Last week, Los Angeles-based HauteLook (www.hautelook.com), an online private sales site, scored a major round of funding--raising $31M from Insight Venture Partners. To understand why investors are finding the firm so interesting, and why the company raised such a large round, we spoke with Adam Bernhard, CEO of the firm, about the company and funding, how email has allowed the firm to get past the "Google trap" of marketing on the web, and where the firm is going.
Adam, thanks for the time. For those who haven't heard of HauteLook before, can you explain what the business is all about?
Adam Bernhard: We're a platform that does flash sales. We work on behalf of brands, as a web site that has a membership base of over 2.5 million people, to clear excess inventory for those brands. We started in December of 2007, and my background is from the apparel business. Initially, we were just selling apparel to help brands, but we're now in eleven verticals, including women's, ready-to-wear, accessories, beauty, kids, home, kitchen, to bed and bath, and tabletop accessories. We're now moving into men's, and we just hired an individual, Tim Davis, who was with Neiman Marcus for seventeen years as a men's buyer. We're expanding the men's offerings, and also launching into two other verticals, gourmet food and wine, and services and experiences. The business initially started as a place for brands, where we could produce events on their behalf to clear their excess inventory. However, we quickly learned that we not only were clearing their excess inventory, we were helping their business and were a service provider to the brand community, and a marketing vehicle. Every day, we are putting up eight to ten new brands, sending an email out to our membership base every morning, and alerting them of new sales that day, at 8 a.m. Pacific Standard every day. We're now reaching so many people on a regular basis that we're not only clearing inventory, but reaching a huge amount of individuals on a daily basis. We learned from our customer base that 75 percent of the people who make a purchase at one of our sales are purchasing those brands for the first time. By doing so, we've added a new member into a brand's culture--and 50 percent of those people make subsequent purchases at brick and mortar and other online stores--at full price. So, we've not only helped the brands by clearing excess inventory, we've added new members into their brand culture, a big marketing element.
The last piece, is we've been able to provide brands with data and insights, via a brand dashboard, so that each and every brand can see what's happening with their sales in real time. They can see how many people are going to their site that day, who is converting, what are their best sellers, what are their least sellers. We show that on a map of the country, and they can scroll over that and see in each state how the sales are, and drill into that to see exactly what items and the response in that state. It gives them a very good reading of the brand across the country. We've also given them a benchmarking capability, so they can see how they did against like brands. We don't show what those brands are, but let them know by category--say, high end denim--and there will be a benchmark which shows how they did in a time period and over time against a like brand, how dependent those sales are on discounts associated with an item, and also see the history of how their events have performed with us. That gives them a good read on how they will do in the next event. We even have brands using us to test new products coming out in the future, to see if they will resonate with their customer base.
This investment round is a pretty substantial financial investment. What is all that funding going towards?
Adam Bernhard: We had raised $10M, previous to this round, and at the end of last year it was all still in the bank. But, we've seen so much interest in the flash sales space, we saw an opportunity to raise more capital, and use that to press on the accelerator. We've been getting fantastic talent, just hired a Senior Vice President of Merchandising from Old Navy, and who before that was with Banana Republic, and had been at GAP for eleven years. We've been accelerating our marketing, and we also have a fantastic test going in the social media world. It's very important for us to grow our base from the 30,000 people we have on Facebook and Twitter, as we believe getting outside of their inboxes is important. We've been talking to customers outside of the Hautelook environment, in social media, and ran a test a few weeks ago with CNC. CNC put up three items on sale, and the followers were able to choose what they would sell for 80 percent off through Hautelook. That ended up being the fastest selling item. We thought it was an opportunistic time to make money, as we became profitable early this year and we wanted to accelerate the growth of the business but still maintain profitability. With that infusion of cash, we can do more things in marketing, and more things around the brand universe, and expand our offerings to our membership base, including addition of the new verticals we're going into. We'll also be using that to improve our technology and our user experience. The money will be used to enhance all of the things we've been doing up to now, only at an accelerated pace.
It seems like every day there is a new private sales or group buying site being funded or launched--it's a very hot space--how do you keep ahead of the crowd and maintain your uniqueness?
Adam Bernhard: It is a very exciting area. I think all of these popup and copycats have affirmed that this is the new way of shopping on the web. It's more of a discovery type of shopping, compared to what used to be shopping, which was intent-based. It used to be you knew what you want, went to Amazon to find it, and buy it. However, with our sales, we're finding that customers are coming for one reason or another and are delighted by the discovery of a brand they've never heard of, of things from brands they've never seen before. We're going to continue to expand that experience of discovery. As one of the leaders--we launched in December of 2007--we believe this is the new way customers want to shop. We've got two and a half years of experience, focused on just doing these sales every day. I think other people in the space are fantastic, but I don't think a player in any single vertical will be able to get to real scale. We've been focused on delivering customers with a lifestyle, and are a casual lifestyle company. We've chosen to be in the marketplace, to go into luxury for a little of that halo, and into the mass market for scale. Our ability, as a lifestyle provider, is to extend into multiple verticals. We're already into eleven vertical, and we can continue to build a big moat. There's only around three big players, and luckily, we're one of them.
How did you get into this, and what's your background?
Adam Bernhard: After my tenure as Senior Vice President at Joie, I saw a huge opportunity with the off-price brand liquidation business. My background has always been off-price, and had been working with twenty of the top brands in the contemporary apparel space. I saw with that, that there must be a better way for brands to clear their inventory. I looked at what brands did themselves, sample sales, which provided brands with the opportunity to reach their customer base, and thought we could do that for them without them having to deal with producing those sample sales events. I also knew the best way to do that was online. There was an opportunity for brands to sell goods as a discount online, because they could protect their brand, since this was a membership only space. They were comfortable with moving goods quietly and quickly, off-the-grid, which gave them two to three times more money that other ways of liquidating those goods. We literally launched with four employees, and we've now got upward of 175 employees in just two and a half years, because this just started to resonate with the brand community and our membership base.
How did you manage to scale and get to profitability so quickly?
Adam Bernhard: It was because of the nature of not buying inventory, and using our capital wisely to focus on delivering fantastic service to the brand community, and delivering a fantastic experience to our membership. That's what has allowed us to grow so fast. Sixty percent of our membership growth is organic. They tell their friends about their experience, and that is what has allowed us to scale quickly. One of the things that has happened, is it has snowballed through word of mouth.
And all that was build initially on email?
Adam Bernhard: Email is a very important part of what we do. Our members allow us to send them an email every day, alerting them to new sales. We do not send email to people who are not registered members. They have to register, and they have to take steps to become a member of the site, so therefore when they receive an email every day, they've already taken an action. The email is just a reaction to their action. The other thing that does, is it means we are not relying on Google or search. One issue with the marketing format on the web, is how you get outside the Google trap. For us, it was important to have a relationship with our members, and by them becoming a member of the site, they are continuing to engage with us on a daily basis.
What's the next big thing for the company?
Adam Bernhard: What is happening, is we're delivering a lifestyle experience to our members. We're very focused on matching customers to products they are asking for, and as we continue to expand our verticals, we think we'll deliver an even better experience to them.