🔑 Key Takeaways
- Programs like Thiel Fellowship and Y Combinator provide a community and catalyst for young entrepreneurs to meet the right people in the industry and become successful entrepreneurs. Community and supportive programs are crucial for a startup’s success.
- Italic empowers manufacturers to sell directly to consumers without taking inventory risks or making significant investment. This results in consumers getting the same quality products for 50-80% lower than equivalent brands while also providing a retailer-like experience and building a lifetime relationship with customers.
- More customers increase leverage to drive volume, efficiency, and product offerings. Managed marketplaces like Italic showcase merchants to justify price points, while direct-to-consumer retail requires customer acquisition and faces quality and price similarity issues.
- Italic offers quality products at manufacturer's wholesale prices by cutting out the middlemen. With a focus on yield optimization and control over their own destiny, they aim to automate everything from product creation to delivery while paying out higher margins.
- Manufacturers have an advantage in predicting market trends while retailers use off-the-shelf products to save time and costs. R&D is often outsourced, and the Chinese model of vendor lock-in is stronger. Live shopping is popular in China, and dominant platforms like Tmall and Alibaba play a crucial role in launching products.
- Focusing on software, services, and building strong relationships with merchants can lead to success for companies like Xiaomi, Costco, and Italic. Scaling up and building a strong fulfillment network opens up new opportunities in retail.
- Italic successfully increased customer volume by creating an affordable and quality experience that earned the right to convert customers to members, resulting in a 10X increase in customer adds overnight. The open marketplace helped Italic become more creative with customers.
- Unlock the merchandising model in fashion and branch out to other categories to avoid pigeonholing. The marketplace model allows easier expansion without large capital risks.
- Shein has unlocked the potential of fast fashion by creating an ecosystem where data is used to make every single decision, investing in supply chain technology, and minimizing human involvement. Other retail companies can learn from their growth model and operational efficiency.
- Shein's digital-first advantage and focus on wholesaling and retailing allows faster movement of products, while Italic's offline relationships with high-end manufacturers prioritize quality over quantity.
- By partnering with direct-to-consumer brands like Italic, manufacturers can benefit from owning inventory and optimising production volumes while brands take care of marketing, branding, and design. This partnership is crucial in a tough industry with pent-up demand for DTC brands.
- Italic's platform offers wholesale prices to consumers by allowing them to buy products directly from manufacturers, which helps build credibility, ensures quality and transparency, and increases profits for both parties.
- C2M wave is taking over retail in China, with speedy, low-cost, and direct shipping. JD's model of handling all fulfillment operations directly is seen as a success in the industry, and can be adapted for a consolidated and cross-border experience.
📝 Podcast Summary
The importance of supportive programs for young entrepreneurs.
Jeremy Cai, CEO of Italic, shares his experience as a Thiel Fellow and how it helped him become an entrepreneur at a young age. He also explains how programs like Y Combinator and Thiel Fellowship provided a catalyst to meet the right people in the industry, which was helpful for him when he started his company. Furthermore, he started three successful companies, including Not Pot, which was a direct-to-consumer brand, Fountain, an enterprise hiring automation platform, and Italic, which is a membership-based marketplace that allows consumers to buy luxury products without paying high markups. Overall, his journey as an entrepreneur highlights the importance of community and supportive programs in the startup world.
How Italic is revolutionizing the way manufacturers sell directly to consumers
Italic is a managed marketplace connecting high-end manufacturers with end consumers, enabling manufacturers to sell directly to consumers with a suite of products and services such as payment orchestration, creative services, and data-driven merchandising. Italic empowers manufacturers to take inventory risks and access higher yield on their production lines without much investment or change in their business, thus enabling consumers to buy same quality products for 50% to 80% lower than equivalent quality brands. Italic offers a great customer experience and product offering like a retailer with more leverage to get clever with pricing by not taking inventory risks and building a portfolio of products to build a lifetime relationship with customers, thus catering to value-driven purchasing segment for both lower and high-income side customers.
The Flywheel Concept and Managed Marketplaces in Online Commerce
The flywheel concept of economies of scale is applicable both geographically anywhere in the world and in product categories. More customers lead to more leverage to convince manufacturers, and driving more volume to them increases efficiency and product offerings. The value chain has changed with the advent of online commerce, and managed marketplaces, like Italic, have disrupted the traditional model. Italic has started showcasing its merchants to build trust with customers and justify the price point, which is meaningfully different from both legacy incumbents and smaller direct-to-consumer brands. While direct to consumer retail has removed the retailer, it still requires customer acquisition and faces the same issues of price and quality similarity. The original intention of online commerce was to remove middlemen, but consumer behavior adoption takes a long time.
Disrupting the Retail Industry by Disintermediating Middlemen
Italic is a brand and retailer that works directly with manufacturers, cutting out the middlemen or distributors. They offer the same quality, design, and experience as other retailers, but at the wholesale price that brands pay to manufacturers. Italic provides a pseudonym for all manufacturers and offers private labels for their products. The focus is on yield optimization for manufacturers and controlling their own destiny. Italic takes inspiration from successful merchants like Costco and Chinese company Xiaomi. Ecommerce still has a lot of room to grow and Italic aims to automate everything from product creation to delivery, and pay out higher margins. Italic aims to improve the archaic retail industry by disintermediating middlemen.
The advantages and differences of manufacturers and retailers in the retail industry.
In the retail industry, manufacturers have an edge as they can predict market trends 6, 12, 18, 24 months in advance due to their portfolio. Brands and retailers acquire customers and tweak off-the-shelf products rather than design their own to save time and costs. R&D is often outsourced to industrial design agencies, who then give the design to a factory to tweak and modify, taking over R&D from the brand ultimately delivering the finished product. The Chinese model is different, and vendor lock-in is stronger compared to the US. Live shopping is a craze popular in China that American companies are inspired by, while Chinese companies launch their products on dominant platforms like Tmall and Alibaba for the consumer ecosystem.
Companies' success lies in building strong merchant relationships and focusing on software and services, instead of physical goods.
Companies like Xiaomi and Costco have a strong lock-in with merchants, making it difficult for them to leave. Both companies make their profits from software, services, memberships, and hidden revenue drivers like interchange and credit card networks, rather than physical goods. The key to their success is maintaining a low margin and building scale. Italic also adopted a membership model to maintain competitive prices, but as they grew in volume, they found that they didn't need the membership fee to maintain profitability. They believe in building a strong fulfillment network and scaling up to unlock more interesting things in retail, like cross-border payments, instead of just buying low and selling high.
Italic's shift to an open marketplace
Italic shifted to an open marketplace to increase customer volume, which aligned with their mission of making quality affordable. The shift helped them acquire more customers and bring more volume to their merchants. They did not want to play the game of free trials or gamify the experience to get customers to become members. Instead, they created an experience good enough to earn the right to convert customers to members. The new model resulted in a 10X increase in customer adds overnight. Italic is still working on upselling customers to membership, which is a complicated process. It's a value play versus a margin play like Restoration Hardware. Open marketplace helped Italic to get more creative with customers.
Italic's Success Story in Ecommerce
In ecommerce, the only thing that matters is getting big. Fashion is the biggest ecommerce market today and it is a lot less fast-moving, seasonal, and trendy. If one can unlock the merchandising model, design, and playbook, and do it in fashion, it can be done in any other segment. Italic branched out to other categories to avoid pigeonholing the company into selling a particular product, which has been seen in many other brands and does not work. The marketplace model has allowed Italic to convince more merchants to join and expand into other categories. The inventory asset-light model has enabled Italic to test new categories without taking large capital risks.
How Shein's Data-Driven Approach Has Revolutionized Fast Fashion
Shein is a data-driven, highly verticalized retail company that operates at an incredible scale and has unlocked the potential of fast fashion. They have created an ecosystem where they use data to make every single decision - from production, inventory, and marketing to shipping and delivery. Shein's software is used by factories to run their production lines, and they are the most verticalized retail company that uses data in this way. Shein's success lies in their orchestration, which enables them to launch a style within seven days based on signals they see today. Shein's growth model and operational efficiency are something that other retail companies can learn from, particularly in investing heavily in supply chain technology and making it as little human involvement as possible.
Shein vs Italic: Exploring Different Business Models in Fashion Industry
Shein controls the factories that produce their products, but they do not own them. They have a digital-first advantage that allows them to react quickly to new launches and move products faster. Their business model focuses on wholesaling and retailing, which means they must be sure to buy and stock the right inventory. Preparing for retail is crucial. Additionally, the company is also able to take a slight margin on even low-priced products. On the other hand, Italic's model is focused more on quality products that last for a long time, making it a perfect match for customers who prioritize quality and price. Although Italic also uses high-end manufacturers, they find them mainly by building relationships offline. The lower quality manufacturers primarily digitized, which helped them to deal with clients easier.
Direct-to-Consumer Brands Offer an Alternative for Manufacturers in a Tough Industry
Manufacturers have a tough time negotiating costs and margins with retailers and brands, which creates a death spiral in the industry. Direct-to-consumer brands like Italic offer an alternative for manufacturers to own the inventory and benefit from the majority of the margin. However, manufacturers struggle with marketing, branding, and design, which is where the partnership with brands like Italic becomes crucial. This partnership helps manufacturers optimise production volumes while brands take care of marketing, branding and design. The rise of ecommerce and the second, third and fourth generation owners of manufacturing businesses, who grew up with the internet and ecommerce, creates pent-up demand for direct-to-consumer brands that manufacturers like Italic are well-positioned to provide.
Italic's Managed Marketplace Bridges the Gap Between Consumers and Manufacturers
Owning the inventory is the key to success in retail, as it allows the seller to charge higher prices and make a better profit. Italic leverages its family's background in manufacturing to provide a managed marketplace where consumers can buy products directly from the manufacturers, thereby bridging the gap between the consumer and the manufacturer. The platform offers wholesale prices to the consumers, which manufacturers typically offer to brands. The platform allows manufacturers to list the brands they produce for, which helps in building trust and credibility. The platform also ensures the quality of the products and verifies the manufacturer's claims before listing them, which ensures transparency and authenticity.
The Growing C2M Wave and JD's Fulfillment Operations in China
C2M (customer to manufacturer) wave is the fastest-growing segment in retail and is adopted by all major Chinese players. Dropshipping in China is amazing due to one to two days shipping, costing $1, and delivering to door. JD differs from others by storing and running all of its fulfillment operations directly, direct to door, direct to store, or direct to a pickup location. Italic learned to adopt the JD model for consolidated verticalized experience and cross-border fulfillment to offer a good experience. Retail is still one of the biggest markets in the world. Italic marketplace offers great products. C2M may potentially enhance by offering infrastructure to other providers and operators.