when you’re fighting each single person. 

Julia: I think it’s really shifted our retail mentality and the way that we’ve been thinking about that. We’re really on a roadmap to go from six to 40 stores over the next five years. That was a huge part of the company’s growth plan. And now we’ve decided what it will look like if we open no more new stores. But can we get to the same revenue numbers off of ecommerce growth if we really push it and get more aggressive than we have, dedicate more team to it, invest more in ads, make retention the best experience we can, and that’s the plan that we’re executing to now. 

Julia: I think the risk for us is that we know our omnichannel customer who shops at the store and on ecommerce has like a six times higher customer lifetime value. So the risk is that we aren’t able to build value out of our customers as much with the strategy. But we are taking I mean, the big thing that I’m working on right now is doing a really big geographic deep dive on our business and trying to understand we’ve shifted a lot into 2018, almost 50% of our revenue came from California and now it’s about 35%. So while the value has grown to 10 million bucks, we’ll do that out of California this year.

Julia: But as a percent of the total is much smaller because we’ve actually opened markets in the southwest, southeast we have business everywhere, which I didn’t even know until 72 hours ago. I did a deep dive on making a heat map and trying to see where our sales are coming from and it’s been pretty shocking. And then even going further into that is my current project, which is ok in Florida. That business is  actually the number one state for us. But when I dig into Florida, it’s actually fragmented across one hundred and twenty one cities. There’s no clear city that’s driving. And so it really actually wouldn’t make sense to open a store there because we’d be pretty hard to aggregate the volume. 

Julia: But in Texas, on the other hand, Dallas, Austin and Houston are the three top cities very clearly. But Miami wasn’t even in the top five in Florida, or Palm Beach, which were the two places that we’ve thought about opening a store. So, the question is how do we build this business through digital as much as we possibly can? And then layer in retail stores to add volume when we need it. I still think there’s a ton of opportunity in the Northeast because it is only twenty five percent of our business versus California being almost 40. And you know, the market’s huge in New York. 

Julia: Do we just blitz certain areas and open stores and go after them with digital ads and then otherwise do digital? The main question that we’re working on now is trying to understand the repeat customer rates for those people who are not near our stores. How do they perform compared to the retail store customers? And can we really build that relationship digitally? We think the answer is yes. Undoubtedly not to the same tune as what we can do with a retail store, but maybe it’s more cost effective and efficient.

Richie: [00:19:45] Have you had to be more transparent or communicate differently in these times than you did before? What has the change been there, if anything? 

Julia: [00:19:52] I think the content and the way that we communicate with our customers has gotten more authentic and it always has been to a certain extent. But we’ve been trying to build that business, including more products, focus and doing more storytelling around new items and what’s in stock. Now we recognize the importance of not doing that very quickly. Like we need to be supportive. We need to talk about things besides product and not have that be the focus. And so I think the product is always integrated and it’s just been really secondary to helping women live well, like giving them ideas for how to feel better day to day. 

Julia: As with all the uncertainty, I think it actually just encourages us to do things that I was kind of pushing us not to focus on so much because they didn’t feel related to our scale necessarily. So we’re doing cooking classes, something that’s intrinsically sort of breaks my heart to do, because first of all, I don’t know how to cook.  But second of all they don’t sell products. They don’t tie back to anything that we’re doing really directly. But it’s exactly what people want right now and it is very authentic. Jenny, hosts cooking classes. That’s one of her favorite things to do for her friends. 

Julia: So I think we’ve gone more in that direction of authenticity. We’ve never had so much positive feedback. You know, it’s all anecdotal, but people messaging into Instagram, telling us like this is exactly what we’ll need right now. Thank you so much. And that’s not really the response that we typically get. People like our content. We know that and it’s beautiful. But there’s been much more of a connection, I think recently with our customer because they feel like we are meeting them where they are. 

Richie: [00:21:22] From like a leadership perspective, what has been the most challenging and rewarding for you in the driver’s seat? 

Julia: [00:21:31] Well, the thing that’s been most challenging is trying to recover emotionally from the idea that we had so much momentum and feeling like, whoa, this really might we might have just gotten fucked for lack of a better word. I can’t think of anything else that means the same thing. Wings. The wings clipped. There you go. That’s better. I was pretty worried that like all this momentum that we had was just gonna be lost by something completely outside of our control. And I think the biggest surprise, which I hoped would be the case when we started thinking about maybe this is there’s a chance for us to grab market opportunity, maybe this can help us grow our business. 

Julia: I think the surprise has been that that has been what’s happening. And, you know, the scariest part is who knows what tomorrow holds. It’s still very much a reality, but I think that’s really surprised us. And I think the nimble and strategic way that my team acts is really amazing. I’ve never worked, you know, I was at really big companies before and I think the team is just so passionate. 

Julia: And so it’s been amazing. Like we’ll have an idea on an initiative on Monday and then by Wednesday it will be up on the website. And everyone’s commitment to being big picture and really thinking about what they can do to help the company has been reinvigorated. And I don’t think we ever lost that. But it just gets harder when you are getting more focused on siloed tasks. I think it will stay that way. So it’s actually been really inspiring because I just feel like our calls are actually much more strategic and, you know, data driven. All these things that we’ve been saying we need to refocus on, make sure that what we’re doing is just happening naturally right now because we have no choice that has to be really impactful or it’s not worth the time. 

Richie: What’s been the cheapest and most expensive lesson you’ve learned in the last eight weeks? 

Julia: [00:23:14] I think our warehouse has been impossible to negotiate with about rent. So the biggest, most expensive problems have been the landlords who are just really trying to not share in the burdens at all, even though we can’t access the spaces. And we know they’re making a premium on our base rent, otherwise they wouldn’t be in business. So the idea that they won’t even compromise halfway. And just take no margin instead of some margin. So that’s been an expensive problem and one that’s really frustrating because it’s fully not helping the company in any way, shape or form. 

Julia: Other expensive. I don’t know. I think the big thing is what will happen with our direct mail strategy, that that’s kind of a risk for us. We’re making big bets there. And we’re also looking at commercials on TV, which we visited a year ago. They’re just too expensive. But, you know, rates right now are down like 80%. And people are watching TV. 

Richie: [00:24:04] Yeah. Why do you think those rates are down? If the attention on it is so much higher. 

Julia: [00:24:08] I think it’s because the big companies know the first thing they’re going to slash is marketing spend. So anybody who’s taking a hit right now in a big way is going to cut marketing because it’s easy. And that’s what I saw as the right thing to be doing right now. So I think all of the big players are out of the market right now. People want them, but it’s more a little guy like us who doesn’t have the same budget. So it’s still expensive. It’ll cost us a couple hundred thousand dollars to run a commercial. So I haven’t signed up for that yet. It’s not officially the most expensive thing we’ve done. But it will be if we go forward with it.  And cheapest, It’s just all of the advertising. I mean, that’s just been amazing. Seeing the traffic on our website skyrocket while our ad spend has been consistent is awesome. 

Richie: [00:24:55] What do you expect to keep or what do you think will stay out of all the things that you changed from a crisis perspective? 

Julia: [00:25:11] For me personally, this has actually forced me to do the slowing down that I needed to do for the last 35 years. I have a garden and I exercise every day and I’m 24 weeks pregnant. 

Julia: [00:25:21] So all these things that I should have been doing to take care of myself, I haven’t been doing for years and have been now. I’m such a goal oriented person that like the third day of coronavirus, I made a list of coronavirus goals. And like a lot of them or these personal projects that I know I needed to do, and if I was at home, there’s no excuse not to, but it’s actually been really healthy. I think that’s a hope that we are all kind of reminded that we don’t need to do everything all the time for our business. 

Julia: I think my big hope is that home becomes a super powerful category and you know, it’ll do 4 million for us this year, which is a pretty small business compared to the rest of the company, but we see a growth path to 25-30 million over the next few years. And I think getting this momentum is just encouraging us to go after that category and seeing the business that we’re doing right now. So it gives us more confidence to go after it in a big way. It’s definitely new for us compared to the rest of business, but feels like something that’s really important and honest to the brand. And we just haven’t seen it blow up the same way the rest of the business has. So I think that feels like something that we hope for. The company continues to thrive and really grow. 

Richie: Awesome. Thank you again for taking the time. So good to talk to you.