Jeremy Cai | Founder and CEO of Italic

Nicole Leinbach: Hello, and welcome back to another episode of the RETHINK Retail Podcast. I’m Nicole Leinbach, and today I’m speaking with my guest, Jeremy Cai. Jeremy is the founder of Italic, a revolutionary marketplace that connects consumers with luxury and premium-grade products from the same manufacturers as leading brands. And they do it for 50 to 80% less than what competitors charge. Italic was also named one of Fast Company’s 10 most innovative retail companies of 2021. I can personally tell you I’ve enjoyed shopping on Italic and find it super exciting. Thrilled to chat with Jeremy today. Thank you for joining us, Jeremy. Jeremy Cai: Thanks so much for having me, Nicole. Nicole Leinbach: Yeah. Let’s go ahead and dive right in. So, I have some questions for you. Can’t wait to hear what you have to share with everyone. I want to kick it off by you telling our listeners a little bit more about the Italic model and the products you offer consumers. Jeremy Cai: Yeah. Absolutely. So, Italic looks and feels like a lot of the other direct-to-consumer brands out there. We have a fancy site. We say we cut out the middleman, just like everyone else does. But I think beneath the hood we take things up a little bit further in terms of just how many middlemen we remove, and specifically in terms of the retail supply chain. Jeremy Cai: Nowadays, even if you take out distributors, which used to be a really big value player in the supply chain, and you have the retailer and the brand, the majority of the direct-to-consumer margin today is still in the form of brand markups. And they may have taken away the historical retail markups, which may have gone from 20, 30% down to, let’s call it, 5 to 10% now in direct-to-consumer overall portfolio margins. But what we do is, we look at the remaining pie, which really, the majority of which is the brand margin. And we want to do away with that as well while still offering the same quality of customer experience, quality of product that matches or exceeds those of other top, not just direct-to-consumer brands, but also legacy brands, luxury brands. Jeremy Cai: So, our business really offers a couple of departments. So we offer women’s apparel, women’s accessories, small leather goods, men’s clothing and accessories, home goods, bed, bath, kitchen, beauty products, skin care. And the unique innovation we bring to it is by removing the brands. We go to the same manufacturers as these high-end brands, but we’re able to partner with them directly and offer equivalent-quality products for a whole lot less. And it’s not for everyone. There’s certainly people out there who really want the logo, really want the brand, and that’s not a vertical we do very well in. But on the flip side, we’re really centered around offering great-value products. So people who care about quality, but also care about price, and not sacrificing either of those. Nicole Leinbach: Yeah. I love that, and there’s certainly a consumer audience for that. So you’ve found it, and it’s a great job. So, can you share the journey to founding Italic? So what sparked the idea, and what was your experience lifting things off the ground? Jeremy Cai: Sure. Italic came about from actually a family history. So, my parents both are your classic immigrants. Came here from Asia, let’s call it 45, 50 years ago. And really, they pursued the American dream. Wanted to come here and start their own company, which they ended up doing after a roundabout series of things that didn’t do too hot. So electrical engineering, a cheesecake brand. A vegan cheesecake brand before, I think, people knew what soy or vegan really was. And they found their way towards manufacturing. Jeremy Cai: So my mother started a manufacturing business together with her brother, my uncle, quite a while ago, and over the past couple decades. And really, since the time I was born, that’s what they had been working on. And really, the conversations around the dinner table often centered around, “How does the supply chain work? How do we get more clients? How do we expand our business with our existing clients?” So on and so forth. And after really living through manufacturing like that for so long, you start to ask a couple questions. Namely, “Hey, we’re producing these finished goods for someone else who buys it from us. We take our cut. Typically, it’s 15, 20% on top of cost of goods. But they’ll buy it from us and they’ll sell it for 5, 10 times what we sold it to them for.” Jeremy Cai: And the longer you do that, the more you start wondering, “Hey, are we able to get a piece of that pie?” And as a manufacturer, and this isn’t unique to my family business, but as a manufacturer you really only have a couple ways to make more money or to grow. And that’s, one, by getting new clients, like I mentioned. Or second, expanding your client book. Neither of which is particularly easy. And then especially in a field that’s as commoditized, as commercialized, and as competitive as manufacturing is, it’s not really a great … Frankly, it’s a very bad business to be in 9 times out of 10. Jeremy Cai: So for me, I have your classic tech background. Started another company prior to Italic, and this was around the same time as, I think, two interesting technology trends. One was the shift from a lot of the verticalized services to marketplace approaches. So that’s why you have the Airbnbs and Ubers of the world coming out and really having what I think of as their golden era in, let’s say, the 2013 to 2018 corridor. And then on the flip side, you also had the second wave of direct-to-consumer brands come out around the same time. In the early, I guess, 2008 to 2011 period you had Bonobos, you had Everlane. A bunch of the early direct-to-consumer crops that we all have become aware of nowadays. But the game, really, I think, accelerated quite a lot in the 2013 to 2018 period. Jeremy Cai: So for us, at least, for Italic, we started just thinking about, “Okay, on one hand, consumers are a lot more interested, or at least informed, to be purchasing online. A lot of the infrastructure, a lot of the consumer education, that’s been done by now.” And then on the flip side, manufacturers have been doing this age-old business for not just decades, but hundreds of years this way. They pass through the value chain, and ultimately reach to a customer. And the internet really can change a lot of the way they do things, just like it did in lodging and hotels, just like it did in transportation. With those couple examples, there’s nothing that prevents retail from undergoing the same innovation. Jeremy Cai: So for Italic, at least, that was a confluence of both, and really it came from a standpoint of, “How do we help manufacturers?” And really in the standpoint of specifically, “How do we increase yield on what they already do without making them put in a lot of hard work, sweat, and tears to build their own brand?” Which I can say from experience is near an impossibility for manufacturers. And then on the consumer, “How do we do away with a lot of the traditional supply chain and offer them an equivalent experience in product, but for a whole lot less, because we can intermediate that supply chain? And namely, with the brand.” So yeah, that’s a little bit about how Italic came about. It really came from, I think, a family experience with it. Nicole Leinbach: Well, and what’s really interesting to me is that you’re only … Oh, you founded Italic, I should say, at 23 years old. So, I mean, certainly a young man at that point. Right? Still a young man. So I’m curious, did you face any challenges as a young entrepreneur entering the business world? Jeremy Cai: Yeah. Well, I certainly don’t feel young anymore. So yeah, I mean, I think the nice thing about … So, I’ll say two things. On one hand, Italic’s actually the smaller of the two companies I started. The first company by now is actually much larger than Italic in run rate, and valuation, and employee count, and so on and so forth. The first one was an enterprise software company called Fountain, and that has all your classic, stereotypical kind of tech bearings of I dropped out of college, and moved to San Francisco, and did a bunch of programs over there that got that company off the ground with my co-founder. But Italic really came about more so from a point of passion and personal interest. I like to say oftentimes that people don’t … Well, at least I certainly didn’t really drop out of college to go work on HR software, which is what we were selling. And manufacturing hit a lot closer to home for me. Jeremy Cai: So I think that’s one thing, is I did feel like I had the confidence by then to take a stab at Italic, which I think is actually a much, much, much more difficult problem to attack because of the sheer complexity of the supply chain and how many things can go wrong in the real world versus just in software. And then on the flip side, I think there’s something magical about having the mindset of a naive person in industry versus how I am now, which is extremely jaded after years of working in retail. That you think you can really make a big difference, and you don’t have all that mental baggage of, “Oh, this won’t work, or this is impossible,” preventing you from taking a stab at it. Jeremy Cai: So I think in many ways I was fortunate in regards to, Italic is a particularly difficult business because we have a much larger SKU count than a normal brand does. But we also have very different business development and sourcing relationships than a retailer or brand does, because we work with manufacturers, not with brands or boutiques. So I think for the business, that blend of experience with technology, and startups, and how to take a business from zero to one, combined with naivete of not knowing how hard it would be, I think really gave me a really strong start. Not to say that others couldn’t do it, but I think on the flip side, I think we’re uniquely positioned. And then combined with the manufacturing history, I think we just really understood it at a granular level compared to a lot of, let’s say, retail veterans who may lack the tech experience, or tech folks who don’t really understand manufacturing your product. Nicole Leinbach: Yeah. A lot of great insight there. That’s super fascinating. Speaking of manufacturers, you have worked with in the world’s most reputable luxury brands. So, how have you been able to cultivate those relationships? Jeremy Cai: Yeah. Maybe to clarify this, I wouldn’t say we work directly with them, but rather we work with the same manufacturers who kind of operate behind the scenes of a lot of them. I can also say with a bit of sly smile here that I’m sure we don’t have many fans in the retail world, for good reason. Because we offer what we think is just as good of product and experience, but for a lower price point. So I think in terms of the way we partner and find those manufacturers specifically, it’s been really challenging, actually. Manufacturing, even to this day, is still a hugely relationships-driven business, as I’m sure many listeners can probably attest to. You have to go through many people. It’s hugely offline. We work with now about 70, 80 manufacturers. And I have this little anecdote here, which I always like to say, is 10 of them are publicly-listed companies. And of those 10, let’s say 7 or 8 don’t even have websites. Jeremy Cai: So it’s an incredibly antiquated, and even to this day family-driven business. There’s a lot of second-generation, third-generation, now fourth or fifth-generation owners who may want to shake things up a little bit differently than, let’s say, prior generations do. So I think for us, the first step in the process is just, “Okay, we want to develop a product in this category.” Let’s say it’s bedding. The first thing we would do is try to find, through our networks and through our sourcing, and there’s a lot of technology and software around this as well by now, “How do we get in front of the best manufacturers possible in that category who can produce the best-possible-quality product and still meet the scale requirements of professionalized manufacturing?” Which typically we’re talking about each individual manufacturing doing, let’s say, north of 10, 20, 30 million of inventory value. Which, by the time it hits retail, might be more like 50 or 100 million, and that’s minimum. Jeremy Cai: So I think for us, each category, typically that limits the total number of folks you can get in front of. I think the hard part is, for us, okay, let’s say we got in front of them. What we’re really doing, and this is why I think it’s been so challenging, is a lot of these manufacturers are 50, 60 years old, and they’ve been doing things a various particular way for that entire period. We take an order, we get a deposit from, let’s say it’s a new client. We have payment terms on that. We use that deposit to go fund our materials, our labor, our equipment, rents, and so on and so forth. And then we produce it, we get it to you, and we take home 15, 20% on top of the inventory value. Which of course, the brand will, over time, negotiate down, and our margins degrade with scale. Or so, at least, that’s how the narrative goes. Jeremy Cai: I think the danger of that model, as we’ve all seen in a more increasingly fragile supply chain and globalized economy is, “Hey, let’s say you have a [inaudible 00:15:46]. Let’s say there’s ocean freight issues. Let’s say one of your marque clients switches to a different manufacturer or one of your competitors.” Overnight, that can be 20, 30% of your business erased, and you have labor to pay for. So I think for Italic, our pitch is more so, “Hey, here’s a way to kind of get away from your traditional wholesale roots. That’s still going to be probably the majority of your business for the foreseeable future, but here’s a way to start owning a little bit more of your own destiny.” Jeremy Cai: What I mean by that specifically is, on Italic, our manufacturers, our partners, we don’t treat them as our vendors. They’re really merchants in our marketplace, where they take inventory risk and we provide them with our fulfillment network, our software orchestration, so on and so forth, to essentially operate as a direct-to-consumer brand on Italic. Or under Italic, I should say. But the secret sauce is, they get higher margins that way, by selling directly to consumers. So really, from a manufacturer perspective it’s like, “Hey, I’m making $1 per unit on this one product. On Italic, I can make $2 a unit.” That might mean nothing to a customer, but to a manufacturer, we literally just doubled their … We typically try to double or triple their margins. So, that does start adding up over time. Nicole Leinbach: Absolutely. Strong margins are ideal, right? So we’ve kind of touched on some of what I’m about to ask you, but how as your development team determine which new products to bring to market? Jeremy Cai: Yeah. I think it’s been interesting, because we operate both as a brand in many regards, because within a single category we don’t have hundreds of products like, let’s say, a retailer or traditional marketplace might be. So, that’s why I like to think of it as a managed marketplace underneath the hood. But on the flip side, it’s not like a brand where we only have one hero product or a one hero category that we’re operating in. So we have to be pretty flexible in terms of the way that we can bring development expertise and pricing expertise into … And also, arguably just an important, marketing expertise into categories where today we’re not very well-known for. Jeremy Cai: So for example, when we started, we started in leather handbags. And over time, we added a whole lot to that. So now, we have a really great skincare assortment. We have a resort-grade bedding assortment. We have luggage. And over time, I can say we’ve had a lot of misses too. We haven’t had a perfect hit rate by any means. I wish we did. But really, in terms of how we decide what products to make, it ultimately stems, I think, from a retail philosophy of either you’re customer-driven or you’re merchant-driven. And I think both work. So I’m not saying that one is better than the other, but in our case, you can probably hear from me, I am not someone who is going to pretend to know what the next big trend will be, or try to taste make my way into having the perfect assortment. We have technology roots. That’s where a lot of our mentality and mindset comes from, and I think the point there is, we’re customer-driven. Jeremy Cai: So the way we do this, at least, is we look at three things. One is, we offer a membership program. So typically, that cohort is a representative of our most loyal, most engaged customers, and highest-value. We have our one-time, two-time customers, or new customers, and then we have people who are passively interested. So let’s say they’ve been on the subscriber list, or something of the sort. And we’ll do surveys. We’ll just constantly be looking for inputs to calibrate our merchandising model to say, “Okay, what are we missing? What do you want from us?” The number-one complaint we always have across all three of those customer groups is, “You don’t have what I want, and that’s why I haven’t bought yet.” Jeremy Cai: So when we ask them, “Okay, what do you want,” the results really inform how we think about things. So on the member and customer level, generally it’s variations of existing products or variations of existing categories that are naturally adjacent. So, let’s say we have sheets. Okay, let’s duvets or inserts. Okay, we have down comforters. Let’s do a down-alternative version. And generally, we look at the impact of that relative to the customer base. So, “Hey, if we introduce this, what is our confidence level in lifting our revenue by X%, so it’s actually worth our time.” And of course this isn’t special to us. I just think we have a little bit more controls around this and process around this because we’ve been doing it for a little bit compared to, let’s say, someone who has a single brand in a single category and expects the second category to perform just as well as the first. I think by now we have a pretty tried-and-true playbook of introducing product that actually does hit as we expect it to. Jeremy Cai: And then on the subscriber list, that’s typically areas where they’re not necessarily adjacent or variations of existing categories, but rather net new. So for example, skincare is a net-new category that we didn’t have for the first two-and-a-half, three years. And then when we introduced it, we saw a lot of behavior from the people who were passively on our list switch into actual purchasing behavior. So I think it’s a really data-driven approach to merchandising that still blends a bit of art and science, because ultimately you can’t predict the future. But I think we’ve put and some good people and some good processing, some good software to help us with our decision-making there. Nicole Leinbach: Nice. You definitely have a lot going on, and that has proven itself with the rapid growth you guys have seen since launching in 2018. So, I’m curious. I mean, you definitely have a savvy marketing team. So how does Italic brand itself on social media specifically? Jeremy Cai: Yeah. Well, I’m glad you think that, because I don’t know if I would necessarily agree. I think we’re still the small kid on the block. No one knows us. We’re still … I can’t say no one, but for retail at least, I think the realization we’ve had over the years is, “Hey, we can’t pretend to operate as a luxury brand, because we’re not.” There’s a whole legacy of decades and decades of brand marketing that went into creating these brands that everyone knows and loves today. And really, what we’re trying to do is siphon off a little bit of the prestige or the lure out of that and say, “Hey, look. This is just as good, but doesn’t have a logo. Do you want it or not?” Jeremy Cai: So I think for us, the two things that have worked, at least, are, one … How about this? One thing that has not worked for us is trying to appeal to everyone. I think this has been a really hard lesson for us to learn, which is, customers think of what we offer in a very particular way. We call it luxury without labels. I think the second we veer away from that and we veer away from our core customer, who is a 30-to-40-year-old woman, relatively high-income, living in a big city or a wealthy suburb, things fall off pretty quickly and the value proposition doesn’t resonate as well. So I think for us, the two things that really have worked are, one, reinforcing our value-based value proposition again and again and again. And also being explicitly clear that it isn’t for everyone. But if you are looking for elegant, beautifully-designed, really high-quality product that isn’t the cheapest in the market but is, compared to its competitors, really great value, I think that’s where our marketing really shines. Jeremy Cai: And then on the second one, we are the new kid on the block. We have a chip on our shoulder. So naturally we want to ruffle a bit of feathers in what is otherwise, I think, a very high-ego industry, and also an incredibly competitive industry where everyone else is vying for your attention. I think naturally we have to play the game. So I think on that side, are there campaigns, are there things that people do differently that may break with the popular notion at the time? To give you a couple examples, one thing I think that’s been interesting is, I think the retail and direct-to-consumer industry is very, I want to call it cheapish in many ways, in the sense of there are these popular trends that appear and then disappear just as fast. So five years ago, that was, “Hey, everyone. If you have to go operate a retail store, rent is the new CAC,” as many people put it. A couple years ago, as everyone rushed to podcast ads, you have to do that. A couple years ago it’s like, “We got to diversify off Facebook. It’s do or die.” Jeremy Cai: And the reality is, yeah, there might be truth to a lot of those things, but I think you can’t apply them universally on every brand. So for us, at least, I think what we found is, we are not a cool brand. We don’t have that cache. I think we’ve tried to, and every time we’ve tried, it does not work. Instead, I think what we really want to just reinforce again and again is, “Hey, you’re looking for a rational purchase. You want quality. You want great price. Okay, here it is.” And I think the places we operate as a result of that, so let’s say Reddit, or Pinterest, or performance marketing, are going look very different than, let’s say, someone who’s a lot more brand-driven. And that works for them. So I think for us, that’s how we’ve thought about it. And the result, actually, is that we have a very small, basically nonexisting brand marketing team. Instead, we focus predominantly on community and on performance marketing. Nicole Leinbach: Yeah. So, you gave a lot of great insight there. So I’m going to skip the next question I had for you, which was about giving some marketing activations, because you really kind of gave us some thoughts there. So, I’m going to move ahead. What’s next for Italic? I’m super curious. Jeremy Cai: Yeah. I mean, I wish I knew, which is probably a bad answer to give as a CEO. But I think the big lesson I’ve learned, in retail at least, is that you can’t brute-force in the same way that you can in a lot of other tech-enabled industries, with sheer money and cash. And we’ve seen this happen in a lot of our peers. Where you raise a ton of money, you go to market really aggressively, and let’s say you have a couple years of really strong growth. Top-line doubling, tripling, quadrupling year over year. But then it’s kind of a shark fin. Things fall off pretty quickly. And I think if we weren’t careful … And this isn’t just for us. I think if a lot of brands aren’t careful, and you try to do too much too quickly, you can be in a world of hurt. Jeremy Cai: So I think for us, the realization, and this is kind of counter to a lot of my own personality and values, is, we have to be patient. Our strategy, I think we’ve tried to shift so many times. And the reality is, the strategy isn’t actually what’s going to make or break the business. It’s the execution of the strategy for a long period of time. So I think for us, what I can say confidently is, Italic today, Italic next year, Italic hopefully in five years, probably will look relatively the same. We want to be offering really high-quality, great products that people really love, and we want to be serving our customers constantly better than we were yesterday. Jeremy Cai: And really, our business conceptually, underneath the hood, and this is the whole point of a marketplace, is a flywheel. So the more customers we have, the more volume we can drive to our manufacturers. The more manufacturers we have with them and the more leverage we have, the more products we can offer to our customers, and eventually maybe even services. So I think it’s just going to be more products, better quality, lower prices, faster shipping, better customer experience, and just compounding that for the next couple years, and potentially into new categories and new products. But really the core of it will probably we remain the same, which is luxury without labels. Nicole Leinbach: I love that. Luxury without labels. Well, Jeremy, you have shed so much insight to the growth of Italic, and your mindset, and what we can look forward to. So, thank you so much for chatting today. Jeremy Cai: Yeah. Nicole, thank you so much for having me. It was a lot of fun.