Italic & a New Era of Online Retail
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It's been great. I've seen your name so many times in Slack, where you've been an active member of the community and so many other italic folks have been too. So it's really cool to meet you in person for the first time. It's really neat to hear both of your voices live for the first time as well. It matches the podcast. Yeah.

Awesome. Awesome. Well, Jeremy, for folks who haven't followed your career, you're the co-founder or founder and CEO of Italic? Yep, the latter. The latter. And you previously were the founder of a company called Not Pot. Yes.

I think you also were the founder and COO of a company called Fountain. Yep, that's exactly right. What were the two of those? Fountain was, well, it's still around. It's actually doing quite well. It's a enterprise hiring automation platform that a lot of the Fortune 500 use for hiring their hourly workers. So

So think of really, really large scale, high volume hiring and the software that you have to use to process, not like individual tens or hundreds of applicants, but in the millions. And then NotPot was a company that my girlfriend Katie and I started five or six years ago. And it's a really fun, I guess, direct-to-consumer brand. So the exact opposite of Italic, but it's been fun to build that up. And that's been bootstrapped, whereas Italic and Fountain were venture-backed.

And you were a TEAL fellow before all this, is that right? Yep, that's right. Would that make you like in one of the first class or second class of the TEAL fellow program? I think we were the third class. So my class started in 2015. Super fun. What was that experience like? It was amazing. I have to say, like, I think it's really come up over the years. One, as an Asian kid with Asian parents, like you need some...

justification to be out of school for some reason. And that really helped a lot because very low acceptance rate, very prestigious name and obviously helped me make the case to my parents. But I think on the flip side, if anything, being a young founder in San Francisco in that era still wasn't, I think, as common to go drop out and start a company like it is today, even in just five, six years. So I think if anything, it provided a really great community of

like-minded people who all lived around the Bay Area. Over the years, a lot of those companies that were started by those early fellows have gone on and done very, very well. So it's been really great to have a community to kind of grow up with as opposed to, I guess, a college environment

you know, frat or dorm or whatever it is to kind of have a, have a group of friends. It was a great experience. That's so cool. Yeah. It's been such a successful program. Yeah. I think the biggest regret all of us have from the program is there was this one winter. Well, there was a winter where Vitalik emailed the whole list and he was like, Hey man, like,

You should buy this presale. And, you know, Bitcoin was dropping. I don't think a single person bought it, to be honest. And there's a lot of stories like that. So one thing we've learned is when you have a chance, you know, it's more good than not to bet on a fellow fellow. Yeah. If you suspect you are fishing in one of the rightest ponds in the world, you should just have every possible line in the water. That's right.

Was it DST that backed every YCE company in a batch? I think that would have done pretty well if you did the same for Till Falls. They never took equity either. So that was very nice of them. Was there any tie to Founders Fund or any of Peter's investment vehicles or was it?

Totally hands off. There was a separate entity, the Teal Foundation, and it was affiliated with Teal Capital, which is a separate vehicle from Founders Fund and Baylor and Clarion and so on and so forth. But all of them were in the same office building in One Letterman over in Presidio. So we'd do events over at Founders Fund and bring in partners for us to learn from. And then eventually a lot of those kind of partners would fund the

Teal Fellow companies. And then there's a lot of, I think, intermingling, but on the equity side, the Teal Fellowship itself was really just a grant, which for what it's worth, isn't enough to live in San Francisco at that time. But, you know, I think it was an enabler to really allow us to kind of get started for many of us.

Gosh, it's more now, but YC originally was what, like $20,000 or something? It's not about the money. It's about mostly what you said in the beginning, just enough catalyst and prestige and justification to...

go do something entrepreneurial really, really early in your life. I mean, obviously to start a company nowadays, you still have to have like a very, it's still not cheap to start a company as much as, you know, people would like to make it in my opinion, at least. But I think programs like YC and

the Teal Fellowship. And the whole, I think, programming around the fellowship specifically for me was really, really helpful because you go into San Francisco, like I didn't grow up in the Bay Area. I didn't know anything about tech. It kind of like was a catalyst to fast track you to meet the right people a lot faster. And I did YC as well, by the way, six years ago. So I think, you know, both of those programs. That's right. Fountain was a YC company, right? Exactly. Yeah. So really, really helpful frameworks and communities. All right. So I want to transition us here to

to starting Italic. So you started this in 2018. And just to give everyone a sense of where you are today, I think you've raised $50 million, just recently $37 million by a consortium of awesome investors. What is Italic? And can you take us through a little bit what the journey has looked like when you launched and where it is today?

Yeah, so Italic is a managed marketplace that connects high-end manufacturers from around the world directly with end consumers. For our manufacturers, we built a suite of products and services to essentially allow them to sell direct to consumer. So that includes our fulfillment network. We call it the Fulfilled by Italic, the FBI network, which ranges from...

I love that.

And then other things like creative services, you know, data-driven merchandising, which we can dive into a lot further, really to empower manufacturers with the same set of tools that a retailer or brand does. And in turn, what they do is for the first time, and oftentimes a lot of these manufacturers histories, you know, these are like generational businesses that might've been around 30, 50 beyond years, right?

They take inventory risk, which is a very different business model than what they're used to. But in return, because they're taking that inventory and they're selling directly on the Italic platform, they're able to access a lot higher yield on the existing production lines that they already have going without actually having to change or invest much in their own business.

It's fascinating thinking about these multi-generational manufacturers having, I mean, 50, 80 years of experience manufacturing products and having never taken inventory before working with you.

The job of a manufacturer, for the most part, and this is like a global phenomenon. It's not like, obviously, it's very prevalent in Asia. But if you talk to factories in Italy or France or South America or even in the States, most don't have a distribution line or rail to sell directly to a customer. Historically, it's been, as a manufacturer, you rely on trading companies or agencies to place you with brands or wholesale clients. So these manufacturers, these are folks like...

They might be producing stuff for Everlane or J.Crew or Gucci or XYZ luxury brand and consumers are buying them. But like Gucci didn't make that stuff.

Right. These manufacturers. Okay, for what it's worth, nowadays, there has been a little bit of a consolidation on the luxury side of the world. So LVMH, Richemont, they've started buying direct factories. And really, that's to reserve production capacity solely for their own brands. But that's still by and large, like a very, very small percentage of the overall production capacity.

portfolio of these brands. But for the most part, you're right. A really high-end, expensive luxury brand could be produced one line over from a really mass market, low-cost version. And of course, the craftsmanship and material will ultimately influence the cost that the brand pays and then ultimately marks that up and flips that to a consumer for five, 10 times what it actually costs them to make. But yeah, the customer doesn't know that. So I think what we do on the consumer side is

Exactly like you said, David, we go to the same manufacturers as high-end brands, but we essentially empower them with our platform and tools. And our customers get to shop for the same quality of product for 50 to, I like to say 50 to 80% lower than kind of equivalent quality brands.

If you want to buy the brand, you're always going to buy the brand. But for value-driven purchases, I think it has struck a chord. And this has kind of happened in the background of e-commerce as a category growing tremendously. But at the same time, what I think isn't talked about as much is private label has grown tremendously as well. Target has over 10...

$1 billion brands of their own in their portfolio. Amazon Basics, obviously, has taken a lot of market share. So I think value-driven purchasing as a segment has been growing quite a lot. And this is across all income segments. On the lower income side, Dollar Tree is the fastest growing retailer in the US. And then on the high income side, I think direct-to-consumer brands, I really do think, represent that same shifting of purchasing habits. So

Really, for us, we call it a B2C model where on the B2B side, we really want to build the tools to empower our merchants, our manufacturers, who've never...

like digitized or sold online before. And then on the B2C side, you know, deliver a great customer experience and product offering. And because we have like a lot of products, our margins logically can be a lot lower than brands, which I can get into, of course. And we also don't pay for inventory for the most part. So the manufacturers are holding the inventory. And as a clarifying point, I think you started by explaining that Italic is a managed marketplace, which is funny because that is

is describing how these manufacturers interact with you, but the consumer experience seems to be that you're a retailer. Every single thing that is sold on your managed marketplace, I just go buy on italic.com and it looks like Italic is selling me something.

Yeah, that's exactly right. We essentially want to offer the same quality of product, customer experience, fulfillment, everything that you'd expect to buy from a great brand or retailer, just for a lot lower prices. And the way we do that, of course, is one, by not taking inventory risks so we can...

kind of have more leverage to get clever, I guess, with pricing. And then two, really by trying to build a portfolio of products so that you're not coming back for like a one-time purchase, but rather like we're building a lifetime relationship with our customers. We really think about the flywheel quite a lot. I know this is like the most tired business concept of all, but... I feel like it's like the Lindy effect, right? Like in business concepts, right? You know, the longer it's been around...

the more likely it is to be worthwhile. Yeah, I mean, I think there's something to be said. Obviously, everyone studies like seven powers, but I think for us, like retail, the whole concept of economies of scale was from manufacturing and retail, right? Like it is very literal to say the more volume you run through a production line, the lower cost each unit gets, the more efficient everything gets. So I think for us, like the more customers we have, the more leverage we have to convince manufacturers and the more volume we can drive to them,

The more manufacturers that we have as merchants, the more products we can offer. And then the more products we can offer, and this is, you know, we can trace this all with data, but the more products we can offer, the more customers we can acquire or retain. And our purchasing frequency, our kind of customer demos have really, I think, changed to prove that to be true. But of course, like we're still very early. We only have a couple hundred SKUs. Hopefully we'll continue down that line. But we found that the model is very applicable, like both geographically anywhere in the world and then also globally.

I think in product categories, we sell anything from beauty to dumbbells. So it's quite a variety.

Yeah, I want to unpack the value chain here a little bit because we've used a lot of different words. You know, there's manufacturers, there's brands, there's distributors, there's retailers. And I want to keep going back to my consumer experience because a little spoiler alert for listeners. I just had a consumer experience on Italic because we partnered with you guys to do a little thank you gift for some of our recent guests. So that was super fun to kind of go through the experience. I am still unaware that...

that I did business with manufacturers. My consumer experience is such that I did business with you, Italic, as I don't know if it's a brand or a retailer. What's the traditional value chain look like? And who are all the players? And how does it flow? And then what is an Italic value chain look like?

That's a great point. And it's something we've debated endlessly internally. But also, I think as a concept, it's really interesting because the idea of a brand or a retailer is a very much retail-specific term. But I think if you abstract it away, the concept of a managed marketplace over the past 10 years really applies, I think, to two iconic companies, and that's Uber and Airbnb. When you actually book...

a place on Airbnb, are you actually booking an Airbnb place or are you booking it through Airbnb? Same with an Uber. Like, are you booking a, you know, ride with Uber or are you actually, you know, so I think for us, like we,

I've started to think a lot about that. The brand itself that you interact with, of course, is going to be Italic. There's no way to get around that. Of course, Italic is a consumer brand and there's a lot of loyalty and trust that we have to earn from our customers to convince them to shop from yet another consumer brand in the wide ocean that is retail. But on the flip side, what you're actually doing, and we've started to try to introduce this concept into the consumer experience more by showcasing our merchants more.

And that's been through really showing like, hey, you're buying from, let's say, this handbag from the same manufacturer as Prada. So that builds the justification in terms of like, hey, why is this a high quality product? Well, there's why. But the price point that you're purchasing it at is meaningfully different, both from the legacy incumbents, such as those bigger brands, as well as the smaller, newer direct-to-consumer brands. Direct-to-consumer retail, for the most part, and I know we talked about the value chain, I think has...

really reverted back to the old brand model. I know there was a popular narrative a couple of years ago, which was that Facebook and Google have effectively become like the retailer or the rent, which is actually true. Like in the older, I guess like older generations of retail, like what the job of a retailer was, was to acquire the final customer for the brand. You know, it was distribution. And even prior to the retailer, like this is, I guess, going several decades ago, aside from CPG, which still predominantly uses this,

The value chain would look from manufacturer to brand, brand to distributor, distributor to retailer, and then retailer to customer. And this was television advertising and newspaper advertising and magazines. Yeah, exactly right. And the retailers were actually the ones doing that. It wasn't actually oftentimes the brands.

And the retailers oftentimes actually have the highest margins. And then, you know, with the direct-to-consumer digitization of the retailer, it became just as easy to buy from, you know, brand XYZ versus the same product of the brand from retailer, you know, ABC. So the direct-to-consumer really removed the retailer, but then it still has the same issue of like, okay, well, we still need to get a customer, right?

And you actually still have to pay the same price, more or less. So prices are basically the same. Quality is basically the same. But I think the original intention of online commerce was to remove middlemen. I was talking to an Amazon exec who was a VP of Prime for, I think, 10, 20 years. He brought up a funny Barron's article, which was, I think, from the 2000. I think it's like 1999 or 2000. But basically, it's like Amazon.bomb.

And it's like a very famous cover. Oh, it's so famous. Yeah. But I think the thing that he said that stuck with me is like, actually, there was a little bit of truth. I think internet cycles can... I know everyone says, oh, it's...

immediate, like things change overnight. But I think in terms of consumer adoption behavior, it can take a very long time. And a great example of that obviously is like pets.com or with the equivalent of Chewy nowadays or Webvan and Instacart. But I think on the retailer side, I think what he said on the Amazon.com article, there's like a very specific quote, which is like, the concept of Amazon won't work because what they're doing is

still introducing merchants, which have middlemen. The merchant is the middleman. They like buy the inventory from an international manufacturer. They sell it at a markup to the consumer. And the whole point of online commerce was to disintermediate those middlemen. I think there's a lot of spirit there that we want to inherit with what we're doing with Italic. And we've seen this globally, not just in North American or Western commerce. So for us, like the value chain is really like the core. It's not a problem, but like

optimization that we are trying to improve upon. Retail is one of the biggest industries in the world. It's unbelievably archaic in so many ways, despite what I think you might see online. And e-commerce obviously, everyone knows this, but the penetration is still very, very low. So it's a $4 trillion market in the US alone. And there's so many, I think, interesting things that are still going to come. And what are we at? Like 15%, 18% penetration right now? Yeah. And that is largely just accelerated from COVID.

That's not to say I think online e-com doesn't have a place to play in offline or retail, but that's obviously going to continue to grow. In China, it's like 30%, 40% any given year. I really do think there's a lot of interesting lessons to be taken from that ecosystem. I would synthesize everything you just said as you're sort of both the brand and the retailer, right?

You're working directly with manufacturers. So in the old world, there would have been a distributor. There's just no distributor at all in this model. You sort of cut out the distributor and you are the brand and retailer that works directly with the manufacturer. Does that sound right? That's about right. We basically want to offer the same experience, quality, and design as a consumer would expect from a brand or retailer.

But on the flip side, the pricing as if it were coming straight off, like basically the wholesale price that a brand pays for a manufacturer. And we want to provide that to a customer. Really what we are is like bridging the two with our name, which to your point is like the brand. So because it's your name, is everything on your site in a way...

Italic's private label. How do you think about that? Because when I bought these thank you gifts, it was a very sort of generic descriptive name by Italic. And it told me that the manufacturers had manufactured some other high quality brands in the past, but I didn't even know the name of the manufacturer. So do you sort of think about all of these as Italic private label? The reason why we don't actually share the manufacturer itself is one like what I found. And you know, we've spoken to a lot of I think people in the industry on this, like,

The customer doesn't actually care who they're buying from. They care more about like, am I getting a good deal on this? And is this like not going to break the first time I use it? What we've done more importantly on that specifically is like we provide like a pseudonym for all of our manufacturers. They are essentially like private labels on the Italic platform.

And the reason why we don't use the real name is like, we obviously want to protect the client relationships that they have so they don't get in trouble there while still making sure that we can use these factual claims. I would imagine if I'm one of your factory partners, maybe eventually they do this, but not overnight. They're going to stop working with Prada and Gucci and Everlane. And that's still a big part of their business.

This is just also coming off of their lines now. Yep. The way I think we think about it is twofold. Like one, it's a yield optimization. So if you are making a dollar per unit producing for all of those brands, if you take inventory risk, you can double or triple that. So make $2 or $3 per unit, which when reflected to a consumer is meaningless.

It's like nothing. But when it comes to a manufacturer, you're literally doubling the margin you're taking off of that existing production capacity, which you, by the way, have to maximize at all times. That's like the, you know, anytime you have a line that's not running,

You're losing money on it. So I think that's one side of the equation is like the yield optimization. The second one really is like controlling your own destiny in a more direct way. As a manufacturer, like if let's say one of those brands leaves you like, okay, you got to go fire a bunch of people like you're going to miss rent. You got to fill that space again. And really, there's no other way a manufacturer makes money besides getting more clients or expanding the business they have with existing clients.

Costco is obviously a company that many people look to, but for us, we take a lot of inspiration from on the merchant side specifically. As a supplier to Costco, your margins are zero. And there's other companies like this in China. Xiaomi famously does this. I don't think it's true because I know it's not to be true, but they used to say, hey, we don't take more than 5% margin on top of the products that we buy from manufacturers. The reason why manufacturers do that is it makes the business. If you are one of the 4,000 SKUs in Costco providing, I don't know, like a cup or a wine bottle,

specific like variety like

Costco is going to make your business overnight. We want to get to that point where like, okay, if you are part of the italk network, like we can basically automate everything from telling you make this product in this style with this quantity delivered by this date to this facility in the network, and we'll take care of the rest and then pay you out like higher margins. So really automating the retail side and the merchandising side is going to be like a thing, a longer tail, you know, component of the manufacturer value prop. But we talked about this in a lot of our, uh,

work on China companies over the past year. And in our crossover episode with TechBuzzChina, so many manufacturers are becoming much more sophisticated now and are doing their own designs. The product design front, how is that working? Are you guys just finding stuff or going to manufacturers and saying, we trust that you're going to make great stuff, put it on the platform? Or are you telling them what to do? Like,

Yeah, that's a great question. And actually, this is something that I think like, if you live slash work in non manufacturing countries, you just don't realize this. But like in apparel, for example, as a apparel buyer in one of these brands, like I will go to a factory, I will look in their showroom. And this is like, literally every single brand, pick a style off the shelf that I like or think would do well with my, you know, target demo. And some brands are more sophisticated than not.

but more or less like tweak it. Okay, that's my style now. And that's like true in almost every industry. And electronics is a great example too. We don't sell a lot of tech accessories yet, but like,

Like if you go to the battery or charging block suppliers of like Mophie and Belkin and Apple and Google, yes, they will have like design elements, but really it's a deep partnership with a manufacturer and trust with them to deliver against that. And the other thing that I think manufacturers have an edge on is they see where the market is going 6, 12, 18, 24 months in advance of all of their clients individually do because they have the portfolio to look at. So I think when we go to them,

In some cases, it's like very, hey, we see this trend. Can we chase into that? In other cases, it's actually they'll come to us and say, hey, this is going to be hot in six months. Let's do this. Tungsten cubes are going to be super hot. Who would have thought? They're going to knock your house over. Yeah. And there's something to be said about the agility that manufacturers can work with. I mean, this is like a bad example. But if you remember like the Indiegogo fidget spinners from like five, 10 years ago, like

By the time that that campaign had finished, there were...

manufacturers that had already produced final production quantities for those products before the original campaign even finished. So there's a huge advantage to being able to have R&D actually outsourced from the brand perspective. And also I think from the manufacturing side, it's actually a really great value-added service that allows you to retain clients better. But it's, I think, something that very few people will know unless you work in the industry that like,

The job of a brand or retailer nowadays is to acquire the customers. It's actually not so much like to design the exact product. And they're really just tweaking. They're taking it off the shelf. Like, here's your, you know, standard 15 liter backpack. We want it with these modifications in this zipper. Yeah, I think that's the big secret and direct to consumer. And I'm sure anyone who listens to this, like who works in that won't be happy that I'm saying this. But I think

There is a playbook. You go to an industrial design agency. If you really want something custom, they will create a CAD model. They'll give it to a factory that they've worked with in the past. The factory actually does the final modifications and tweaks. By that time, the factory probably will take over the R&D process.

deliver the product to you. In that whole time, all you're doing is working with a branding agency, working with a media buying agency, and then you launch PR. Okay, you're off to the races. That's what a brand launch really is nowadays. And there's nothing wrong with that. I think obviously the more founders that can be minted per se from Shopify and this ecosystem, the better. But

On the R&D side, it's very limited. From a business model or value chain perspective, do you take more inspiration from American companies? You've mentioned Amazon, you've mentioned Costco, or do you take more from Chinese companies? I think it's a bit of a false dichotomy, personally speaking. It's not one or the other. I think

a lot of American companies do take inspiration from, you know, Eastern counterparts and vice versa. So the whole craze with like live shopping right now, I think is a perfect example where like every single fundraising announcement you see on that is like,

Look how big it is in China. We're building that for the US. Okay, it's working. And then on the reverse, there's obviously a lot of, I think, direct-to-consumers brands that historically... This might be an interesting segue for the China conversation, but the direct-to-consumer brands that are built in the US over the past 10 years, there was a very strong aversion to selling on third-party marketplaces. You always had to go first-party. The whole narrative is own the customer relationship. And a lot of redundancy happened. A lot of data piping, data models...

e-com experience was siloed within these individual brands. And I think that's just the reality of the American ecosystem. There's Amazon, and then there's the Shopify ecosystem, the whole arm the rebels movement. Something that never quite happened in China, a couple of great examples are like

When Allbirds launched in China, they didn't launch on their own site. They launched on, I think it was like Tmall. When Gucci tries to go to China, they don't launch on gucci.com.cn. They launch on whatever Alibaba is selling. So the vendor lock-in on the consumer ecosystem is actually way stronger. The strength that a Tmall has over a Chinese customer is significantly higher than an Amazon does, which is surprising to, I think, a lot of people. But

I think in terms of taking inspiration, for us, there are a couple of companies in China that I think there's a lot of parallels to American companies. So I mentioned Xiaomi and Costco. They don't seem like natural comparisons, but they're very, very similar. Xiaomi is not just like a phone company. They sell everything under the sun, including apparel, home goods, electronics, like Peloton competitors. And they've invested in hundreds of the companies that they bring in under their brand. It's a really strong lock-in.

And the same thing that Costco has over their merchants is also true for Xiaomi, which is like if they leave your business, like they could basically devastate you and kill the business overnight. So the lock-in is very, very strong. I think for us, like we don't want to be so heavy handed. Of course, like our whole mission is to empower these manufacturers as opposed to like, you know, whip them around with these really high volumes and low margins. But

I do think there's something to be said about actively having the discipline to maintain a low margin over the course of, in Xiaomi's case, 10 years, over the course of the 20, 30 years in Costco's case, and not budging from that. Because it's very tempting to just, okay, let's increase prices and take that margin. Because you can do a lot of interesting things with volume. In both of those cases...

I think you may know better than me, and my thinking may be outdated here, but both Costco and Xiaomi, I believe the whole strategy is we don't make our profits from the physical goods that we sell. We make our profits from software services, memberships, you know, in Costco's case. Zero contribution margin to their overall profits from the actual retail items on shelves. Yeah.

That's right. And the funny thing about Costco, I don't know if this is like a widely agreed upon topic, but the common narrative is like, okay, take your margin to zero and monetize through the membership. I don't actually think the membership is a hundred percent like contribution margin product. I actually think it's very, very low. I actually think it's through interchange and the credit card networks that Costco has the travel services, the car services, the affiliate network, they have a gas service. Like

I listened to the May 20 episode. I think there's actually a lot of comparison between like Costco's business on the offline side and May 20 on the super app per se, like movie booking, florals. We should do an episode on Costco. You should. That'd be great. I'd love it. We absolutely should. Do you know in broad strokes what the Costco Amex deal looks like? Like of that, whatever it is, three-ish percent interchange. How much does Costco get?

I don't know the specifics, but I know they have arguably one of the best deals in like credit card history. And that was part of the deal to switch to Amex. I don't know numbers, but I know it's a very powerful hidden revenue driver because no one's ever going to like unless you work in the top branches of Costco, like you're probably not going to know how much they actually make money off of.

you know, that segment, but they disguise it all through the GMV and the, in their case, revenue and membership fees. So, and that's brilliant, right? Because if that is a profit driver for them, then the more payment volume that they have going through Costco, the more profit they're going to make from that. So taking contribution margin down to zero on all their other suite of services or as close to it as possible. Yeah.

That's why, you know, we could talk about seven powers all day, but like really in retail, there's only one and that's scale. Like nothing else matters. And this is the same for Amazon. Like it doesn't matter if you ever made money on a single cent from an Amazon transaction on the marketplace or whatever, like what matters is actually just the volume going through the network because then you can do so many more interesting things. I guess to Ben's question earlier on like what we take inspiration from, we don't really want to make money on

I might get flamed for saying this, but it doesn't matter so much to me that we're making X margin or X contribution margin on the actual items that we sell. And that's also why we don't want to take inventory risk because we don't actually want that in our books. It's more important that we actually build out

a stronger fulfillment now because the more orders we ship out, the cheaper that gets. The more payment volume we get, the more we can actually make on cross-border payments. There's a lot of interesting things that just scale unlocks in retail that until you're there, frankly, you're always going to be making money through the standard retail model, which is buying low and selling high, which is one way to go about it, but I think there's more interesting things to do. You recently changed the way that you do the membership model. I'm curious if you can articulate...

what your history with membership has been at Italic and your rationale behind changes when you've made them. Yeah, absolutely. So for context, like Italic for the past year and a half or so was members only. We offered essentially our digital equivalent to a Costco membership. Costco legal never likes when I make that comparison either. So please, you know,

Close your ears during that. But I think there were three factors to it. The biggest reason of all was scale. Again, economies of scale is very literal and it's not like a concept or theory. It's like very real. When you hit these volumes, like prices dropped here and they can drop pretty dramatically. In our case, we were starting to do enough volume where the drop in unit costs offset the margin that we were actually losing. So originally on the membership model, it was just like Costco. We

never made money on the product sales. We only made money through the membership fee

So we can maintain these very competitive prices. And then we got to a point where in order to maintain those prices and make money, we actually didn't need the membership fee to justify it. So that was one reason was like we can maintain very competitive pricing without needing to make it back somehow. The second reason was going back to the flywheel. We essentially were like shooting ourselves in the foot in a way on the first lever, which is customer volume. You know, we're artificially constraining the total volume there.

of buyers who can, I guess the denominator of people who would purchase the new product. And in this case, opening the marketplace essentially just allowed us to acquire more customers and bring more volume to our merchants. I think the third one is just going to our mission. Like we want to essentially make quality affordable to as many people as possible. You know, I think the notion of like, if you want to buy something, you know, good, it has to be expensive. If you want to buy something cheap, it's going to break.

I don't think that's actually true. Expensive things are actually like at the point of origin when they're created are actually on a CPI index, like very affordable for most Western consumers. The issue to affordability actually comes from the brands who market up five, 10 times

So I think for us, like it was a combination of just like principle volume and that flywheel that we wanted to spin. So that was the main reason for the shift. And we finally got to a point around like mid year in 2021 where we looked at the numbers and we're like, hey, we can do this now. So and yeah, we just did it last month. So, so far, so good. Do you have any stats that you'd be willing to share on like

Anything that changed overnight in terms of like your funnel widening or something when someone comes to the site and converting to be a paying subscriber versus now suddenly just uninhibited purchasing a good?

Yeah, actually, you know, one other thing that I think I'll mention is I think there is a lot of subscription fatigue in the US right now to the point where like, I guess the better way to put it is like we don't want to play the game of like free trials or like gamifying the experience to get you to become a member. I think like as a personal customer, like that always sucks to jump through those holes. And then I think...

On our side for Italic, we basically wanted to create an experience that was good enough to earn the right to convert you to a member. So the membership still exists. It essentially upgrades your shopping experience with a number of different members-only experiences. And you also get credits. You pay $60, you get $120. This kind of goes back to the notion of like, you know. Free money, I love it. Exactly, right. Infinite product market fit for selling dollars for 50 cents now. Yeah.

It's smart that Restoration Hardware does a similar thing, right? That's right, yeah. The difference, I think, with Restoration is they still make money on margin, right? Which I think is a slightly different kind of play than value. I guess to Ben's point, we literally overnight 10x'd the customer. October, when we launched it, was...

I could do not 10 times bigger in terms of new customer ads than September. So it was a pretty big unlock and it allowed us to get a lot more creative, I think, which is like what we can do with customers. So once we get you as a customer, like how do we upsell you into a membership? We're still working on that. We're still very early on that process, but that conversion...

Frankly speaking, on freemium software such as Spotify, it's like 14%, 15%. That's where we want to get to. We're not quite there yet. But so far, it's looking pretty promising. So it becomes a little bit of a more complicated customer play on a business model because instead of just selling a single hero product, which is the membership, you need to sell...

500 to 1000 products, and then have the right and deliver the customer experience to convince them to join the software margin kind of membership play. But I think over the long run, it'll it'll pay off your point to in the long run, you'll have other ways exactly right to you know, just like Costco to make money too. It's so funny. I'm smiling so much through all this. I literally I think to get meta for one second, I think all four of your points, see if I can remember them. But

apply just as well to the big change we just made to the LP program. I was like, David's 100% going to take it here. Ben was like, I know exactly what David's going to do. We're like an old married couple. But yeah, like all of those, it's so... I think we even use the phrase shooting ourselves in the foot.

Oh, wow. Locking up great episodes like this forever. We probably could have shared notes going into this. Well, and it's the same thing, too. Like why this conversation we're having, like, used to be limited to so few people. And now people who we love are paying LPs and we're so appreciative. They'll get to access this first. But and that's like, you know, one of the perks you get from being a paid member. Yeah.

But this should be accessible to everybody. And that's better for you. That's better for us. That's better for our listeners, too. Especially for the single transaction people. I mean, in the italic world, it is the people who come and they're like, I don't know about this italic thing, but I want this backpack. Whereas in our world, it would be, you know, you share this episode out after you're on the show. And someone's like, oh, I got to get that insight about how the, you know, e-com and DTC world is changing.

But what the heck's this acquired thing? Like, why would I pay $100 a year? I don't know if any of this other content's good. I don't want any of it. This is ridiculous. Like, no, I want this one specific thing. I think what we all realized is like on the media side, and this is, you know, I think you guys mentioned this on the Alibaba episode and Pinduoduo is the same way, right?

Advertising is a pretty good way to make money. It's like a great business. Yeah, and I think on our side, we were chatting with one of our investors who did a lot of the biggest kind of e-com success stories globally. And we were just saying like, hey,

This is like the same model that every single big e-commerce company does. You should probably just do that and not get too clever with... Well, shoot back to Amazon for a sec. They're what? $10 billion plus? Probably more. Multiple tens of billions revenue run rate on their advertising business. Yeah, it's amazing. It's bigger than... That's something that only comes with scale.

That's right. And I think the realization again goes back to an e-commerce like the only thing that matters is getting big. And it's also the most competitive, in my opinion, the most competitive market on earth because like you are literally by default competing with everyone when you sell like a black T-shirt, you know, or whatever it is. Speaking of black T-shirts, as I was prepping for this episode, I wrote down a list of like

pseudo obvious questions that I was like, I should make sure we hit these at some point. So it seems like you kind of started in fashion and soft goods, where I haven't heard any single thing you've said be about your mission around fashion or clothing or backpacks. Like, why did you pick that stuff to start in? And why haven't you done things like electronics?

And to be totally transparent with you, I don't know if we made the exact 100% right call there. I think fashion is arguably the hardest market to do right, right? Because it's design-centric, it's brand-centric. People are willing to pay a premium for the brand and logo. I think on the flip side, it's a category that I felt like if we can get right here, we can expand to basically any other category because it's a lot less fast-moving.

It's a lot less seasonal. It's a lot less trendy. And the things that we had built and learned in fashion, which still to this day is predominantly the majority of e-commerce sales. And Amazon specifically has not cracked the code on. I think there's a lot that we can benefit from that experience. So the very simple way to say it is I think fashion is the biggest e-commerce market today. It's a place where people care about the price very clearly and that you can see this like

with Sheehan and Fashion Nova on the kind of value segment and then even on the premium segment which is where we play I think it trades very well which is buy

buy the same quality as like these top brands that you know and aspire to, but for a price point that's actually mass market. And if we can unlock the merchandising kind of model and design and playbook and do it in fashion, my gut is that we can do that in any other segment. And we've branched out since then. So, you know, home is... So you gave yourselves a hard challenge. We do it here, we can do it anywhere. Yes, that was exactly right. I...

I think the team probably would have been happier if we started with something easier and then work towards that. But the other thing that I think is unique in e-comm is there was a narrative a while ago, which was like, if you're a direct to consumer brand, you start with the hero product and then you like branch into other segments.

And like that in principle has never worked. And you've seen this in like so many different brands. And I think it's because you get pigeonholed into, you know, if you are buying from Alberts, you're buying shoes. If you're buying Warby, like you're buying the glasses, you know, so on and so forth. I was just in the Away store and I was like looking at all these other things that they're selling. I was like, I would never buy any of this stuff from Away. They make that one like sort of hard shelled suitcase.

Yeah, it's a great product, but it's very hard to branch out from that. And I think that was our intention with the marketplace model, which is like, hey, before people pigeonhole us into selling handbags or we are a fashion company, let's go and launch a whole bunch of other stuff to make sure that that consumer notion is not there. And of course, it's not like throwing spaghetti at the wall. We need to be fairly data-driven about this. All right, so what was the logic then behind the backpacking tent that I just saw? Yeah.

Actually, that's a great point. I live in Utah and here I think we all saw the pandemic boom of outdoor products. Going back to the flywheel issue,

If you were to ask that same question a year ago, the Italic assortment would not have appealed to someone who probably lives here and is into that type of lifestyle. But that customer who brought volume from, let's say, buying a black t-shirt or whatever it is to the merchant network actually allowed us to go and convince more merchants to join, even if it wasn't from the same category. I'm kind of abstracting here, but the volume from all of the other products allowed us to convince more merchants to join.

This is the test category for us. So like, you know, it's still very much TBD in terms of like whether this is actually a category that we want to really triple down into. But that's kind of the advantage of the inventory light asset light model where we don't have to take large capital risk by testing these things. So far, it's been promising, but it is still like very early. Surprisingly, actually, I didn't really know what would happen. But I think that's also the beauty of the marketplace model.

Before I jump into some of these other, like, you have to ask this questions. You mentioned Shein. What is going on with that company? Like, what is the scale that they're operating at? How are they similar from Italic? How are they different? People in tech don't realize there is a retail company, which all tech investors, like, you know, shunned.

That is bigger than SpaceX, Stripe, so on and so forth, valuation-wise. The scale that they're operating on is bananas.

I think an environmental travesty, but I think as a business model, you cannot get better from a retail business than what they're doing. I talked to a number of the merchants. Shein's not a retail company. They are a data company. There's no better way to put it. They're like the bike dance of retail. You put it better than I could. The volume that they're doing...

I'll say this. It's in the tens of billions. The margin on that is, let's say, 30%, 40%. They're doing tens of billions in revenue, in US dollars of revenue. Yes. The growth on that, they've doubled year over year, and they've continued that growth into this volume and scale. I think they've really unlocked something that, whether you or our friends would buy it or not, which probably would never be the case, they've really unlocked something that I think is true, which is like,

fashion works. It's the biggest e-commerce segment. It's a high repeat purchase if you can get the design right. The price point matters a huge amount and people are willing to give that a shot online to a brand that they've never heard of, let alone care where it ships from. But I think the lesson for Italic for us is one, again, like it always goes back to scale, but I think specifically on the supply chain side, I think what Shein has done and to the point of, you know, David, you brought up ByteDance, which is really interesting. Like

TikTok and Xi'an are based in China. There's obviously US teams now for TikTok, but they were started there. And you can actually scale. A lot of the work you put into data models compounds over time in a way that by doing it manually or through humans, like

they launch 2000 SKUs a day. Like you simply cannot do that manually. So I think for us, like one, you know, really investing heavily into supply chain technology and making that in a way where, yes, we can have human in the loop, but eventually like we want to make it as little human involvement as possible. And I think on the second point, all of their volumes cross border. And this is something that I think people don't also realize because it comes to you with this like shipping code from the US, but like all of that volume is shipped

out of China. So I think that ecosystem has matured quite a lot. But this kind of goes back to the siloing point. A lot of that isn't routed through kind of third party providers that are universally SaaS and B2B is still like relatively small as a percentage of like the tech ecosystem. This is insane just to give people a like tangible to feel she in here. We did this on the TechBuzz China crossover, but it'll do it again here for people who haven't heard that.

I'm on the Shein website right now. This is insane. Like, you know, designer type sweatshirts, button downs. I'm on the men's section, sweatpants. And the funny thing is like you and I probably would never have shopped on Shein or heard about it if it weren't for like tech people. For the valuation. Yeah, exactly. But like, here we go. Okay. Uh, $6 and 49 cents for a designer sweatshirt. Uh,

$7.90 for sweatpants, $8.90 for cargo pants. This is insane.

Jeremy, you said they're a data company. At the end of the day, they do need to design. Well, they someone needs to design, manufacture and ship all this product. And so how is it that they can launch 2000 SKUs a day? Like who makes it? Who takes the inventory risk? Who designs it? There's actual physical real world things that need to happen to enable that. I'm glad you asked that.

They are the most verticalized retail company that uses data to make every single decision. So the best way to think about it and the way like we really, this is the kind of biggest point of inspiration for us. Like,

When I say data, it's like Shein's actually an orchestration company. So the software that the factories use to run the production lines is Shein's WMS and OMS and ERP. That's all proprietary. The data that the marketing team is using to decide what models to shoot, what poses to shoot, what ethnicity of model we need to shoot this on...

That's all fed through just like recursive kind of models that they've built that get better with scale too, especially when you're doing the volume and launch velocity that they're doing. And I think that the orchestration is really something to be impressed by because the thing that is probably the most impressive is like Shein wasn't the only company doing this. There were like

quite literally millions of tabo shops that did the exact same thing they just did it better than anyone else out of that it is the most competitive category in the most competitive country and market in the world so you can imagine like what type of company that produces oh it's it's exactly like the meton story exactly they were what five thousand the thousand groupons yeah and it was it was the thousand was understating it you know

When you verticalize the technology to that extent, you can essentially launch a style in seven days based off of like signals that you see, you know, today. So, and that's unparalleled by any, you know, Zara can't even hope to achieve that. So those SKUs I was just looking at on the site, it said estimated delivery times about two weeks from now.

Maybe this is optimistic on my end in terms of their capabilities, but I'm assuming like probably a lot of that stuff isn't even made yet. If they verticalize to an extent where they know what to put in front of me, like they could within that two week period go from non-existent except on the website to in my hands.

You're probably right. I don't know, but I would not be surprised. All right. One other Sheehan question for you, Jeremy. So do they own all their own factories or what does their manufacturer relationship look like? And do you share any manufacturers? So we don't share any manufacturers with Sheehan, predominantly because of the quality. I think we're looking for a slightly higher type of quality manufacturer. And there's a lot that we could talk about there. But the question directly is, no, they don't own factories. But to the Costco point,

Like, Shein is 100% of those factories' volume. So it is kind of like a vendor lock-in to another degree. And they also don't kind of consign inventory like we do or run the marketplace model. It's wholly retail. And when you buy inventory, you better be sure this is the right inventory to buy and the right quantity to buy and the right time to buy it. Because if you don't, you're stuck with it. And this is how so many retail companies die.

And that's how they've been able to kind of have those strong margins. So the short answer is like,

they don't own factories, but they control them. And also the software enables them to control them, which is fantastic, I think, as a business. And it's also good for factories. And then I think on the flip side for margin, like because they buy inventory, they're able to kind of accrue a slight, even on that $6 designer sweatshirt, like they can take margin on it. So very impressive. You said sort of an offhand comment. You think it's a travesty from an environmental standpoint. Is that just because...

they're producing so many goods that are not like necessary for what it's worth i don't want to get in trouble for saying this i think sheen is a better model than zara where in retail there's always lag between like what you launch and sell through so you know if inventory is left over like what do you do with it goes to the landfill or gets discarded or gets marked down if it doesn't sell whereas in sheen i think like because you're

digital first, like you have a natural speed advantage in terms of like, okay, signals in terms of reacting towards fast moving SKUs or new launches. And then on the flip side,

You also have a much stronger incentive to move the product and launch in the exact right quantity. Because if you don't, the same issue happens with, you know, the legacy fast fashion, but like to a slightly lesser degree because you're having it in your warehouse and like there's other things that you can do with it. My point with that is,

comment is really more so towards like the purchasing but it's not actually I think a Sheehan issue I think it's more so like a consumer behavior issue of like when you're enabled to buy whatever you want at these prices like you're just gonna buy it you don't care if it doesn't disposable clothing essentially right exactly and I think the whole value property italic is okay we can offer you quality products that will last you for a while but

Yes, we'll never match the prices of Shein, but I think to a consumer who cares about quality in addition to price point, it's a perfect match. Whereas in the Shein case, it's like I care about the design and I care about the price point, but the quality doesn't actually matter. Both will exist always. And I think it's just serving two different types of customers. But that's the reason why I made that comment.

How do you find these manufacturers? These are super high manufacturers that work with the, you know, most coveted brands in the world. It's not like they have websites, right? No, I mean, that's one of my favorite parts about this business is it's

It's a very high barrier to entry, frankly. A lot of these manufacturers are so offline and kind of reliant on this legacy model of either going to trade shows to get clients or going through trading companies to get clients. And really the only way to kind of meet them is through really offline relationship building. We have had boots on the ground in Asia and Europe and in the States on the product side and the sourcing side since day one. And that's kind of one of our edges.

One of my favorite stats, and I say this a lot, but like we work with eight or nine or 10, you know, publicly traded manufacturers now. And like of that group, I'm pretty sure like all of them don't have websites, period. So it's just to go to show the level of like digitization that has happened. And I think the interesting thing, we talked about this right before the show, but I think the lower quality manufacturers, which there's a lot of them, like there's just

from a production capacity side, like they probably do less than these big guys, but from a quality side is probably a little bit lower. Those have predominantly been digitized over the past decade by first by Alibaba, then by AliExpress and then, you know, Tmall and Taobao and then later by Pinduoduo. And of course, like there's Western kind of counterparts to that as well, like Wish and

you know, Oberlo and so on and so forth. But on the higher end segment, you know, it's still the same model that they were running for the past 50 years. It's like very much ripe for, and that's kind of why I was personally excited by this. The italic opportunity was the way they do things is still very, very old school.

On the flip side, it's extremely efficient, like the way that these manufacturers are run and just by function of like having to make margin. To put it in perspective, it's like the average manufacturer margin that we work with is typically between like 15 to 20% on cost of goods. And I know we had the DSMC podcast recently. It is the complete opposite of that.

no leverage, zero margin. And a lot of that margin goes straight to kind of deposits towards equipment, labor, rent, you know, materials. And a lot of times like you run it at breakeven and you have to, because you just need that volume to run the line. So I think for Italic, it's really around again, like optimizing those yields on the existing production capacity. And then again, I'm kind of having a more like of a controlling your own destiny, like

type of experience with running your company as opposed to being wholly dependent on a set of clients who can leave you. All right. So if these companies are so hard to get in touch with, what's the entrepreneurial story behind your first manufacturer relationship? It's terrible. Um,

Polo is our kind of first sourcing manager and employee. And he and I visited, I kid you not, 150 manufacturers. This is like basically one every other day. 150 manufacturers in 2018 in nine months. At the end of all that, actually, no, sorry, we launched in November. So that happened in like literally six months. And we would do like multiple factory journeys a day.

Is this mostly in China? So it was in Italy, China, and the US. The first two were in China that said yes. I think the crazy part about manufacturing is like naive kid coming into the factory floor, you know, meeting with the owner and he's telling you, hey, make stuff for Italic. We're not going to pay you for it. And we're only going to pay you for it. Like, you know, after we sell it in six months. And this is a family that's like real great pitch there.

Way to go, Jeremy. Well, I mean, that's essentially what it boils down to, right? And these are factories that have made money through like, I take a deposit, I put that towards my people and rent and materials, and then I'll get paid after the production line is done at the end of it. And I think the only reason why really like they said yes, was on the lower end side, you know, we again talked about Pinduoduo and AliExpress and Xiaomi and, you know, and so on and so forth. But like,

They have seen the rise of e-commerce in Asia and really they don't benefit from it whatsoever. I think the way I like to frame it to, I guess, you know, investors, for example, it's like, it doesn't matter as a manufacturer, if you're producing for Everlane or for, you know, J.Crew.

It's the same thing. It's like one in the same client. It's just production volume. And you take your cost plus margin, essentially, which I know we talked about as well. But it's actually a really bad incentive in this case, because in the traditional manufacturing case, as opposed to government contracts, it

your client has a natural incentive to come to you and negotiate those costs down every single year. And then on the flip side, they're also trying to increase their margins because customer acquisition gets more expensive every single year. So like they're raising prices, which is bad for the customer. They're squeezing the manufacturer, which takes that 15 to 20% down to 10 to 15% every single year. And,

It's like a death spiral. And eventually you have to be like, hey, guys, we got to get out of this client. And then you got to find a new one. So I think there's a lot of pent up demand for this type of product on the manufacturing side that I think we were able to activate. And a lot of this $150 actually ended up working with us. But we didn't have a site yet. So I think we needed some proof points first.

When you say pent-up demand for this, it sounds like the sort of savviest business owners want this because of a certain business principle that I've heard you say in the past. And I'm curious if we can go into a little bit of detail on it. Whoever owns the inventory owns the upside. How does that work and how are they coming to that realization?

As a manufacturer, you essentially just are producing product for someone else to buy from you. Let me frame it in numbers. Let's say I'm talking about this sweater that I'm wearing, materials, labor, etc. It costs $16 all in for the factory to produce. They take 20%. So let's say they sell it to XYZ brand for $20.

They earn $4 per unit. Not bad. The brand takes that $20 and in a legacy retail sense, they might sell it to someone like a retailer for 50 bucks. So, okay. Brand takes home 30 bucks. Retailer sells it for a hundred. So five X, it's actually pretty conservative. Retailer takes that $50 and like, of course they have to run their ads, like bring in their customer acquisition, but more or less like that's the retailer margin. So on a hundred dollar transaction, $16 was cost $4 goes to the manufacturer who actually made the product and

$30 goes to the brand who attaches their name to the product that, frankly, was made and designed by the manufacturer. And then the retailer makes $100. Okay, so that's traditional. Direct-to-consumer, maybe nowadays Facebook gets super expensive. We take that consumer price down to $80 and the brand owns the majority of the margin, but they have to pay for acquisition. Okay, still the same thing. $16 cost $4 to the manufacturer and $60 to the brand. Okay.

I think as a manufacturer, eventually you're like, hey, this sucks. I've been doing this for 80 years and all I make is $4 on this $80 shirt that they're selling. A lot of these manufacturers have actually tested consumer distribution. It's not for lack of effort, but you have to also think about it from the manufacturer's side. Their competency is not in marketing, branding, design,

consumer, it's in optimizing production volumes. And I think that's why the division of responsibilities is actually very helpful because Italic does this and they do that. And same with the Sheehan example that we talked about. So they've tried to sell on Amazon. They've tried to sell directly to retailers. They've tried to sell directly on domestic ecosystems, like whether in Italy or China or Japan or Thailand.

I think by now I have personally spoken to well over a thousand factories. I think I've seen it work twice ever. It's just not in their wheelhouse. So I know the demand is there. I know that...

When you talk to like, especially the second generation or third generation or fourth generation owners, they're like, they grew up with the internet. They grew up with, you know, e-commerce. They're like, oh, it'd be awesome to be able to play in that. And I have a bunch of friends who have family businesses similar to mine where the family business was in manufacturing. They went to school in the US. They, you know, launched a direct consumer brand, you know,

essentially as a consumer wrapper against their family business. And it did great. There's betting companies that I'm sure don't want to be mentioned here. And there's furniture companies that have done really, really well. All they really need was the distribution side to unlock that next segment of growth. Because

As a standalone entity that's only done B2B for 80 years, 50 years, you're not going to be able to do that for the most part. Does your family have a background in manufacturing? Yeah, that's how I got into Italic. So it's kind of funny.

You know, you grow up always thinking like you're never going to do what your parents do. And then here we are. So the quick story with Fountain was like, I knew very quickly, like, hey, enterprise software is not for me. Four or five years in, a lot of kids don't drop out of school to work on HR software. So I had started thinking about like what I wanted to do next. And I think I spent quite a lot of time with my family during that time.

you know, traveling to Asia and, you know, they've been in manufacturing for 40, 50 years. So like it was what I knew growing up and kind of what a lot of those dinner conversations were. I'm sure quality control is like a very popular topic. And this was around the same time as like the second generation of direct to consumer companies were starting to pop up like Glossier, Away, you know, as opposed to the first crop of like Everlane and

you know, Warby and Bonobos. So I think on the manufacturing side, when we started just like speaking with them, just like on a friendly level, not even pitching them. And it was like, have you heard of like Everlane before? Or have you heard of like, it's like, yeah. But what shocked me was like, they don't know or let alone care that it's like e-commerce or not. It's just like another client. So I think on the manufacturing side, there's like a disconnect from the consumer in terms of the product that they were making. And then the same timeframe when we started

fountain that was also like in the true golden days and like heyday of like uber and airbnb coming up and the whole narrative around like airbnb is the biggest hotel chain in the world doesn't own a single hotel you know uber biggest taxi fleet no taxis it's a significantly more infrastructural you know challenge and that's why i think the management of the managed marketplace component for retail is like much more centralized than let's say like a decentralized network like you know uber or airbnb where it's peer-to-peer but

Regardless, I think that was kind of the notion that kind of, I guess, started the idea around Italic. And it's exactly true, which is whoever owns the inventory owns the upside. When you own it, you get to charge whatever you want, but only if you can actually sell it to a customer. It's fascinating. All right, closing question before we ask for your parting words. Can you tell us the story of how you made the decision to

and how it's gone for you as a company to list this manufacturer also manufacturers for these brands you've heard of right there on the site on the product page because that shocked me the first time i saw it i was like what they can list that so essentially i think there's like

Three things happening for the consumer. We're taking a lot of what is very common in trade and bringing it to the consumer. And I think like the advantage we have is like consumers nowadays are more educated and informed about what they're buying than ever before. Like there's reddits, there's forums.

So I think this isn't actually as much of a shock as I think it would have been 15 years ago. It's actually funny. The most common problem we have to overcome is, this seems too good to be true. What's the catch? We won copyright and trademark. On the copyright side, almost every one of our products, we either designed in-house or directly in collaboration with the manufacturer. The only cases where we don't, we bring in a contract designer or use one of our in-house networks.

on the product side to design a product if we need to. And that's fairly rare. You're not taking a shirt that's identical to the J.Crew shirt and saying, this is the italic shirt made by the same person that makes it for J.Crew. Yeah, exactly. And then on the trademark side, you know, one, it's a factual claim. Two, it's comparative advertising, which is like a very, you know, we all grew up seeing those like Pepsi and Coca-Cola ads, you know, on TV. This is, I think, the truest expression of it is the most literal interpretation of that marketing law, which is like,

Factual claim, this is the same manufacturer as XYZ. We're not using logo. We're not using kind of any likeness of the brands that we're referencing. It's just like a statement that I think if, again, if you work in a trade, like one, we're essentially offering wholesale prices that brands pay to manufacturers to consumers. And then two, anytime a brand evaluates a manufacturer, like they're always going to want to know about the client list.

And they'll always find out about the client list. But of course, they're not going to advertise the client list because those are direct competitors. Well, and also, to our earlier conversation, J.Crew didn't design that t-shirt anyway. Yeah, that's true. I can't say that without factually assuming it. But more often than not, the t-shirts that J.Crew is selling, they didn't design. Are you disclosing a detail of a confidential contract?

No, we typically we audit all of the... One, we want to make sure like what they say is true, right? Like it's not just...

hey, we produce for XYZ brand. We actually want to make sure and go in and verify, yes, you have a contract in place. This is a real thing. And then two, nowadays, I think manufacturers have more leverage against their clients. So for example, one of the reasons why I think LV mentioned, and this is my opinion, but one of the reasons why they verticalized those factories was to avoid competition also securing production capacity with those same manufacturers. So I think in this vein,

Our principle is these are merchants. They're merchants on the Italic marketplace. We'll do whatever they want. So if you want to say brands, like that's sure that's very helpful for conversion. If not, like, okay, that's totally fine. We'll take it off anytime you want to. There's only been two cases ever where that has happened, where the merchant came and said that. And those were cases where a brand was controlling like 40, 50% of that merchant's

volume. So we wanted to be very careful about it. But more often than not, it's been something that I think has helped them and they appreciate. Frankly, like we lawyered up very aggressively in anticipation of, you know, these being issues, but really it hasn't been for the most part. We've been around for about three years, three and a half years now, and we'll get letters once in a while. We never, I guess, have acted on any of them. So mainly because going to the trademark point, comparative advertising and factual claim.

To go back to China, the Chinese e-com landscape for a minute, one company we didn't talk about as much, but I'm curious your thoughts on is JD. What are they doing in upscale goods? Is it anything like Italic? Were they part of an inspiration for you guys? Or I feel like I don't have a good handle on JD's place in the ecosystem. And I'm curious if you do. I think you guys talked about this before on, I think it was the Pinduoduo episode, but

Alibaba is not Amazon. Like JD is actually Amazon. And the reason why it is, is because of the verticalization of the supply chain and the infrastructure that they provide to the brands and merchants that list on JD, as opposed to Alibaba, which is predominantly peer to peer, which is more like an eBay and why I think the advertising, you know, moniker makes a lot more sense for that model. For one, like,

I think all of the major Chinese players have essentially adopted, by the way, the industry term that I think has started to crop up for what we do, which is straight from manufacturer, like commerce essentially is like C2M, you know, customer to manufacturer. It should be M2C, but like,

Don't blame me. So JD launched their own C2M segment. Xiaomi has a platform called Xiaomi Yoping, which essentially is exactly what we do. Alibaba on Tmall has a segment as well. NetEase has one called YenTru. So every single like really big player. Wow. Yeah, NetEase is a pretty big player on this now.

And I think the interesting thing was, with the exception of JD, all of those other ones were predominantly fulfilled straight from the manufacturer, which is a very different model than in the US because, you know, dropshipping in the US is like a terrible experience, whereas dropshipping in China is like amazing because...

It's like one to two day shipping, costs like $1 and can arrive at your door. Whereas in JD, the only exception to that is JD who actually like, no, let's warehouse this. Let's run all of our fulfillment operations directly, direct door or direct to store or direct to kind of a pickup location. So I think for us, we have to adopt the JD model. There's actually no way to drop ship to a customer straight from the factory that delivers a good experience. There's ways to do it differently.

better. But for the most part, like we prefer consolidated kind of verticalized experience because the cross border fulfillment kind of has to rely on that for a good experience. Most of our inventory for what it's worth is still in North America. But that is, I think, a learning lesson we've taken from them. All right, Jeremy, parting words for listeners and where can they find you on the internet?

Besides the acquired slack. Yeah, that's right. It's a great slack. You should join. The biggest thing I've learned, at least in this, is I still feel like we're very early on the C2M wave. Not many people on the tech side know about this, but it's the fastest growing segment in retail by far. It's not the things that might be hot in the VC ecosystem right now, but it's huge. I think it's going to continue to grow.

I don't think you should invest in our competitors. I think you should come and speak with me or join us instead of trying to start something. But regardless, I will say that. And I think one thing that longer term we're really thinking seriously about is

kind of taking a page out of the AWS playbook and actually like offering our infrastructure up to other providers and operators as well. That's like a whole nother topic, but that's parting words. It's like, don't sleep on retail. It's still the biggest, you know, one of the biggest markets in the world. And then italic.com is where you can go and shop from the store. I think we offer some great products. So hit me up if you want any codes, just to, I guess, try it out. And I'm at jjeremykai on Twitter.

Awesome. Well, thank you so much, Jeremy. Yeah, no, thank you so much for having me. It was a lot of fun. Listeners, we'll see you next time. We'll see you next time. See you next time.