RVLV's Next-Gen AI, New Brands and Physical Expansion

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
Thank you for listening in to this TD Cowen Insights podcast episode. We're recording live at our 10th annual Future of the Consumer Conference in New York City. My name is Oliver Chen. I'm TD Cowen's retail, new platforms and luxury analyst. I'm excited to host Jesse Timmermans today. He's a CFO of REVOLVE. Jesse has served as a REVOLVE CFO since February 2017, following his tenure at CFO at Job Align prior, and Blue Nile as well.
Jesse, thanks for coming here.
Jesse Timmermans:
Yeah, thanks for having us, Oliver.
Oliver Chen:
It's a pleasure.
Jesse Timmermans:
Great to be here.
Oliver Chen:
For those less familiar with the REVOLVE story, help us frame how REVOLVE is differentiated versus peers. What are your core competencies? We view you as a Gen Z and an increasingly Gen A leader.
Jesse Timmermans:
Yeah. Yeah. For those of you that don't know, we were founded 20 years ago by Mike and Michael, who are still our co-CEOs today and very active in the business and still own 42% of the outstanding shares. So I think that is differentiator number one, is that we are founder-led and we operate in a very owner mindset, owner investor mindset, which is really important for building for the long term. So that's differentiator number one.
Then number two, we were founded on data and technology. Mike and Michael were not fashion guys when they founded the business. They relied on data to make the decisions. Mike is an engineer and essentially built the entire technology platform from the ground up. And even today, we operate on a proprietary technology stack, which enables us to really embrace this new wave of AI, which we're doing in a very meaningful way this past year.
Number three is our brand and our marketing and really connecting with that next generation consumer. We are what we believe is the fashion destination for the next generation consumer, so staying relevant and constantly being out there where she is and engaging with her, which leads to really healthy lifetime value and a very loyal customer.
Then number four is operating very profitably over the past 20 years, not only growing but growing profitably and building a very strong balance sheet with over $300 million in cash today, which enables us to be on the offensive when others are playing defense.
Oliver Chen:
I'll dive into what you just mentioned, AI. We think one of the key pillars here is REVOLVE's proprietary technology. What's happening with AI? What are your latest innovations and what's your approach here?
Jesse Timmermans:
Yeah, yeah. Like I said, we are founded on data and technology and operate on a homegrown technology stack. And even before AI, we are leveraging machine learning and various technologies. So set up very well for this AI movement. So over the past year, we've really leveraged AI. It really started with the front end and the customer experience and the website. Just a few examples and I could go on. We could take the whole podcast on examples of [inaudible 00:03:11].
Oliver Chen:
Okay. We'll do that next time, please. We'll do that.
Jesse Timmermans:
But on the site, developing our own internal search algorithm that was homegrown, which increased our conversion by a double-digit percentage rate. And not only that, we're not paying a third party service provider several hundred thousand dollars a year for that service. Then other things on the site like visual or virtual try-on technology and then most recently a AI generative Q&A function. So just a few examples on the customer experience and the site. And then on the midstream, using it in marketing to expand the reach in one of our largest marketing channels, using AI in some of our marketing and editorial processes to speed up the process and increase the output. That's an example where we're not necessarily saving money, but we're increasing the output, for example, by 6x in that example. And then all the way to the back office, leveraging AI for our fraud detection using AI for AP invoice processing, and most recently, developed an internal reporting and analysis tool for the team to use to make quick decisions.
And last year, a big win was our markdown algorithm, leveraging AI to optimize the markdowns, which increased our markdown margins significantly and led to the meaningful increase in gross margin year-over-year last year.
Oliver Chen:
That segues into another question, Jesse, margins versus growth. There's investments you're doing for the long term this year. How are you balancing that and what is your longer term growth algorithm?
Jesse Timmermans:
Yeah. We have always been focused on not only growth, but growing profitably, and you can see that in the numbers over the past 20 years. So it very much is a balance, and having that owner mindset, we are investing for the long term. So over the past year, we've been making some pretty meaningful investments outside of some of our core growth initiatives like international expansion, category expansion, leaning into things like AI that we talked about. Physical retail is also a huge opportunity that we've been investing in, building the back office, the team, the infrastructure to support a bigger store footprint.
Then the most recent launch of REVOLVE Los Angeles, which was a big investment into our own brands platform. And that launch is really just the halo to set the stage for future sub-launches to come. And then the most recent launch of Grow-Good, which is our joint venture with Cardi B, which we're really excited about.
So a number of big swings that we have in play right now. And again, balancing growth, balancing profitability. We are in an investment cycle. We expect to be, call it out of that investment cycle into next year where we'll start to leverage some of these investments.
Oliver Chen:
My favorite brands are lovers and friends and girlfriend. What are your favorite owned brands at REVOLVE?
Jesse Timmermans:
Yeah, those are consistently in our top 10, not only just own brands, but third party brands as well. I'll go to WAO-
Oliver Chen:
WAO. Okay. We got to check it out.
Jesse Timmermans:
... which is both men's and women's.
Oliver Chen:
Great. So REVOLVE LA, major milestone. What is REVOLVE LA? I think it's a great opportunity to simplify, amplify, intensify your own brand. And what's your own brand penetration?
Jesse Timmermans:
Yeah. Yeah. Our own brand penetration is about 20% now. We see meaningful upside in that. For reference, we peaked at 36% back in 2019. We think we can be greater than that from a combination of two things. One is the launch of REVOLVE Los Angeles, our first namesake label. And to your question, we think this is very meaningful. Our first namesake label, we've been thinking about this for years. We think now is the time and been investing behind that. Building the team and the product over the past year, and then most recently with the big marketing launch that we did this past quarter. And that is, call it a halo launch. It was a very limited SKU set, but it really sets the stage for launching future sub-products within that REVOLVE label at more accessible price points where we can sell in depth. And not only is it a halo for the REVOLVE Los Angeles brand and the REVOLVE namesake brand, but it's really a halo for the entire business. So we're really excited about that.
That'll be a big driver of the own brand growth penetration over the coming years. We think we can be greater than that historic 36% peak from a combination of that, REVOLVE Los Angeles, and then also in physical stores. Own brands perform meaningfully better in store than they do online, both from a mixed perspective and then also from an inventory productivity perspective.
Oliver Chen:
Interesting. That segues into physical retail. What percentage is physical now? What's happening? It's also pretty hard to do rapid AB testing and physical. So a lot of the talent you have digitally, can you really transport that physically?
Jesse Timmermans:
Yeah. Yeah. It's a very small percentage of our business today. We have two active stores, on Aspen and one at The Grove, and we are soon opening a store at Aventura in Miami, which we're really excited about. To your point, we are online people. We've built that muscle and we think we are really good at online retail and branding, but we now need to translate that into the store and we need to bring in both talent and process and infrastructure to support that. We think we're well on our way, but to your point, it is a different game and we are learning as we go. But having the rich data set that we have, we can really maybe not AB test in the same way we do online, but we can leverage our online data to influence what we're doing in the store.
Oliver Chen:
What have been your key learning so far from stores?
Jesse Timmermans:
Yeah, we're really excited about a few things. One, I mentioned the own brand mix and penetration and own brand's performing really well in store. We've also seen it as a great new customer acquisition tool, new customers over index in store. Even in our backyard of LA where we thought everybody knew who REVOLVE was, we've had customers come in not knowing what REVOLVE was and discovering the brand through that store. We've also seen a small halo effect on our online business in the surrounding Grove LA store area. So really excited about those two things. Return rate is meaningfully lower than our online return rate, so provides them-
Oliver Chen:
CFOs must like that.
Jesse Timmermans:
Yeah. Yeah. I really like that one. And AOV is higher in store than online. So a couple factors that really could have an impact on the overall P&L as we look ahead into the out years.
Oliver Chen:
You touched upon awareness and active membership has also been impressive, active customers. Tell us what's happening with that and where you are with active customers and how does active customer awareness intersect with AI and personalization?
Jesse Timmermans:
Yeah. Yeah. We're at about 2.8 million active customers, which we believe is about 3% penetrated in our core domestic market. So that just shows how much room we have to grow. And going back to physical, still three quarters of the retail dollars are flowing through a physical door, so that is largely untapped for us. And that active customer base grew 8% year over year in the most recent quarter. So really excited about the growth we're seeing in the active customers. And it's not only from new customers, we saw great new customer growth across all cuts of the business REVOLVE Forward, domestic, international in the most recent quarter, but also from our existing customers where we're seeing increasing engagement, whether it's orders per customer or revenue per active customer.
So it goes back to your point, connecting with the customer in the right way. We're expanding our touch points. Historically, we've been more, of course, the traditional Google, Meta ads, PLA affiliates, but branching out into connected TV into direct mail and some physical advertising that we haven't done in the past in combination of a store, in combination with the launch of REVOLVE Los Angeles, but then also just being where she's at and staying fresh and new.
Oliver Chen:
We teach a class at Columbia Business School, REVOLVEs been a part of it, and we talk about customer lifetime value. What's happening later when the customer doesn't always go to the awesome music festivals? What do you think about the older customer and REVOLVE?
Jesse Timmermans:
Yeah. Yeah. We have a great platform for that older customer that's maybe further along in her career, has more purchasing power, where she would graduate up into Forward, which is our luxury segment. Over 2x the average order value, skews more handbags and shoes, higher price point, some of the more luxury brands that you might be familiar with and really excited about the Forward business, graduating REVOLVE customers into that Forward business, but then also tapping new Forward luxury customers, really focusing on the high value customer recently, which is very loyal, looking for great product which we have, and there's a lot of disruption out there as you know. I think brands and customers alike are recognizing that and seeing Forward as a true destination for young luxury. And that's a key differentiator that's a very curated young luxury feel versus some of the others.
Oliver Chen:
What are you doing with the high value customer? One of the themes is certainly intensification of the case-shaped economy and luxury, the VVIP and money can't buy experiences are so important.
Jesse Timmermans:
Yeah. Yeah. Experiences are definitely a part of that. Inviting them to unique experiences that really, like you said, money can't buy, whether that's exclusive REVOLVE Festival attendance or having different events in our Aspen store, which has been very lucrative for that high value customer. And then I think it just comes back to great product and great service. You have to have the product to get them into the store or online, into our online store, but then you have to have great service to keep that customer. And we've heard time and time again, once they experience that customer service, they'll come back time and time again.
Oliver Chen:
I mean, you're famous for unique experiences, Cardi B, music, culture. How does REVOLVE stay relevant over all these years?
Jesse Timmermans:
Yeah. Yeah. We have a great brand marketing team and a very young employee base who is staying in touch with what's going on out there. So like I said, just constantly mixing it up, being where the customer is at, whether that's through marketing channels, what kind of music they're listening to, and of course the product and what kind of product they're interested in. So it's just a constant staying fresh and new.
I buy the REVOLVE advent calendar and beauty every year and I love looking at your assortment there as well. Tell us about beauty as well as other categories such as men's.
Yeah. Yeah. We're really excited about both. I know I'm saying we're excited about a lot, but we really are. A lot of opportunity in both beauty and men's. We'll take beauty, for example, that has grown 6x over the past seven years and this is part of our category diversification growth vector, and that's only 5% of our business today. We think that can be in the low double-digit if you look at some of the peer group and legacy department stores and their mix. So a long ways to go, some great growth, but a long ways to go in beauty and it really is core to REVOLVE. It's staying fresh, new, having a great curated, vast but curated assortment of beauty.
Men's we're excited about as well. So made some great progress there. Hider new men's director ahead of men's maybe 18 months, two years ago, who's doing some great things. And step number one is just getting the product and the assortment right and then we'll start to market more. And we've started to do more of the marketing more recently. We had our first, I think our first ever brand marketing, dedicated brand marketing event, men's golf trip to Vegas a couple of weeks ago, which went really well.
Oliver Chen:
Okay, great. We need a men's event and a beauty event with you and everybody listening to this will certainly be interested in coming. Well, Jesse, do you prefer one over another because of margins when you think about categories? Don't you want to be all owned brands because it's the best margins?
Jesse Timmermans:
Yeah. No, I think definitely want to be higher on own brand mix because of the margin. The margin is great. And not just the margin, but the exclusivity of the product and how we're able to market that product and keep that customer. But there has to be a good assortment, and third party brands are very important to the mix. I don't think we'll ever be 100% owned brand because you need that third party to draw in the customer to have that vast assortment that we have. We have over 1,200, 1,400 brands on the site at any given point, over 100,000 styles. So we need to have that constant newness and freshness for the customer.
Oliver Chen:
That segues into inventory management. It's been the most challenging time ever for so many reasons. What's the state of your inventory? How are you thinking about turns?
Jesse Timmermans:
Yeah, we feel good about inventory right now. It's been healthy over the past year, generally in line or lower growth than the overall sales growth. Turns are healthy. And that's across both segments and that's important to both REVOLVE and Forward. Forward inventory generally takes longer to work through if you're in an over inventory position. So to have Forward in a good place feels really good.
Oliver Chen:
Really different dynamics there. Last question, what keeps you up at night? What are your biggest priorities over the next one to two years and how has your answer changed since the last time we spoke?
Jesse Timmermans:
Yeah, I don't remember what I said the last time we spoke, which is probably about a year ago, but I'm guessing it was probably something related to tariffs, which definitely kept me up most of 2025, but really happy with how we mitigated the tariff situation and hopefully that is, for the most part, behind us.
Now keeping me up at night or what I'm most excited about is these growth opportunities and really executing against these growth opportunities over the next two years. So whether that's just the core category expansion, international expansion, our key growth initiatives like physical retail, Grow-Good Beauty, AI I'm really excited about. So it's very much a growth mindset right now and an investment in future growth.
Oliver Chen:
Which part of the job's the most fun for you?
Jesse Timmermans:
Ah, good question. I think it's being in the office-
Oliver Chen:
In addition to talking to me and...
Jesse Timmermans:
Yeah. Going on conferences, yours especially. Festival is always a highlight of the year.
Oliver Chen:
Which part of the festival?
Jesse Timmermans:
I think it's just observing, observing the talent there, the influencers, the culture and the customer. So it's really fun just to see the brand in real life, but at the end of the day, it's back in the office just grinding with the team and getting into Excel.
Oliver Chen:
What do you think you're going to do with the REVOLVE LA brand? How's that going to evolve?
Jesse Timmermans:
Yeah. So the first launch was really the Halo launch, very high price point, high price point, but very value high price point. So really great product at a great price. Following that, we will launch more accessible price points in different categories and those will be the volume drivers.
Oliver Chen:
Well, you have a lot of versatility there. Well, Jesse, thanks for briefing us on what's happening. There's so much happening, magic plus logic, the evolution of digital and the physical and this portfolio brands which continues to impress. Thanks for joining us.
Jesse Timmermans:
Yeah, thanks for having me.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.