#108. Naadam democratizes Mongolia-sourced cashmere. We talk with co-founder Matthew Scanlan about how the digitally-native brand began moving offline in 2016 after seeking the legitimacy that comes with going offline, which led it to open its first permanent store in 2018. Retail is Alive talks with the founders, executives, designers and builders illuminating the spaces and experiences defining modern retail.

Check out the full transcript below.

Matthew: [00:00:01] A $75 sweater, generally, for the brand, was a really big moment for us. It was kind of capturing this idea of democratizing not only cashmere, but like, just the general value proposition of sustainability as something that’s accessible.

Richie: [00:00:18] That’s Matt Scanlan, co-founder of Naadam, a brand democratizing Mongolia-sourced cashmere. Naadam started opening pop-ups in 2016 after seeking the legitimacy and product-market fit benefits that come with going offline. Since then, the company has launched more pop-ups and shop-in-shops at a handful of retailers, in addition to opening its first permanent store in New York.

Richie: [00:00:40] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:55] This is the first episode of Retail Is Alive, the third show in the Loose Threads podcast network, where we talk with the founders, executives, designers and builders defining modern retail. With so many industry players claiming that retail is dead, I was excited to talk with Matt about how Naadam’s approach to brick-and-mortar experiences has changed over time and how it’s about to take on a new wave of expansion. Here’s how it all began.

Matthew: [00:01:24] As we were thinking about broadly expanding our brand awareness we knew—if we’re making these claims about [a] really great product at a good value—we were never going to be able to substantiate that unless we create[d] a physical space. I also understood the value of the legitimizing factor of opening up a store and being like, “Oh that’s a thing now, right?” I mean, that’s like, super-real.

Richie: [00:01:48] Not just a website.

Matthew: [00:01:49] I’m a consumer, and I look at other brands, and when I see them have a subway ad or a billboard, [I’m] like, “Oh well, that’s real, now.” Right? Like there’s something validating about the whole thing. I think a store can do the same exact thing.

Matthew: [00:02:04] So we started thinking about it for 2017, and we didn’t know anything and it probably looked a little janky. I mean, it was. I think we bought IKEA furniture and put it in, and we really wanted to use it as a testing ground to see what happens if I curate a space and let people interact with product. And we actually learned a lot, and the data was super valuable, and ultimately allowed us to extend ourselves into a broader expansion narrative.

Richie: [00:02:32] So, that first one was really short, wasn’t it?

Matthew: [00:02:34] Yeah. I think it was three months, maybe less.

Richie: [00:02:36] Three months.

Matthew: [00:02:37] Yeah.

Richie: [00:02:37] I was just doing research before—was there one that was only four days long, or did that never happen?

Matthew: [00:02:41] There was one of those [that was] four days long. That’s so funny, I forgot about that. We didn’t know what the hell we were doing. Yeah. I mean, also we [didn’t] have a lot of money. We were still getting started in [a] lot of ways, but we did a four day thing—I think it was on Mott Street—and we got a space on one of those sharing-space websites.

Richie: [00:02:59] Yeah, yeah, yeah.

Matthew: [00:02:59] And the woman took everything out of her small boutique for four days, and we went in there and we tried to turn it into this brand moment. You know, I don’t—I look back and I’m super embarrassed about stuff like that because it feels very different now. But thanks for calling me out!

Richie: [00:03:14] But that was the first kind of, moment—

Matthew: [00:03:17] There’s a moment before that even. We did a two-month-long pop-up in Steven Alan—

Richie: [00:03:23] Okay.

Matthew: [00:03:23] Steven Alan’s Chelsea store. And we hadn’t really filled out what the brand was gonna be. We didn’t know where our best products were gonna be, and what price. And we did a small pop-up that was one sweater in a bunch of colors. I kind of had this idea of a candy shop for sweaters. And Steven let us put it in his Chelsea store, and we sold out over the weekend, and we were like, “Oh, okay. This could be interesting for us.” The next thing we did at that small four-day thing—that was probably failure, but I think the product sucked. And then we really leaned into it the following year for fall. So I guess it [has] always kind of been part of our story, but it doesn’t feel like it was because we didn’t know what we were doing. And it wasn’t until we knew what we were doing—which literally happened very recently—that we could do it with the confidence that we were gonna collect information that ultimately we could circulate back into how we were going to make product, merchandise products, sell product, etc.

Richie: [00:04:19] Going even further back to the beginning: there have been other founders out there who have said, “You know, we’re gonna shut this company down before we open a retail.” Just kind of coming out of the whole digitally-native canon with a steadfast belief in the power of digital and all those things. Did you have that early on, or were you rather open-minded channel-wise?

Matthew: [00:04:37] Always. Yeah. I mean Naadam’s been built across, really, four channels. I mean, our first thing we ever did was, we sold yarn, and then we actually private labeled. So we were buying a commodity as a way to support a community in Mongolia. That’s really where it started. So we didn’t know anything about starting a brand; we certainly didn’t realize how expensive it was. And we did whatever we could just to lever the value proposition of our sourcing model, and that really was pricing alternatives we were giving to a big-box store retailers and other brands.

Matthew: [00:05:13] Then we really dug our heels in on ecommerce and realized how effective it could be. We had the whole supply chain in place through those other channels. And then once we kind of built out our ecomm, we were always interested in understanding how retail would play along. The thing is, we still do all of that. And when we were first raising money and I was out there talking to VCs, they were like, “Yeah, this stuff is stupid. This other stuff. Just do ecommerce.” And I always felt like—I don’t know—at least I’m making money. And I’m learning how to optimize supply chain, and I’ll probably need these things later on, I assume. I think that there’s probably a platform with which expanding globally, and scaling aggressively will include channel expertise and supply chain expertise. So, happy to report that I feel like I’ve proved a couple people wrong.

Richie: [00:06:02] Very nice.

Matthew: [00:06:02] Yeah.

Richie: [00:06:02] What were some of the lessons, early on, in terms of the challenges around realizing the brand, in a narrative?

Matthew: [00:06:08] In a physical space, or just generally?

Richie: [00:06:10] Yeah. Yeah.

Matthew: [00:06:11] I would say we didn’t know what our brand really was. So the challenge was trying to iterate on our brand value proposition, understanding what our tonality was, who our customer was, and then build a space that, I don’t know, kind of encapsulated all those things. But we didn’t know any of it. So it was very heuristic, it was a learning process. Every time we expanded into retail—or any other channel for that matter—we explored what our brand was. We learned more about our customer.

Matthew: [00:06:39] The most important thing we’ve ever done was identifying who our customer was. We have a good story but, who does that story resonate [with], and who likes the product? When all those things stacked up, we understood what the brand was, and then we could position that brand really easily in a physical space. And that’s pretty much it, but that’s a recent development, in my opinion. That first four day thing, [we] didn’t have a lot of money. I think that I was trying to do it for $20,000 total, like everything, including marketing. It felt like kind of a mess. Going to IKEA, buying stuff. I was there till midnight drilling things into the wall, trying to make it perfect, and then still feeling like, “What even is this? Like it looks okay but, this isn’t Naadam. I don’t know what this is.”

Matthew: [00:07:20] And [the] second iteration—which was that kind of a two-and-a-half-month thing or three-month thing on Elizabeth Street—you know, we kind of went through the same process where it didn’t feel like Naadam. It said “Naadam,” but it wasn’t really, really Naadam. And it wasn’t until we opened up a store in, I would say, in 2018, or stores in 2018, that we had a visual identity for our brand and, thus, a visual identity for what our retail would look like. I think [in] the next phase it’ll iterate again, you know, as the brand continues to iterate.

Richie: [00:07:51] Early on, was the perspective, “We’re gonna open—I guess, let’s say, even just the four-day thing—we’re gonna open this and, just because there’s foot traffic, people are gonna show up?” Is it, “We have to drive to this?” Like, how did the marketing logic go?

Matthew: [00:08:02] So, pretty unsophisticated. Let’s market to our email list. Let’s tell our New York City customers that we have a store and they should come. And then let’s analyze foot traffic, let’s see what kind of people are stopping in, let’s see what kind of people are reacting and buying. So a lot of data capture. Half of it is what we already had from a marketing perspective. We didn’t do any digital, no geotargeting or anything, which we do now, but it’s mostly like, who are existing customers in this area, let’s send an email to them, and then let’s see what kind of people are walking by the store. And we learned a lot.

Richie: [00:08:35] Did people show up from the email?

Matthew: [00:08:36] They did, yeah, initially. Mostly repeat-customers. It wasn’t like, people who are exploring, feeling the product in real life and understanding the value. It was mostly people who [had] already experienced it, and then wanted to be part of the next phase of the brand. Having said that, I think the people that did walk by and come in were [coming] for the first time; kind of like, “What is this? What is this brand?” I don’t think it even said our name. I don’t even know if it was in the window or anything, like it was totally random.

Richie: [00:09:04] Between the four-day and then the three-month, what did you learn about time? In terms of: how long it takes people to realize you exist, how long potential payback periods are. Like, how did that process?

Matthew: [00:09:14] Yeah. So, you know, if you’re gonna do a really short thing, unless your brand is already super well-established, a short-term thing is just like, a marketing thing. [The] chances of you making your money back on it are really, really slim. The cost of actually building out a really beautiful space for yourself and your brand? It’s expensive. Now I couldn’t imagine opening up a store that cost less than $75 grand, right? And that’s like, really really conservative, I think, in New York City.

Richie: [00:09:42] Yeah. It’s pretty easy to spend like, $100k in a pop-up.

Matthew: [00:09:43] Really really easy. So you need more time to make your money back on it. Additionally, you’re right. People don’t really notice it initially. Some people do, in the neighborhood, like the neighborhood crowd will immediately notice that there’s now a new store. For the people on the periphery of that, or people that are kind of your customers, or they’ve seen your brand and haven’t bought it yet, it takes some time to go out and seek the store, go there, interact with stuff. And then it could take a couple visits even, you know? It’s not that different than the way people interact with purchasing online, right? They get targeted all over the place, they see it. It takes four or five interactions for [them to be like], “Oh I recognize [it], I saw that once or twice. I’m gonna go to the website. Okay, now I go to the website and look around. Now I’m going to leave, I’m not ready yet.” Then they do the same thing, maybe three or four times before they ever buy anything. [You] kind of need to let that system take place for a store.

Matthew [00:10:35] What we have found to be effective when we launch a new space is out-of-home marketing to support the launch in that local area. So, we opened our Bleecker Street location. We did a lot of localized wild postings, billboards, subway, whatever. We did geotargeted Instagram/Facebook ads, and then lookalike audience recreation, and then we spent a lot on marketing. And then we did a bunch of press, so then we circulated that press back through our marketing. So we found a formula that kind of heightens that experience a little bit more, but it fades, I would say. For the first month of opening Bleecker, every day was huge. It was really exciting. And then it kind of dwindles. Like, you know, there’s something else that happens on the block or, you know, a new store opens. So, it’s learning, it’s collecting data, understanding what works what doesn’t work.

Richie: [00:11:20] So at the end of 2017 you had done two-ish experiences. I guess three including the Steven Alan.

Matthew: [00:11:24] Yeah. Yeah, I would include—I mean, the Steven Alan was probably the most successful of all of them, ironically.

Richie: [00:11:28] Yeah. Why?

Matthew: [00:11:28] Because the product-market fit was right. And we never went back to that until more recently. It’s really funny. So, I didn’t understand that we really needed to focus on making the right product for the right audience, rather than just trying to make things that were pretty. And I didn’t know where we wanted to fit [in] the industry. I was kind of feeling it all out.

Matthew: [00:11:46] So that Steven Alan thing was this single-SKU sweater. It was a crew neck, it was affordable, and it was in a bunch of colors, and it worked.

Richie: [00:11:54] And that was kind of his audience, right?

Matthew: [00:11:56] It was kind of his audience, for sure, but it was easy and essential. That product was a little bit more expensive, even from where we are today. But we abandoned it. We [were] like, “Yeah, it can’t be this easy. It isn’t, right? Like that was a fluke. Let’s not do too much of that, and we don’t want to be that. Maybe we need to be something else.” And that’s just part of the process of starting a brand and making a product, you have to learn, unless you are experienced and you have this background, which I didn’t.

Matthew: [00:12:19] So it wasn’t until 2018 where we went back into the same thing. We opened up a store that was the exact same premise as the Steven Alan thing—[a] third of the price, basically—and it blew out, it was crazy. I think it goes back to just being the right product, the right price and the right market. So that’s why I think that was probably the most successful one.

Richie: [00:12:38] It just worked.

Matthew: [00:12:39] And the product wasn’t good in the other areas. And we were still collecting data on that product mix, and merchandising, assortment planning, and product quality, colors—I mean, you name it. Those variables were pretty much random at the time. So we’ve used all these experiences to funnel the right information into the right product for the right market, and we’ve seen the result pay off massive dividends, I think.

Richie: [00:13:03] So at the end of 2017 you had done three-ish kind of things. One worked, two kind of not, not what you wanted them to be. What was the hypothesis on where retail plays in the business?

Matthew: [00:13:14] I had broken it down to a data level, which was, “I’ll collect more data online.” So in terms of where my money should go or where we should spend money, it’s in the area where we could collect the most meaningful information, because we have to figure out how to do this, we need to figure out what works for us if we’re gonna scale it. So the best use of funds was always online. You know, we could put one hundred thousand people on the website in a day versus, you know, a hundred people walk by in a week at a store, so it doesn’t even compare. So we knew that if we could optimize that channel, the data we would get there ultimately would allow us to then go back and fulfill the qualitative piece of understanding retail, and how people were going to interact for [the] first time with our product.

Matthew: [00:13:54] So we’re always doing this retail thing just to figure out the operations and do it on the side. Most of our funding went to ecomm, and then once we had that ecomm data we felt really confident in going back into retail. So, yeah, it was on the periphery, definitely early on.

Matthew: [00:14:13] Running stores is hard. You’re dealing with a different group of labor, right? Short term staff. Generally young, sometimes, you’re figuring out who’s good, what kind of store manager works for your brand. You’re dealing with issues of keeping customers happy and selling product, and merchandising the store and keeping inventory in the store. Those things should not be taken for granted.

Richie: [00:14:36] Right. There’s like, no distance. You have distance when it’s a website.

Matthew: [00:14:37] Also you can consolidate merchandise, you could consolidate your inventory need. The store, that’s much harder, right? I’ll give you an example. Our small Prince Street location [is] literally as big as this room. It’s 400 square feet and it sells this one sweater or whatever, but it has no back area. We hold 300 sweaters there at a time. There were days in the fall/winter where I would go to a store and there was nothing left. And I would go to the people in the store like, “Uh, what, what’s going on?” And there are these 20-year-old kids who are like, “Yeah, we sold everything.”.

Matthew: [00:15:08] I was like, “No, no, no. We gotta open up tomorrow. We need to know that we’re selling out.” We had to send somebody in an Uber to our logistics in New Jersey to pick up more boxes and bring them back. That part is really hard. Actually optimizing that for scale, if you went [to] open up 25, 50 stores—which is kind of, not going to happen this year, but on the horizon, for sure, for Naadam—you have to get really good at some very elemental basic things that are not the same processes as running an ecommerce website.

Richie: [00:15:39] Yeah. It’s a lot of inversion of somewhat centralized DCs, and then you go to decentralized stores, and it makes you undo a lot of the muscle memory you’ve built up.

Matthew: [00:15:47] Totally. So it was weird to go from investing in ecommerce, building this competency, scaling that up. Trying to use the data that told us what product is best, or who our customer is, how old they are, where do they live, etc. And then rebuild the operating competencies on the side to support retail, and then somehow connect the two. It sounds easy on the surface. You’d be like, “Oh yes. Like, you know, offline, online, very simple, click, the same attribution, whatever.” No, it is not. There are so many problems in the process of connecting store inventory to online inventory. Shopify doesn’t have an easy way of doing that. What POS are you supposed to use? How are you attributing sales from in-store online?

Matthew: [00:16:29] None of it is as easy as you think it is. And we’re still in the process right now of connecting the two in a way that works for our scaling business, and then coming back to scale up that retail piece next to the rest of the business. It’s not easy. But, again, it’s not that complicated for some people, so.

Richie: [00:16:49] And it’s arguably pretty defensible when you start to figure it out because it’s so time-consuming.

Matthew: [00:16:54] I think so. You know, once you build that infrastructure up, you have something other people don’t have. I mean, it’s pretty simple, right? The same way [when] building a brand, you kind of like, put a stake in the ground and this is who you are. This is what you are. This is what you do. When you build your competency around retail, that’s not so easy to build that… Someone could take it away from you, right?

Matthew: [00:17:16] There’s pros and cons of that, however, right? Building a huge retail infrastructure is a ton of overhead, a ton of liability that sits on your P&L. So managing risk and figuring out how to optimize the things that you can handle, that you should know how to do versus the things you need to give to somebody else to figure out how to do for you. We’re at an interesting inflection point with our business where we either invest a ton of money in building retail competency, hiring executives, professionals, investing in ERPs and retail programs and whatever, right? Hiring needs, everything else. Or we figure out how to offload that competency to somebody else who could do it for us and then just continue to focus on the things that we’re good at. And we’re struggling. Is the investment worth it for us? How does it fit with our overall agenda?

Matthew: [00:18:04] People need to feel and touch the product. That’s how the world still works, I think, generally, and it probably will for a while. So we’re trying to figure out how to like—what’s the middle ground for us? And what’s a brand like us supposed to do? It’s not an easy decision.

Richie: [00:18:18] Coming then, into 2018, with, call it, “retail’s a side hustle,” but kind of, the learnings, talk us through saying, “Okay, we’re gonna go open our first real store on Bleecker.”

Matthew: [00:18:29] I knew the first thing was building the identity around what our brand had to look like in retail. That was our biggest struggle. That’s the thing I look back at or, you know, first generations, and I was like, “What the hell was I thinking?” That just wasn’t us. And I’ve realized in the process of building a brand how important it is to be consistent with the way you sound, look, and feel—regardless of where you are, whether it’s retail, online, in another store or whatever—has to be simple for somebody who’s only interacted with your brand once or twice to understand who you are, what you do. And so the first step was, let’s understand what our visual identity will look like in retail at large, right? At 100 stores and one store. What is that?

Matthew: [00:19:10] So we hired an agency to do that for us. Through that process they outlined what locations we were looking at would look like. And then there’s some timing in there, right? I had to sign a lease, we weren’t finished with the brand identity yet, so the two kind of came together. Then that brand identity morphed into exactly how that identity works within the space we just signed. Figuring out all the little things, getting your lease in order, getting security, getting the right retail people on board to help you. The tiniest things. Like supplies in the store, right?

Richie: [00:19:39] Toilet paper. Paper towels.

Matthew: [00:19:41] That. The little, little things, right? Sound system in the store, your POS system, hangers. You forget that you need them. So, getting at those lists, of all the things we need, then placing that list against your timeline to open. Then placing your inventory, your launch strategy, your marketing strategy on that same timeline. Stacking it up, hiring in the people to do it and then eventually launching. And then launching, getting the press, planning the event, getting your whole marketing running. And then that all happens, and you’re like, “Cool, we did it.” Then you run out of friggin’ inventory and you’re like. “Oh crap! We need to get more inventory.” Then you do it all over again.

Matthew: [00:20:21] You learn a whole new thing, which is like, now that you have the store, how do you make that store make more money? How do you keep it running at the same pace that it was initially? How do you buffer the dips in retail behavior, which happen, right? January is a weird month. Just, people don’t shop in stores much. And so we’ve got this big dip, and we were like, “What the hell happened?” We were doing $10,000 a day. How did this—right? So balancing all of that. Then all of a sudden your store staff gets a little like, “Oh, well, we’re not so happy, because we’re going through a dip.” And you’re like, “No, no ,no, trust us. Relax. We’re introducing new product.” You just go through this really interesting process, and it all comes back to timeline and experience.

Matthew: [00:20:59] Now I’m sure for people listening who are like, “Yeah I’ve done retail. Like, no shit man. Like, this how it works.” For us it was all new. So we had to build that competency really fast. The thing is we opened three stores all at the same time which, you know, my team was like, “Matt.” Like, I would come back to the office and I’m like, “I’m signing a new lease.” And they’d be like, “Whaaat? We didn’t even order inventory for this, so what are we gonna do?”

Matthew: [00:21:18] So you know, we were just running really fast and we broke a couple of things along the way, but I knew that it was important if we were gonna do it. We needed to get more data. We went back to like, “Okay we’re gonna get the data around how do we make this thing operate. How do we flow inventory, etc.” But I want a larger footprint to collect other data points that I’m not gonna get with just one location. So I pushed it really hard. I think it worked. I don’t know.

Richie: [00:21:40] So with Bleecker, was that through Brookfield’s redevelopment of the street?

Matthew: [00:21:43] It was not.

Richie: [00:21:44] It was not.

Matthew: [00:21:44] No.

Richie: [00:21:44] So talk about that street, ’cause at the time it was losing a lot.

Matthew: [00:21:48] Yeah. I’ve lived just off of Bleecker for 10 years, so I know the neighborhood and I’ve always loved it. I mean, it’s a beautiful area of New York City. So it was always crazy to me that it had been destroyed probably more than any other area in New York City from a retail perspective. I think that what happened on that street within retail was really unique, very random almost. Like, it got hyped up for the wrong reasons, and then it was only a big-brand play for big brands. I mean, 50 years ago it was mom-and-pop stores. Like, the neighborhood went there.

Matthew: [00:22:24] So I loved it. It’s beautiful. There’s tons of tourists, there’s tons of neighborhood people. It’s a wealthy neighborhood. Qualitatively speaking, why the hell is that not a great retail area? It’s just like, the landlords had to reconcile the fact that they weren’t gonna charge $40,000 for a thousand-square-foot space anymore. Once I saw that Brookfield was pushing, I was like, “Oh, okay. This will be a landslide. Like it’ll roll over now and it’ll happen.”

Matthew: [00:22:48] I saw an article in The Wall Street Journal that explained the Brookfield thing for anyone who was really going there. I think Margaux, the shoe brand, was going there. I said, “You know, I always wanted a space there.” And then, remember Everlane had done the Cashmere Cabin on the street a long time ago. And I don’t know how successful it was, and I think it was probably right at the height of Bleecker going away that they went in, and I’d seen that store stay open. I was like, “Wait, they just like, made a store perfect for cashmere sweaters. Like, this would be perfect.”

Richie: [00:23:16] I remember standing outside that store after it closed, and people were like, “Oh that’s Everlane, but now they’re gone.” They were open for a month, I think, something like that. And just as people realized, it was over.

Matthew: [00:23:26] And it remained untouched. It was virtually an unsaleable space to anybody other than Naadam, right? Because it had this gorgeous beautiful build-out of cedar wood and like, more than I would have done on my own, probably, and conceived better than I would have.

Richie: [00:23:43] Probably like $250, $200k build?

Matthew: [00:23:43] I would say somewhere in there, yeah. I would say, definitely. So really no one else could lease it. So I could go to the landlord and say, “Dude. No one’s gonna come in here and spend the hundred thousand dollars it’s gonna take to destroy what’s already here, and then another $200,000 to make it good again.” This is perfect for me.

Matthew: [00:24:00] So we took it and we adapted it. And we pushed about a hundred, maybe less than a hundred grand on that space. Which is unbelievable.

Richie: [00:24:07] Yeah.

Matthew: [00:24:07] And then all of a sudden—you know, we did a bunch of press and like, hey Bleecker’s back or whatever—and, next thing you know, there’s like ten other brands that we friggin love that are opening up. And it’s a good location. I mean, we have really steady sales. I mean January, like I said, was just weird but it’s a great location for us, and so I’m gonna try and keep it as long as I can.

Richie: [00:24:27] In terms of the visual identity we talked about before, what was the goal for that space, in terms of realizing what this actually should feel like for the brand to be offline?

Matthew: [00:24:37] Naadam, as a brand, is all about connecting people, right? Like, equalizing that interaction. Here, let me show you the herders in Mongolia. This is where the stuff you call cashmere comes from. That’s our mission, just generally, right? So I wanted a store to do that. I wanted a store to pull you into the desert, show you the people. Kind of build this romance for you [that] that knowledge is predicated on it. And so we had this idea of cashmere clouds and grass floors, and [to] feel like the Gobi Desert. So we looked at images of the desert, and the group we brought in to do the identity, they brought that to life within the space without undoing the infrastructure, the bones of what Everlane had built there.

Matthew: [00:25:19] So we layered it on top and I’m pretty happy with how it came out. We got to be a little quirky. Right at the end of 2017 going into 2018 we recognized that our brand had a bit more of a personality than we were leading on, right? We wanted to be funny. We wanted to be a little edgy. We don’t want to be your grandparent’s cashmere sweaters. So let’s have some fun. And they brought that to life.

Matthew: [00:25:45] For the longest time when we were building up that store, we had this huge poster of two goats having sex on the window with their private parts blacked out, and it said like, “Cashmere coming soon,” or something like that. And it was huge, and people were freaking out. And I remember riding my bike by the store one day and people had written all over it. And I was like, “Fuck, what does it say?” And people were like, “This is terrible! Like, my kids are looking.” And then someone else came out with a marker and was like, “This is hysterical! Like, lighten up you loser, this is funny.” And then over the course of a couple weeks, all these people were writing comments, and it was like a messaging board on the front of our store. And we were like, “Oh. This is gonna be really cool.”.

Matthew: [00:26:23] That process of building our brand and identity, that was a really big moment for us, for a lot of reasons, as we opened up the store. And we really started to flex our muscles a bit from a brand identity perspective. And now, you know, we’re morphing it a bit, right? We’ve seen within that model what doesn’t work and what does work, right? Like, if we were like, too over-the-top and we take up too much of the floor space with a cloud, with a VR system and all the stuff, people wouldn’t shop as much, they’re not buying enough stuff. So, we take it out, put something else in. And we’ve been playing with it in that way, and we’ll continue to iterate and build. The identity of the brand will grow alongside this location and other locations like it, I think.

Richie: [00:27:06] What percent of the assortment did you carry in that store?

Matthew: [00:27:09] Initially we carried, I’d say, 80%. And then we kind of thinned it out a bit, based on what we saw people gravitating to, what the neighborhood people were buying versus what tourists were buying. And we were listening to the store staff. You know, every day we were getting a report where they were saying like, “Oh, a woman walked in and said, you know, the sleeve on this was too long.” Or, you know, “They really want more chunky stuff, or they want the stuff in the sanded camel colors more than they want the charcoal and the black colors.” And we built our assortment planning based on the qualitative feedback we were hearing from the store staff, based on what they were hearing from customers.

Matthew: [00:27:42] And as we thought about the next iteration, like our next season of development, making new product for a new season, we use a lot of that information too, right? We were seeing that if a woman went into the changing room with two or three pieces that matched really well, she left the store with those three pieces. So that guy did a lot of our decision-making around collection development that was more merchandisable than we had ever thought Naadam would be merchandisable. So all that information’s really been quite pivotal for the brand’s next big jump in growth.

Richie: [00:28:13] So I think that segues us into the $75 sweater store. So talk about the inception for that idea and the development of that concept.

Matthew: [00:28:21] You know, again, I think it was—so when they felt very on-brand, like very easy/simple/natural/plain, right? We now make sweaters that cost $75, and we think that they’re the best ones out there. They cost $75 bucks. That’s easy. We want to make this one sweater, we want to make it in ten colors so you can buy a bunch of them, and then, you know, it’d be fun if it was like a bar, and you could monogram them. You could walk out with something that was made to be really personal for you.

Matthew: [00:28:45] So you’d walk in and it would be one sweater hanging in a small space, ten colors lining the area, and then customizing it for you, any way you want. Initials or, you know, you want to put an avocado on it, I don’t care; like, anything you want. And so, it was kind of this kitschy/fun/playful idea that we knew we were going to be pushing online in an aggressive way.

Matthew: [00:29:06] We really felt like a $75 sweater, generally, for the brand, was a really big moment for us. It was kind of capturing this idea of democratizing not only cashmere, but the general value proposition of sustainability and something that’s accessible, not something that costs more because it’s sustainable. This was our vehicle to create really next-level brand awareness. And it did that for us, for sure. So, the store was where we packed all these ideas in one place.

Matthew: [00:29:34] When we were thinking about the idea, I would go around and I’d tell people—and it was early on, so I don’t think we’d even really had it planned out yet—but I was like, I just wanted a space that’s one sweater, ten colors, everything costs $75 bucks, and then you can get [it] monogrammed. Everyone I said that to was like, “Yeah. That’s like, cool. Like, I want to check that out.” It was just pretty much predicated on finding the right space, right? I didn’t want more than four or five hundred square feet, it wouldn’t make sense in another location. We got lucky.

Matthew: [00:29:57] And I like Prince. You know, that’s where Everlane is, Cuyana opened up a store there, Velvet’s there. I mean there’s some good, good stuff going on. It just made sense. Rent was low and, you know, we could kind of like—it was a white box for whatever the hell we wanted. We’re iterating, you know, I think there’ll be another phase of development for that location. Initially I thought, “Well, you know, maybe I could open up a hundred of these things, right? This is so easy.” You know, we’re pulling back on that a little bit and thinking more about how to make the product more profitable before we scale it out too nationally. But there’s the guts of something that could be broader and, from a retail footprint/standpoint, could be there, because that’s a very accessible product, very digestible and easy. And for me, those are certain ingredients for scale.

Richie: [00:30:43] So you’ve done all street locations up at this point, going into BrandBox at Tysons Corner, where it’s the first kind of mall, it sounds like, off of the street.

Matthew: [00:30:53] Yeah.

Richie: [00:30:54] Talk about that experience.

Matthew: [00:30:54] So, you know, we’re experimental. I think just like as a brand, we have no problem taking risks and making mistakes and failing. I certainly don’t, professionally and personally, and so that’s kind of what the brand has done, for better or for worse. I wanted to know if Naadam could scale within malls; I think there are brands that do it, and they do it very successfully, and there’s opportunity to scale there. So I just want to test it. I didn’t want to just go into any mall. I didn’t want to just pop up and be there for no reason.

Matthew: [00:31:22] And so it was very opportunistic to go into Tysons Corner. We’d heard about BrandBox. I spoke to Art who runs Macerich, which owns Tysons Corner [and] a bunch of other malls, and they pitched me on this idea of technology enabled retail and this scalable solution that they would open up a lot these BrandBoxes all over the country within this Macerich mall system. And so it sounded really good. I still think it’s good. We’re not ready yet to just fling ourselves anywhere, and that’s kind of what happens when you go into malls; you have a lot less control over foot traffic and the demographics that you’re kind of working against. And ultimately it wasn’t right for us.

Matthew: [00:32:03] I think the brand looked good there. I think we had good product there, [it] did okay, the store, but I don’t think malls will be something we do for the next year or two. I think we’re a Main Street brand for now, and if we’re gonna open up more stores [they’re] going to be in those areas that you think of, right? Like Hayes Valley in San Francisco, Abbot Kinney in LA., Georgetown in Washington, D.C. Maybe Chicago, or even Boston, maybe. So we have a couple of things on the horizon. I think we have a good partner to scale this, and [I’m] happy to talk more about that if you want, but…have you ever heard of Leap?

Richie: [00:32:34] Yeah, yeah.

Matthew: [00:32:34] It’s basically like retail as an outsourced service. So they come in and they cover the CapEx of opening up a store for you.

Richie: [00:32:42] They sign the lease for you, too.

Matthew: [00:32:43] They sign the lease. So they absorb all that risk, which is a ton of risk. So they scout the locations, sign the lease. Then they cover all your capex expenses. I give them a gram because that is what our stores look like. They take that, they bring in an agency, they build the store. Still, I put out no money. They hire store staff, best-in-class, managers, etc. I then just have to flow in the right amount of inventory. We work together on the projections. They present to me, here’s the numbers we’re gonna hit.

Matthew: [00:33:08] Then we agree on a financial model—both revenue share, management fees, etc.—so that they make money off of the store long term, but that we make money, too. Then they can roll that out in five or six locations for us pretty quickly. Once we get our groove going and we can keep up with the inventory, to me it sounds like a pretty good alternative.

Matthew: [00:33:27] So that’s the line that I’ve been straddling, which is either: I hire all those same people and they work at Naadam exclusively, and I guarantee that I’m going to go open up five or six stores, or I recognize that that’s never going to be my core strength. And ultimately, maybe my core strength is just making product, learning what product is best for my customer and what my brand is and how my brand positions that product for my customer, or I add on this retail competency.

Matthew: [00:33:53] So I think what we’ve kind of reconciled is the fact that we shouldn’t learn it and we shouldn’t invest more in it—we should bring in [a] partner who knows how to do it. Let us scale it that way and then kind of reassess.

Richie: [00:34:03] What’s the biggest risk of doing that?

Matthew: [00:34:05] Honestly? They go out of business. Right? Or something happens to their business and all of a sudden my stores go out of business too, and my business is fine and thriving but I get saddled with whatever things happen for them. And I don’t think that will happen, but that’s the worst-case scenario. Best-case scenario is we open up five or six stores, I’m not shelling out millions and millions of dollars to do it. I’m focused on things I’m good at and I let them do what they’re good at, and we scale together.

Matthew: [00:34:32] The other downside could be, in an acquisition scenario, the acquirer wants our retail footprint. Maybe that’s valuable for them. They want the 25 stores we’ve opened up for Naadam, and they can’t have it. And there’s no provisions of drag-along or anything like that into an acquisition. So in terms of projecting risk scenarios, downside/upside, whatever, those are for me at the very far ends of the spectrum and that’s not good enough for me. Like, the middle ground is healthy and they’re good partners. So, you know, we’ll see. Excited.

Richie: [00:35:04] So the potential scalability of BrandBox—which was somewhat of an outsourced solution/working collaboration with Macerich—you’re talking about Leap now, which is an interesting, similar-yet-different kind of version of that. How do you think about that outsource control risk/reward piece?

Matthew: [00:35:18] I think that there’s a lot more control and partnership with Leap, which I like. There isn’t like this big machine behind them moving the pieces uncontrollably; they’re really building the infrastructure of their organization as it pertains to businesses like Naadam […] or whatever else. So, in that way, Naadam can kind of inform what best practices become, which I like those opportunities, generally. Especially when it allows me to offload risk that I don’t even understand. I still don’t understand retail risk, right? To do what a Warby Parker has done or a Bonobos has done, you just have to build best-in-class retail operations. You need to start building LLCs for every one of your locations, for slip and falls, or whatever. We weren’t doing that, nor were we prepared to do it. So this helps me mitigate the risk piece of it.

Matthew: [00:36:12] Leap feels very different. There certainly were moments where I was like, “Oh no. Am I like, getting back into the same thing?” But it’s much more of a personal relationship. We work very closely with the guys and I think they’re super smart. I like them a lot. And we were able to come together and formulate as if they were inside the company. You know, it felt like they worked at Naadam and we were doing it together, but certain risks I needed to take if I were doing it internally are gone. Having said that, down the line as they start to build out what Leap really is, you know, things will change, and that’s normal. That’s fine with me, as long as those two big risks that we represented earlier about working with an outsource solution are kept in check, I feel pretty comfortable.

Richie: [00:36:52] So what do you think about the Warby, Bonobos, so forth? They raise an immense amount of capital to be able to go do some of those things. Do you think that will work? Do you think it was over-investment? What are your thoughts? Because they’re ahead of you, right? In kind of a different, not end-state, but in a different phase.

Matthew: [00:37:09] I think it’s based on what your product is. Like, I don’t think these things are all the same. Like, people are going, “Oh, direct-to-consumer.”

Richie: [00:37:14] Right. And they’re not transferable either.

Matthew: [00:37:15] They’re—so much of this stuff isn’t, right? Naadam’s not comparable to Allbirds. We don’t sell shoes, we’re nothing like Allbirds, or Rothy’s, or these shoe companies. People consume that product differently. The psychology around purchasing them is different, the needs around making that purchase are different. Glasses [are] also very different. Like, you need to go to a store for some really basic reasons. So I try not to draw a lot of those comparisons.

Matthew: [00:37:39] What Bonobos did was really unique, and I think it still is very unique. It wouldn’t be something that I would adopt. I frankly just don’t totally understand it, but it works for them, for sure. So I guess what I’m saying is we have to find what works for us, and that kind of process that they underwent was pushing the bounds of what was working for them. Once I find what really works for Naadam, yeah, we’ll scale it and people will go, “Oh, well, you know Naadam did”—it’ll be the same thing. Someday you’ll be sitting here with somebody else and be like, “Oh look, Naadam has 25 stores, what do you think of that?” It just depends on who the customer is, where they are, how they shop, what it is you sell. And your brain, right?

Matthew: [00:38:17] Like, do we need physical spaces to really communicate how valuable our brand is to people? Or how differentiated our value proposition is for folks? I think probably yes, but I don’t have enough information to know for sure. If hundreds of millions of people [are] into buying the sweaters all online…[we] probably don’t need retail. However, if I get to a point where I’m recognizing that having a store and letting people go in and really touch it, feel product, but then watching them convert over their lifetime as a customer online is what’s working, then maybe we adopt the model that is more of like an endless rack solution, where we’re not so heavy on inventory but we’re creating a physical space where our brand exists for people, so it feels real for people, and authentic.

Matthew: [00:39:03] I don’t have the answers yet, but we’ll definitely be testing and confirming as we go. And you’ll see, right? Like, if in a year from now I have ten more stores, you’ll know that there’s something that we think is working. We probably won’t do it for just no reason. I don’t think Warby Parker or Bonobos did it for no reason.

Richie: [00:39:23] But you have to do it for your own.

Matthew: [00:39:24] You have to do it for your own. I think Glossier is an interesting thing to look at, right? Like, while they are opening these beautiful flagships, they’re also still doing a lot of pop-ups. Like, Miami’s a pop-up, I think—

Richie: [00:39:35] Seattle.

Matthew: [00:39:35] —Seattle is gonna be a pop-up. So I can’t assume that what they’re doing works for me. This is a very insular group of brands that exist around here and everybody’s like, “Oh, you look at them, you look at them,” and so on and so forth. The reality is we all make very different products, generally. We all have different brand value propositions. So the likelihood of there being this overarching—

Richie: [00:39:58] Blueprint, yeah.

Matthew: [00:39:59] —Footprint concept, or this overarching way to do it is unlikely, in my opinion.

Richie: [00:40:05] Yeah. Going back to the marketing side, has your opinion at all evolved on, let’s pay for location and do lots of marketing versus let’s pay for marketing and have an impact and drive it to the location? Like, how do you think about that tension?

Matthew: [00:40:17] I don’t think we’ve actually gotten there yet. I don’t think we’ve had to make that decision yet. I think it’s more about analyzing each area separately. So if we’re looking in Hayes Valley or something, you know, where is the foot traffic? Like, how are the stores around us performing. What are those brands, does it makes sense for us to be near them? Do we have the opportunity to create the right brand experience in that location? It’s kind of one-off in that area. I don’t think we’re trading yet on those larger concepts of marketing dollars versus dollars spent on being in the heart of Soho. That certainly hasn’t occurred to me yet, and I think now that we’re kind of partnering with Leap moving forward, [it’s] probably gonna be less of a concern for me personally, because I’m not gonna be shelling out the cash to make either one of those decisions.

Richie: [00:41:00] Will they do all the marketing, too?

Matthew: [00:41:02] They support marketing. They ask for dollars that go towards marketing a new location, so they’re deeply involved in our ecommerce data. That was one of the big parts of their value proposition that made sense for me. I still look at stores as a way to influence lifetime value of customers online; that’s the only number or KPI I really care about with my business. So if I spent a hundred dollars on you to come to my website for the first time, but then you spend two thousand dollars over two years. I’ll spend another hundred dollars. I don’t care, right? Like, those are good trade offs. So if I’m spending a hundred thousand dollars on a store and then every customer that comes in that store is spending 50% more online than the customers acquiring just their digital marketing, that’s a great way to think about the scaling alternative for the business.

Richie: [00:41:43] Have you seen that?

Matthew: [00:41:44] We haven’t been able to do a lot of attribution. So like, initially that was our concept, but it goes back to the other thing I was mentioning, which is these things aren’t as seamless as I’d hoped. So I really had hoped that I could see customers online versus offline really, really clearly. And not only that, I could track them and then attribute their acquisition through different marketing channels, right? And, for better or for worse, retail kind of is a marketing channel in this kind of case study. And then our digital marketing and email are channels, too.

Matthew: [00:42:13] So we haven’t been able to do enough of that matchback analysis and attribution to understand how valuable it has been. My hunch is that it is producing that value. We certainly have seen a lift in the brand, and if you just look at the amount of customers that are near the stores, it has swelled. There are the variables that kind of produced that swell, so [it’s] hard to say specifically because we’ve marketed in so many ways. Part of the problem of launching with that out of home, and the digital push, pushing the stores like, maybe you just saw the poster of goats having sex and you’re like, “I don’t know what this is, but I’m, I’m into it.” I don’t know who that person would be; probably a pervert. But, you know, there’s so many variables that we’re still sifting through it.

Matthew: [00:42:58] The end state of all of this. Like, how do I know if it’s successful or not? Like, piecing through the data, understanding attribution and lifetime value and all of this stuff? Are the stores making money? Yes. So.

Richie: [00:43:10] Something to work with.

Matthew: [00:43:11] Yeah. Like, let’s keep it fairly binary. So is the investment I made making money? Yeah? Good. I’ll analyze it and it’s just gonna take me more time as I build in better ERPs, get better store staff, have better offline-online attribution technology and then we’ll really, really know, but we’re not gonna be, like I said, scaling ten, 20 stores until we have that data. So yeah. We’re still evolving.

Richie: [00:43:37] Work in progress.

Matthew: [00:43:37] Yeah, work in progress.

Richie: [00:43:39] Absolutely.

Matthew: [00:43:39] Story of my life.

Richie: [00:43:39] Hopefully everyone’s.

Matthew: [00:43:41] Yeah.

Richie: [00:43:42] In terms of online acquisition costs, how much is that playing into your mind of, maybe not necessarily where it is today, but if you’re looking medium term on the business of—I guess because you have wholesale and private label you’re more diversified than most but—?

Matthew: [00:43:56] Yeah, but we still look at it channel by channel, right? So, no, we need to hedge against customer acquisition becoming more expensive on Facebook and Instagram. However, I think that there’s like a macro-perspective to have here for a second. The reason it’s more expensive is because there’s more people marketing on those channels.

Richie: [00:44:13] In those locations.

Matthew: [00:44:14] Yeah. The problem is those things are marketing in those locations on those channels, some of them don’t deserve to exist. They’re bad product-market fit, right? They’re not fully fleshed out ideas and they’re taking up basically mindshare of consumers who are getting bombarded. So there’s more things that aren’t doing well but the things that are still good, the things that are the right product for the right market still do well no matter what. So if you have that base case intact it shouldn’t get much more expensive for you. It shouldn’t.

Matthew: [00:44:47] I still bring it back to the simplest concept: a good product will sell to the right customer if its priced correctly. So for our ecommerce business, our customer acquisition costs really haven’t skyrocketed terribly. I think I’ve heard of some other people’s—at least not in 2018 they didn’t. Having said that, it could look like hedging. We market across all these different variables. We’re marketing out of home, or doing direct mail, or doing email sweeps, whatever. Podcasts. We’re doing it all, mostly because I think you should do that anyways. That’s just good marketing. Yeah like, not rocket science.

Richie: [00:45:24] What’s been the cheapest and most expensive lesson you’ve learned with retail.

Matthew: [00:45:28] People. You know, hiring the right people makes the difference. A really good store manager can sell product. It doesn’t matter. They can also run the operation smoothly, they can keep other employees in check. That’s like the number one thing. If all the other variables are there, right? You have a nice space, you’re in a decent location and your product is nice, spending more on a good store manager is the best way to spend your money, in my opinion. I think the worst way to spend your money is building out too much, spending $400,000 or $400 a square foot or whatever. You gotta hold that space for 10 years before you make your money back on that.

Richie: [00:46:07] If you could tell landlords one thing about what they could do to make working with brands like yours better, more successful, what would that be?

Matthew: [00:46:16] Look, I hate to say this but the model that Leap has? If just landlords adopted something a little bit more like that and it became a little more vertical, they could pretty much probably do the same thing. You know what I mean? If I had a landlord that came to me and was like, “Listen, like, I’ll take a rev share on this space, I’ll give you money to help build out this space, I’ll help mitigate your risks on this. I’ll give you the short term flexibility you need.” Like, someone that really understood our business and then understood what the output needed to be for an ecommerce business could make a huge, huge difference. I understand that there’s an existing model in place of like yeah, you just charge rent, but things are changing in certain areas. Not all over the place and they probably never will in some places, but in certain pockets of retail, if landlords were able to kind of understand the business model a bit better? Like, the business opportunity and the model of bringing in ecommerce brands, they would have a lot more success in my opinion.

Richie: [00:47:12] Right. The irony is it’s probably easier to find that in the mall space. [In] the street it’s much harder to find that.

Matthew: [00:47:16] Yeah, totally. But the street I think is more valuable than mall space right now. So you’re counting on pretty much like mom-and-pop ownership, sometimes. Or unsophisticated, maybe a little bit larger landlord ownership that is, could be mixed-use case. You go to the West Village and those landlords are selling an excuse, right? They have retail on the ground floor and apartments on the top and they just have to have a solid number come through. They don’t really have the opportunity, or can’t really see the opportunity to bifurcate that in any way whatsoever. Maybe they will. I think some might.

Richie: [00:47:49] What are you most excited about next year, through the retail lens?

Matthew: [00:47:53] Through 2019 I’m really excited about expanding a couple of meaningful footprint[s] for the brand. Now that we kind of know what’s working and what isn’t, taking those learnings and putting them in markets where we know we already have customers like San Francisco, Boston, Chicago, I’d really like to do that. I think there’s more room for us in New York City too. I think it’s a very exciting proposition to think about opening up more stores for Naadam and continually building the brand through that medium and getting better and smarter all the time. That’s my goal. I don’t think I’m gonna do that thing where I open up too many stores too quickly again; I learned my lesson. So yeah, that’s kind of what we have going on. I’m excited.

Richie: [00:48:29] Alrighty. Thanks so much for talking.

Matthew: [00:48:31] Cool. Yeah, thanks for having me.
