The Tech Behind Thrift: How Basecamp Franchising Built a Resale Machine ($300M, 270+ Stores)

Tyler: Why would you ever shop full price again? If you can get all of these combination advantages in one place, why pay three or four times as much?

Karri: Hello and welcome to the Recommerce Podcast, the podcast where we talk all things re-commerce and circular businesses. Today, we have quite a special episode for you as we are joined by Zach and Tyler Gordon, brothers who own Basecamp franchising the company behind two franchising thrift store chains, Uptown Cheapskate and Kid to Kid. In total, they have over 270 stores and generate over 300 million in revenue. But don't worry, as always, I'm also joined by Tuomo Laine, CEO and co-founder of TWICE Commerce.

Tuomo: Thank you, Karri. I'm happy that I was also invited because this is such a great episode. It was extremely awesome to listen to Tyler's and Zach's story, building a business that is doing more hundreds of millions in revenue over 270 stores and truly having like a win-win-win setting in the market where everyone from Basecamp to the franchisees and the end user is capturing a lot of value in the way how they operate. Also, a few things that like almost like a hashtag level things that popped out, that was the key role of software in running the machine and making sure that you have a profitable machine and kind of software being at the heart of everything. At the same time, I think they make a great case on how it's still a local operation, that there's power for the local franchisees when it comes to pricing and all of the kind of customer know-how. Then you can clearly see how we're talking with clear experts. I think they make a compelling case that is there even in future a why would you in the future buy new stuff if you get similar, good as new stuff for a quarter of the price and even bring your old stuff back for some cash back. Very interesting episode and I don't know what was your take on it, but one of the best episodes we've done thus far.

Karri: Absolutely. I couldn't agree more. I think like the amount of value captured, being captured everywhere was just amazing and I think they had a really awesome balance between like what the parent company is able to provide for the franchisees and still how much they have possibility to affect it. The software, a lot of data that they are able to utilize for the whole brand, but also do like sounds like really good marketing for individual stores and I think that was really interesting to learn how these type of franchise companies work and I think this is a really great example of how centralized, what benefits they are able to get there and how they are able to pass it for individual stores.

Tuomo: Definitely. So should we allow Zach and Tyler take the center stage and we can hear how they were looking at a market that maybe was a bit under looked, maybe undervalued and how they saw an opportunity in the drift market and how they've been turning it into profitable growing business ever since.

Karri: Absolutely. Let's get into it.

Karri: Zach and Tyler, welcome to the podcast.

Zach: Great to be here.

Zach: Thanks Karri, great to be here today.

Karri: Great to have you here and to start maybe you can have a quick introduction of yourselves.

Tyler: Yeah, so Zach and Tyler Gordon we are two brothers originally from New York City and I'd say we both had pretty long careers mainly in finance and investing but always had this desire to work together for a whole host of reasons. I'd say most importantly it's related to just personal fulfillment and so set out on the journey about five years ago and yeah, it's been an incredible ride since then. I'm sure we'll get into our experience with Basecamp and the partnership we built here on the professional side but yeah, from a personal fulfillment and journey standpoint it's just been great working with Zach and hope to be doing it for the next several decades.

Karri: Sounds good. Sounds good and maybe a couple words also about the Basecamp franchising.

Zach: Yeah, so Basecamp franchising is a holding company. So in fact the name Basecamp franchising doesn't mean anything to any consumers. We have two brands of franchise thrift shops. So one is called Uptown Cheapskate, the other is called Kid to Kid, so these are our consumer facing brands and fundamentally they are the same business model. However, they target different customer demographics. So on the Uptown side we're focused on young adults so think people aged 14 to 35 plus. Kid to Kid we're focused on as you might predict, little kids and surely their parents that are shopping on their behalf. So really we're buying and selling clothing in the case of Kid to Kid also toys, equipment, books, whatever you might need as a parent of young children. Fundamentally focused on the demographic age zero so infants to 14 years old.

Tuomo: Out of curiosity, what ended up you like selecting these specific two segments? Were there like trades that made these segments very interesting for you guys? How did you end up there?

Zach: I would approach it from two different angles. The first is the franchising angle. As I mentioned, our two concepts are both 100% franchise. So while we manage the brands and the systems and the technology, which is a very important part of the systems, it's individual entrepreneurs across the US and in fact in Portugal and Spain as well who actually open and operate the stores using our systems and brands. I had worked at a very large franchisor in the restaurant space. So a company called Restaurant Brands International, which is the parent company of Burger King and Popeyes, a number of other very large familiar QSR brands and by virtue of that got to know the franchising landscape very well. And so in as much as our two concepts are franchise, that was a very relevant angle, I would say in terms of how we ended up coming across the brands. So if that's the first angle, the second angle is then just the industry. And I would say that I didn't know much about the upcycling kind of movement. I didn't know much about the thrift space until we really in earnest started looking at Basecamp and understanding our two brands and then the competitive landscape more broadly. But the more that I have learned frankly, even up through today, the more I've been amazed at one, how large the industry is, how many different kind of nooks and crannies there are that are each individually quite big within it, how quickly it's growing and how much fundamentally value there is for everybody involved in the ecosystem. I think that a lot of people will have this preconception of thrift, which is that it's almost by definition not full of value because the prices are so low and a lot of the stuff that you might encounter in a thrift shop is kind of garbage. But in fact, the almost the exact opposite is true. There's so much value in this ecosystem. And so as we've been pulling on this thread, frankly, from the first couple of weeks that we were learning about the two concepts that we now help to run. Yeah, that has really crystallized for us. This is one of the most exciting industries in our view in the country.

Tuomo: What about like the Tyler or Zach either like that's super interesting. And when you're kind of went real deeper into the kind of idea where they're like key aha moments, like certain insights are similar that like got let you convinced on the fact that actually there's a lot of value in this space. So where they're like key moments that you could good like highlight that hey, this was the moment when we realized that this is actually there's value in here. And the kind of common belief is probably not not true.

Tyler: Yeah, I would say there were any number of those aha moments along the way, thankfully all positive ones. In our case, I'd say the initial lens that that we look at it from was we qualify as a unit economics. So if you are a prospective franchisee and you're coming in, you're saying, Hey, do I want to open an Uptown Cheapskate or a Kid to Kid? Is that a good economic proposition for me and for my family? And on that lens, honestly, we were shocked at how strong the unit economics were across the board. And so you take our bigger concept, at least today, Uptown Cheapskate. They are the average store does 1.3 million in revenue, 188,000 of net income, top quartile gets up to 350 plus thousand of net income, all on an investment of just under $500,000 on average. And so the unit economic profile for our franchise owners is incredible. And so that's, I would say, what initially piqued our interest. And honestly, we almost couldn't believe what was in the FDD. So then we spoke to probably 30 franchisees to say, Hey, what we're seeing here on paper is that real. And they substantiated everything that, again, the FDD would have highlighted. So that I would say was the first aha moment. The second one, I would say, really building on those conversations with franchisees was how supportive, enthusiastic each owner was about the decision they made to join where they are today in their journey and their, again, enthusiasm for the future. Normally, when you speak to at least a large enough cohort of individuals in any franchise system, you get some good, you get some okay, you get some ugly. And here, again, we were just floored by the positivity across the system. And people were so generous with their time in terms of sharing their perspectives personally, financially, professionally. And so I'd say that would have been the second piece that are like, wow, if this many people across so many different geographies love this model and want to keep growing in it, hey, maybe this is an area to spend more time. And then the last one was Zach already hit on was just the industry fundamentals. I think they are truly as good as you could manufacture in a lab. So a massive industry with remarkable tailwinds and growth potential, extremely fragmented, very recession resilient, if anything, counter cyclical. And so you stacked all of these on top of each other. And it ended up being this, why wouldn't we do this? And so, yeah, there were a whole host of those aha moments and they're continue to be, honestly.

Zach: I would maybe add just one more as a fourth, which is just going to the stores. So going to an Uptown, going to a Kid to Kid. How does this look feel from a consumer's perspective? And I had had a child, our first daughter, right around the time that we were starting to explore these two concepts and just the industry more broadly. So I went and visited a Kid to Kid, I went and visited an Uptown Cheapskate. And from a consumer perspective, I would say our stores really speak for themselves. It's amazing how much value you can get, how much assortment variety you can get as a consumer, even on top of the value that essentially the middleman, the franchisee is able to generate as well. So again, when I said that there's just value everywhere, that really is true when it comes to our stores.

Tuomo: Yeah, I think that sounds like if FDD is standing for financial due diligence, I think that's really the sweet spot when you've gone as a from investment opportunity instead of trying to convince yourself to make the investment, trying to convince yourself out of it. I think that's the first mark that you're in a healthy opportunity, so to say. And I think that operational due diligence side of things that just like then putting your kind of boots on the ground and going to the stores and getting the kind of feedback yourself and seeing that, all right, now I start to understand how these numbers come together and seeing that they come together in a healthy way and that sounds amazing. I think it sounds like a rare opportunity that this would happen, but it sounds very good for you guys.

Tyler: Yeah, and I would say beyond that, it's one of those often you find this kind of combination of really attractive attributes from a backwards looking standpoint or even the moment in time. But then there's this question of, okay, well, how can you add value going forward? Are there really those next several chapters to continue to grow and transform the business? In our case, honestly, if you'll forgive a baseball analogy, I think we're in the first or second inning in terms of where our concepts can head over time, the value we can offer and deliver to franchisees and to their customers and the communities they're involved with. And so what really got us excited, what still gets us excited today is there are a lot of fun things to do for decades to come. And that's very rare. Normally, you're trying to say, "Hey, where can I find half a percentage point of growth here, a quarter point there?" and you add it up and hopefully it's attractive. But in this case, there's just so much opportunity ahead.

Tuomo: So maybe that's an excellent segue to the next, first of all, two questions. Can you just remind us how many stores do you currently have in total? And then maybe going to those tailwinds that when you engage into this investment opportunity and you are looking into the aspects of where can we add value, where can we thrive faster growth, one of the key analogies there. Can you mention one or two of those opportunities that started to come about where you saw a thing that you looked at it and said, "Okay, this is something that we can improve even better or make even better and improve more." So the number of stores and what tailwinds where you're seeing then when you engaged?

Tyler: Yes. Why don't I take the number of stores in the Zach return it to you in terms of just the opportunity set. So at a high level, we've got over 270 stores today across our two concepts, again, predominantly in the US, so in over 30 states. We're then also in several international markets. So Zach referenced Portugal and Spain and Canada and I would say have aspirations to be in all 50 states but then also expand much more broadly internationally.

Zach: Yes. And in terms of the tailwinds, underneath just those headline numbers that you could see at the industry level, there are a number of different organizations that publish industry growth numbers and then that you could see even with in our two networks. I would say that there is an interesting reality in thrift which is that whereas in general purpose retail, the technological management, operational kind of systems, level of sophistication in general has increased really steadily over time going back even to the '60s and '70s. I would say in thrift, a lot of that just hasn't happened yet candidly. There's a lot of complexity that's inherent to thrift that's unique to thrift. I would say just one very important example being that every single item in a store is unique. So every single item is a SKU, has to be priced as a skew and then resold as a SKU. So there's a lot of complexity that you have to wrangle in thrift that you don't have to wrangle in other, again, full price general purpose retail environments. From our perspective, what is our key point of differentiation as it relates to our systems? And there are a number that all kind of add up to I think a really compelling proposition for a prospective franchisee, but the linchpin for us really is our technology. And we have a number of different software programs that we developed in-house that we continue to build on. In fact, our technology team is our biggest team here at Basecamp, so it's got over 20 people on it. And there are a number of different areas that we identified even before we got involved. And maybe we had a list of, hey, three to five things that, hey, it seems like maybe this would be a good idea and would add some value. That list now has 100 things on it, I would say, as it relates to the application of technology. Just a couple of tangible examples. One would be pricing. So product appraisal is a very, very important function within our store. So somebody comes in with a couple of bins full of clothing. You need to very efficiently and precisely go through each of those items of clothing to arrive not only at what you're going to buy just as a first matter, but second then of that subset of items that you're going to buy, what are you going to pay for each of those items? And then what are you going to mark each of those items up at? That's a, generally speaking, very subjective process in most thrift stores to the extent that there's any sophistication behind the pricing kind of algorithm if you want to call it that. It would be in the head of some very experienced buyer. Often it would be the proprietor, the owner of the store. What our software does, this component of it, it's a product appraisal system called Baseline Vens, is it systematizes all of that knowledge that could otherwise be in some of these head and builds on it over time as we're selling through hundreds of thousands of items in any given week. So we're harvesting the data, again, that we are generating in a very meaningful way just every week, and then feeding that back into what should the price be, what is the optimal price for each incremental item that we're purchasing. So that's just one example. There are, again, 100 other or 99 others that we could go into. But for me, the theme really is the application of technology into an inherently very complex space, but one that requires a lot of the same actions to be taken over and over and over again. This is almost the definition of where you might want to apply software to get a better result.

Tuomo: Exactly.

Zach: I would say technology ends up being really, really, from our perspective key, not only today, but increasingly so as we move ahead.

Tyler: And I would say what is our goal as we think about whether it's our technology or other support resources that we offer, we hope that we've created something that we can hand off to our franchisees. They can turn it around and with no incremental instruction or otherwise, hand it to a 16-year-old employee who started a week ago and be confident that they can execute that with a high degree of precision. And so to Zach's example, that would mean going in, grabbing a random article of clothing, handing it off to that 16-year-old and say, go to our appraisal software, input the relevant attributes, and be confident that what will spit out at the end is the market clearing price for that.

Tuomo: Makes total sense. There's so many things like, for example, in our podcast series, we've been, I think we have a single episode in just talking about a single SKU market or what does it mean to have a fully serialized or individual inventory and all of the complexities of that. And all kind of using examples like refurbished smartphone markets where the inspection process is so important, understanding what you have there, figuring out the market values. And there's so many markets where like an iPhone market where you just focus on iPhones and you follow that market value. But in your case, you have that wide variety and range of products that you have to kind of figure out. So it's a very complex setting. And so like, for example, what TWICE is that we kind of are building that software. But then I think it was so interesting what you mentioned, Zach, also there that it is a continuous feedback loop, you really need to feed into information continuously, because one of your advantages is of course, economics of scale that you get to get a lot more data than anyone else. You have that supply that you continuously praise and you figure out what's the optimal point there. And that would be a super hard job to do without a software helping there. How is it, by the way, like, we can we could probably spend an hour talking about that. But then as you have so many different store locations, I would imagine that the thrift market is also quite local. So there are local, like preferences when it comes to what kind of demand there is for what kind of products, and also maybe price points are can be a bit local. So is that still something that you allow the local employees power to kind of then do these constitutions? Or are you trying to centralize everything into the software?

Zach: Yeah, I'll take this one. That product appraisal software that I was describing earlier, what is the output of that that program, let's say that I'm pricing a pair of jeans, I'm going to input a bunch of different attributes into the system. And then at the end of that process, what will be presented to me as the employee is a matrix of prices. The one in the middle is the bullseye, it's the suggested price that just from a data perspective, we can have the highest confidence is the best price for that item. However, the individual employee can select from it's a total of nine different prices that are clustered around that center price, some lower some higher, they can choose whether they want to slightly increase or slightly decrease the price of the item. And that could be to account for specifics in the local market, it could be something that they're seeing in terms of the condition of the item that is harder to capture in terms of the attributes that we're putting into the program. So we want to leave some flexibility at the local level. I would say very importantly though, then on top of that, what we're building right now into the program is flexibility for the computer to determine for that bullseye price, the price in the middle. Is there enough data at the local level, so at the level of an individual store at the regional level that points to a price that is either slightly higher or slightly lower than the national average for an item with those particular set of attributes. And so over time, it's going to be a blend, it's going to be a combination of national, regional and local pricing where there's a signal that's strong enough at the local level that, gee, it really does seem like for whatever reason this brand is in lower or higher demand in this store or in this region, that will reflect itself in all of the prices and most importantly that price in the center that are displayed to the employee who's pricing the item.

Tuomo: That's very cool and it sounds also very future proof when we think about all of the things that AI or similar can bring to the table. Kind of being able to be very flexible and fast on identifying trends that are kind of driving value. I would imagine in thrift stores you kind of see that you have maybe limited supply for a certain kind of a product and then it's in high demand due to a celebrity wearing something similar and you want to be there to kind of capture the full potential margin that is available there. So, but to a technology company, it sounds that you have a lot of those ledgers that you can kind of pull or kind of play with in order to keep growing your margins and to provide those for the franchisers and kind of to keep improving the profit margins there. Super interesting stuff.

Zach: One other asset that is very relevant for us, we have pretty much any data point that you could think of. Gee, it would be nice to have this data point for all of our transactions we have. So, it's like Tyler was saying, it's almost the opposite problem to one that I've encountered in my career, which is generally, gee, where is there any data in our organization that we could try to scrape together and generate some insights out of? For us, it's like we have an ocean of data. We know exactly for every single item in all of our stores when it was purchased, what it was purchased for, what it was sold for to the extent it was marked down, okay, how much was it marked down. In the vast majority of cases, we can also say who sold us the item and who purchased the item. And then at the level of the customer, okay, what other items have they sold to us or have they purchased from us? So, we have a kind of an unbelievable amount of data. In our view, we're harnessing, I don't know, some still very low percentage of the value that we anticipate we'll be able to.

Tyler: Yeah, and so, I always like thinking about, okay, what's the practical implication of leveraging that data? We've talked about it in the pricing component, but then as you think about marketing, an obvious example for Kid to Kid is if a customer comes in twice and makes a series of purchases over those two trips, we can say with near perfect certainty how many kids they have and how old those kids are. And from that, we can map out, let's say somebody came in and purchased something for an 18 month old, two times in a row, okay, they probably have close to an 18 month old. We know their needs better than they do for the next 14 years. We know exactly what they will need every season for the next 14 years. And so, being able to leverage that for our marketing standpoint and have purpose built messages, not just kind of spamming everybody with a generic message, but, hey, by the way, your son or daughter now seems to be turning kind of five years old and winter's coming up, you might need a pair of snow pants or a jacket. Great, we can be very tailored. And hopefully a good resource in that regard for our customers.

Tuomo: Makes total sense. Sorry, Karri, but it also sounds like, especially when it comes to maternity equipment and similar, there are these short periods when you need that. So, you kind of know that there's also supply in that same household. It's not only like new demand, but Karri, did I want to cut you off? So, go ahead.

Karri: Yeah, yeah, I was just wondering like how do you actually run the marketing? Is it actually run by the parent company or is there something that the individual franchise companies are actually doing there?

Tyler: Yeah, so what we try to do in every dimension of our operations is determine what can be and should be centralized. So, if we can take some burden off of the shoulders of our franchisees, we will do that 10 times out of 10. The reality is, in certain instances, and in this case marketing, there are elements that just have to be managed locally. And so, again, looking at in the context of marketing, what are things that can be really well managed, probably better managed centrally. Paid digital advertising is one very obvious example. It's critical for our stores to be advertising on Google, on Meta, so Facebook, on Instagram, on TikTok. Programatic display is another avenue within that digital realm. We can manage that really, really well centrally. And with the tools that exist today, even if we're collecting that money centrally, we can ensure that the dollars are spent locally. So, if a store contributes $2,000 a month to this national marketing program that we've set up, that's not just going to a broad Super Bowl ad that we could put on. No, we then take those dollars and we localize the spend in the trade area for that given store. And so, again, that's a massive administrative burden for franchisees. It costs a lot of money. The commission's at a local level, really high. You get no advantages of data analytics. Those are all things that are better managed centrally. What are things that have to stay local? Your organic social media presence, highlighting the unique personality of your store, how you interact with your local community. Grass roots efforts, okay? If you're a Kid to Kid, how do you get to know the people on the mommy's Facebook group? How do you go and build relationships with the local daycares? And so, those are the things that have to remain local. Now, we don't just say, "Good luck. These are things you have to do." We can be very prescriptive of based on what we've seen from, again, thousands, millions of data points over time. These are the elements. These are the strategies that are the most effective. Here's how you execute them. Here are examples of how people have executed them in the past. While they have to reside locally, that doesn't mean we can't provide a lot of support and recommendations on how to be successful.

Tuomo: Makes total sense. I can imagine that you centralizing a lot of these things, that secures a lot better return on investments for all of the local franchisees because you get better negotiation power when it comes to buying the advertisement and all of that. So, it's probably super important on that level also. So, quickly touching on what we've been talking about, a lot of the values on centralizing tech and centralizing marketing. When it comes to securing supply, is there something that you can centralize also there? So, of course, you can market the demand side of things. We've a little bit touched upon the supply side where we identified that if you have the ability to have customer profiles, you can invite already one sold items back. In the form of new supply, what are the other sources on how do you invite supply to the stores?

Zach: So, all of our purchasing happens at the local store level. So, it's 90 plus percent of the merchandise that we sell in our stores is used. Five to 10 percent, depending on the store, will be new products. These are things that you can't really buy used, buy and sell used to like socks and accessories, things like that, that are mostly around the cash register. So, for frankly, both of those categories, all of the purchasing is done at the level of the individual store. So, on the use side, it's really all just people from the local community coming in with bins like the example that I gave earlier to sell to the store. So, the short answer is that today we don't really do any centralized procurement. In my view, there are just intuitively at least a couple of different ways that we could explore that in the future, whether it's bulk purchases of used merchandise or in fact, we're piloting a program with a startup that's focused on more optimally handling e-commerce returns. So, is there a way that we can participate in that ecosystem and have some of those returns just come directly to our stores? There are a variety of different centralized methods that, again, just intuitively, I think we should explore. But maybe this is just a good example of this impossibly long list that we've been talking about across all these different departments of, yeah, hopefully we have time to get to that one day. But in the meantime, the localized model where it's all just procurement at the level of the individual stores is very, very effective.

Tyler: Yeah, and I would say that if you could snap your fingers and say, hey, we can source everything at the central level and then distribute to your stores, would you do it? The answer would be definitively no. And why is that? There's a very important component of our stores that I would just qualify under the concept of upcycling. So, somebody who is coming in to purchase an item likely then has an item that they've outgrown or that they no longer use. And so, our stores end up being a really, really effective avenue for them to get cash and cash on the spot for an item that likely would have otherwise ended up in the landfill. And so, for our stores, that ability to inject cash back into our customers' pockets into the local community is a really critical part of our customer value proposition. And so, it actually really is an advantage that you are buying locally. You are giving your customers cash for their unused items. So, even if you could centralize a lot of it, you probably would. That doesn't mean on the margin there aren't opportunities for us to supplement that locally sourced inventory. But the local buy, sell, trade dynamic will always be critical.

Tuomo: Makes a lot of sense. We did a research last year specifically in the US market and we landed on a number where actively there's over $600 billion worth of unused, usable goods sitting in the households of the US. And I think it was like on average it was maybe $4,000 or so of actual value that could be immediately gained by households if they would engage with a company like you to bring it in. And then the net that an average household gains, you at least gain, I think it was something like 50 items a year that they could resell forward and which is kind of has real value tied to it, which usually ends up in like a storage room. And I think it's sometimes we, for our own investors, when we were explaining kind of the amount of supply that is sitting there, we were saying that well, just look at the storage market, how much there is like people paying for the fact that they can store items that they don't use, but they want to own still or they have to own. So that is a signal of the supply that is out there, just purely with households without tapping into like even even corporate product returns or kind of that sort of things. So I think the supply is there.

Tyler: Yeah. Yeah, I mean, we like to say our biggest competitor is some combination of the dark deep corners of a closet or the landfill. Like those are our competitors. We just need to convince people that, hey, there's a tremendous amount of residual value in those items you already own. And you have the opportunity to turn that not into just cash, but then the next style that you will for the years to come.

Karri: Absolutely. Is there, if you have to point out like either supply or demand, like which one actually has like more challenges to get more supply or more demand?

Zach: In my view, the supply side of things, it's almost unlimited in the US. You talk about $600 billion of inventory, let's call it out there in US households. Of course, that's not all apparel and equipment of the variety that we would sell in our stores, but a lot of it is. The US apparel market is $300 billion a year. So that's a fire hose, a massive fire hose, pumping more product into the system every year. Our two brands together today have approaching $300 million of systemized sales. So we're talking about a drop in the bucket really on the supply side. It's the demand side where all the growth is coming from. And why has demand for secondhand anything, but in our case, in particular clothing, been increasing so much? One, it's of course, in light of that reality that there is so much highly valuable supply out there, just waiting for somebody to tap into it. That's a structural reality in Enabler. But historically, there's been a stigma associated with shopping secondhand. People have felt that they would only do it out of necessity. They have in their mind a goodwill where you got to be rumaging through a bin, looking at a radio and a blender and a sweater and a record and all these random different items that they have no interest in purchasing to find something that they actually do want to purchase. So there's been a huge amount of friction. There's been a stigma attached to secondhand anything, but especially clothing that is not only decreasing, and I would say especially over the last 15 years or so, but for younger consumers, it's inverting. It's becoming actually a feature to shop secondhand because it's sustainable. It's keeping more product out of landfills. It is fun. It allows you to express your individuality by going and buying something that by definition is going to be one of one in the store. It's really, really good value. We're talking 70 plus percent off original retail. From our perspective, if those first two considerations, sustainability and individuality are enablers that are causing more and more people, millions of them to become curious at a minimum about shopping secondhand, then it's the value that they find in particular in stores like ours, where they say, "Oh my gosh, like I'm going to shop here all the time," because value is from a consumer perspective, the most addictive thing that you can provide as a retailer, frankly, is any kind of good or service provider.

Tuomo: That is a trend that we're seeing also here. For example, if you go to Sweden, Stockholm, there's already brands similar to H&M or similar that have already shop in shop, secondhand shops inside. It's been driven by the absolute demand and the kind of people wanting to buy secondhand, wanting to buy more sustainable options. The secondhand is a feature and not like a drawback or a thing that would be less of a value. I fully think that those teams are just getting stronger and stronger. What's your take on things like when we go further and further in the future? We've even seen that as we continue this pattern that where might it lead and some say that it actually would lead to a world where we can invest a bit more into manufacturing and creating a better quality goods, actually potentially bringing some of the manufacturing closer or near shore to the actual end market, as companies or manufacturers know that there's more life cycles in these products. It's also slowly or fast depending on the product market or product category, building a market where manufacturers could invest more into the products that they manufacture, which enables this kind of a market that not everything needs to be mass manufactured somewhere far away, but you can actually start bringing a lot of these things closer to the end market. Apparel, of course, is something where the kind of margins are a bit slimmer, but is this a belief that you would share that this is a thing that might happen in the future as we continue these patterns?

Tyler: Yeah, absolutely. Certainly, you reference the implication in terms of manufacturers if they believe that their item won't just be kind of in use for one life cycle, but will be loved for potentially generations. Hopefully, that means that they think about manufacturing those items to a higher quality, a more sustainable quality, but then it also has implications for the customer to take better care of the items that they use. If they realize that there is a tremendous amount of residual value in those items, if they're well maintained, then they'll again be able to sell them downstream to one of our stores. I think there's implications really across the chain.

Tuomo: Yeah, that's something that personally as a consumer and working in this market, it's one of those values that is interesting that we're pushing the world to a place where we can again manufacture quality goods and people take care of the goods. That also means that you can invest in labor and so on a bit more, which usually means that you can manufacture things near or shore.

Tyler: Absolutely.

Karri: You mentioned earlier that you're seeing this trend among younger consumers that they are therefore open to actually purchasing pre-loved items. In this world, it's also a lot about online shopping. Is that something that you're already offering or planning to offer in the future?

Zach: We don't offer it directly, although our franchisees can and do cross-list items on sites like eBay and Poshmark. There's a very important reality, I would say, for e-commerce, which is that first of all, there's just a lot of friction. You consider the peer-to-peer platforms like the two I just mentioned. If I want to sell something on, let's say Poshmark, I need to take a whole bunch of photos of it. I need to put up a description. I need to monitor the listing. I need to inevitably haggle with the people who are going to want an even better price on the item that I'm offering, which frankly, you've got to already have thought about when you price the item to begin with. There's actually quite a bit of subjectivity and then friction associated with selling online. Then of course, once you transact, you're going to have to ship the item to the person who bought it. On the other end of the transaction, the person who bought it has to factor in the shipping cost to the cost of the item. Fundamentally, we're talking about a category that is driven by value. Well, it's certainly no longer so much of a stigma to buy something that is used. For pretty much any consumer, if they can buy the same exact product used or new at something approaching the same price, they're going to buy the new item. Fundamentally, purchasing behavior in our space is driven by value, driven by price. You consider that hypothetical transaction that I was just describing a minute ago. First of all, on the person selling, huge amount of friction. Then on the person buying, let's say that the item that I'm purchasing is $12. The shipping cost is likely to be something around $12 just on top of it. It's going to defeat the purpose of shopping secondhand just when you consider the shipping cost and then you consider all the other points of friction that I mentioned. At Uptown, our average item price happens to be $12. Most of the stuff that we're buying and selling in our stores is under the radar, if you will, of what makes sense to transact on the internet. At Kid to Kid, it's even more pronounced. The average item price is between $5 and $6. While e-commerce, you might as well cross-list some of your higher priced merchandise if you're an owner. Fundamentally, most of what we're selling doesn't in our view will never make sense to buy and sell on the internet.

Tuomo: Makes total sense. I think that's a pattern that we've also seen when it comes to average order value, baskets and carts that the shipping cost is eating a lot of the margin, or if not all of the margin away. But what about concepts? A few things that we've seen that, as it sounds that you have this support for the single-skew systems and these appraisals and all of that, one of the things that we've seen that businesses try to still bring their offering and their catalog online, but then in a more of a click-and-collect experience. Being able to say that, "Hey, here's all of the things in the store," or "Here's a few highlights to drive food traffic," and then saying that, "Okay, you can purchase this online, but you need to collect it in store." Is that a model that would make sense in your case?

Zach: Yeah, and we already do a good amount of that. I think that when we talk about the organic social media that we were referencing earlier, a really key component of it, if not the most important component, is highlighting the incredible inventory and the unbeatable value in our stores. And so, what's one example? It could be, "Hey, here are Friday finds. Here are the five best outfits that we've bought over the course of the week. You can get this entire outfit for $24. And that really piques somebody's interest. They could respond directly and say, "Oh my god, I love that jacket. I love that skirt. Can you put it aside for me? Maybe the item's still there. Maybe it's already been sold." A lot of people then just say, "Oh my god, I can get that entire outfit for $24. I'm sprinting to the store to see what else they have." So, highlighting that inventory, whether somebody is responding and asking you to put that aside in a purchase and then collect standpoint, or is just driving them into the store, they both are real advantages. So, we definitely do that already. They're probably broader applications. We are in the early stages of building an app for our stores. And in that app, there's almost certainly going to be opportunities for stores to highlight certain inventory that they have. Again, whether it's marketing or for actual purchases, I think there's a lot of optionality there.

Karri: But yeah, as a final question, maybe the most standard question is where do you see that the thrift industry is going forward and what is it going to look like in five years?

Tyler: I don't think it's going to slow down. And so, it's been growing incredibly quickly, double digits for most, not all of the last 15 years. I don't see any reason why that would decelerate when you consider all the trends that we've been talking about. The fact that there's in general macroeconomic uncertainty in the US, you've got these trade dynamics with tariffs, all of this only then incrementally plays in favor of goods that are in circulation, realizing the value that's just been sitting there this whole time, and that's $600 billion worth of inventory. It increases the incentive for people to tap into that value. So, let's see. It's hard to predict where we are next year, even five years from now, but I would say that in a general sense, the trend that we've seen historically, we see it this year not slowing down. I don't see any reason why it would slow down in the near future.

Zach: Yeah, and I'd say our macro goal as a company is if we can be successful in everything that we're doing, whether it relates to the customer experience and offering this kind of boutique style store experience relative to your dusty, dirty thrift store, if we can continue to double, triple down on our technological advantages. Our macro hope is not just to, I would say, transform people's perceptions of thrift and the value they get out of it, but more fundamentally ask why would you ever shop full price again. If you can get all of these combination advantages in one place, why pay three or four times as much? And so, our hope, whether that's over the next five years or 10 years or plus, but that's definitely our kind of guiding goal.

Karri: Absolutely, and I can also share that last year I was in Raleigh and I actually visited one of your stores and it was pretty amazing and highly recommend anybody visiting one of your stores. But hey, Zach and Tyler, thank you so much for joining us and sharing all the great insight.

Tyler: Thank you so much. It's been a lot of fun.

Zach: It's been great.

Tuomo: Thanks guys.

Karri (outro): Thanks for listening to the Recommerce Podcast. This podcast is produced by me, Karri Hiekkanen. You can find us on Apple, Spotify, YouTube or wherever you like to listen podcasts. If you like it, please remember to share and leave us a review on Apple Podcast or like and subscribe on YouTube. See you next time.