The venture, which closed a $1.4 million seed round in November 2016, claims it is already profitable with positive cash flows riding on growth in online luxury sales.
Bain & Co predicts that the personal luxury goods market will continue to see growth of 2-3 per cent through 2020, reaching an estimated €280-295 billion in revenue.
The founders told DEALSTREETASIA, in an interview,: “We don’t disclose our margins, but to add a little more colour, you have to remember that we’re a consignment business, so we don’t pay for our stuff until it’s actually sold. Therefore, the margins also don’t really tell you much because they can’t be compared to regular retail. They’re very, very large.”
They added, “We only pay for the items once they’re sold. Every order that gets out of our office is profitable.”
What stops most e-commerce players from entering the luxury marketplace?
Matam: We’re a specialised e-commerce platform. We do deal with two kinds of customers, the seller and the buyers. The logistics aspect of the business is much more complex than what people see. Then the curation, what we call the buying trip, is not exactly the same buying trip as classic e-commerce
Finn: I don’t think its about one single thing being entirely different but a constellation of aspects that need to come together to make it work. So its knowledge of the product, brand, its history and so on. It’s those things which then feed into the curation and pricing.
It’s also about the relationship with the sellers. The vast majority of what we do is consignment-based so we have to persuade a seller to sell with us or we have to find a buyer for those pieces.
If a large player like Lazada were to expand into your particular segment, what kind of impact would it have?
Matam: I think you should take an example other than Lazada. They’re really good spenders, but when it comes to showing profitability… I’m not really sure would I be afraid of Lazada coming into our space – Not really.
Finn: There are lot of examples of businesses that have thrown quite a lot of money at problems. There’s a perception that if you throw a bunch of million of dollars at something, you’re going to win.
I’d argue that you’re not going to win. You’re going to make progress, and you’re going to certainly get an advantage over other companies but it doesn’t guarantee you that position. Our business is very qualitative. You can throw a lot of money at this and still get it wrong.
In the US and Europe, there are examples of people who have tried to build these businesses and failed and then there are a few players, not necessarily the best funded, that have succeeded.
I have experience with PropertyGuru, which has been challenged by players with much more money and resources. Yet they are still number one by a factor of ten. So I don’t think money is necessarily the key component in that aspect of our business.
How do you ensure the integrity of your products?
Matam: We have a relationship with the seller to start with, which means that every item which comes to us, we know who it belongs to and their history. This helps us in terms of authentication and pricing.
When it comes to details, I guess authentication is something that people are really keen to learn more about, we do it in two ways. We have a database of information of all the products that we’ve been carrying so far. Then we do it in a scientific way.
Finn: Actually, technology has come a long way in terms of helping authenticate these types of products.
So there’s little things like how counterfeit bags are made to look like the original, but they’re not made to smell or feel like the original.
Counterfeiters tend to use all sorts of industrial glue and you can smell that on the item, which you don’t find on the original for instance. And the last layer is a technology which takes microscopic pictures of the surface of items and then compares them to a deep learning database that sits in the US where every image is compared and contrasted to a database of millions of images of similar bags. And this can determine to a very high degree its authenticity. And we use that technology in our authentication process.
In terms of the provenance of our items, when we do our consignments, we’re taking items from people that contact us, so we know where they live because everything that we do is a concierge service. That sets us apart from a lot of other luxury goods-focused businesses online.
And, we’re registered with the Singapore Police Force due to the Secondhand Dealers Act.
What’re the pricing dynamics for the products on your platform?
Finn & Matam: We don’t force the pricing on customers. If you can’t agree on pricing with the seller, the item just gets returned at no cost and so on. There’s no point in us carrying an item that looks overpriced to us, no point in the seller giving it to us to carry because it won’t sell.
There’s a variety of different things, such as certain brands that keep their value better than others. Certain types of items like bags preserve their value better relative to others, especially if they’re well kept. Clothing tends to drop its value more than some of the other things that we carry.
Overall I think we’re looking at discounts ranging from 30% and sometimes 70% or 80%. When we look at the price, we always advise clients on how to price their items. We do research worldwide to see what prices we’re dealing with because it is international in nature. So, in general, we’ll cap it to the lowest discount, depending on where the brand is from.
An interesting angle in pricing a lot of people tend to miss is that certain products are worth more on the second-hand market either because they’re rare or are not being made anymore. These are items that go up in value. But also if you look at the price of luxury goods over the last five years, they exploded right?
So, pricing dynamics are very complex but they go in all directions as much as down. Sometimes they go up as well.
What’s the competitive advantage you maintain against other players in the space?
Matam: It’s our knowledge, experience, and understanding of the market. We established something before it became fashionable, to deal with vintage and pre-loved. We’re specialists. We position ourselves as a luxury platform and we maintained that consistently at every step. So we only do concierge, that’s our speciality. We don’t do anything else.
Everything is very straight forward, from beginning to end. We’re very high-end and we have a 24-hour delivery service in Singapore for free, coupled with a seven-day return and refund policy. There’s no such a thing as us keeping your money on the platform in order to force you to buy something else.
It’s our customer service. We have an answer for anyone who asks us a question about any product that’s on the site,
Finn: Even though we specialise in one type of luxury good, at its core, what we sell is trust.
Certainly, the existing strains of the brand will carry some value, but, as they say in startup land, there has to be ten times more compelling reason for you to switch.
Let’s discuss the main geographic focus in terms of markets.
Finn: When we set out to build this business, we saw an opportunity in the Asian market.
What we’re trying to do is build the Asian leader in this space. Since the beginning, 80-90 per cent of our sellers and buyers have been local.
There’s a fast-growing component of international sales as the brand gets more recognised, but it is primarily built on local support.
We’ve started to capture more and more buyers regionally, coupled with the fact that we ship worldwide. But our focus has always been on Asia. We see any sort of sales to the US or Europe as opportunistic.
Any thoughts on exits? Would a management buyout be on the cards?
Finn: A management buyout is hard to imagine. Honestly, we’re not actually thinking about the exit but about building a high-quality business that continues to be profitable. We want to generate cash on every sale and retain every client we attract. We have repeat business with about 70% of our users.
That’s not to say that, of course, that we’ve thought about what the strategic angle could be. But it’s not our focus. We’re not in the process of thinking how we’re going to get out of the business.
We’re in a very young space that’s about to boom. If you look at the US, it’s seen the first unicorn in our space and I think that’s going to bring a lot more attention to what we’re doing.
In the meantime, it’s been one of the best-funded spaces in the US as of 2016. So there’s going to be a lot of consolidation that will see a couple of players emerge in the US market and they’ll inevitably be looking for growth elsewhere at some stage. So it is conceivable that at some stage, when we look at Asia, they’re going to be wanting to look for the best partners.
Are there challenges to working as a husband and wife team?
Matam: For us, it’s never been an issue. Actually, no one has come up and told us it’s a problem investing in a startup run by a husband and wife team. And the reality is that you have exactly the same problems as if you have a co-founder.
Whether you’re a husband-wife team, a couple of siblings or even normal co-founders, it’s all about the culture that you want to build into the company.
Finn: The difference (in a husband-wife team) is we have something that other startup partners don’t have, which is a common and much bigger goal.
And, at the end of the day, that keeps us motivated. There’s an incredible number of businesses that have been started by married couples. I think in Singapore it’s already pretty endless.