#371: Customer-Led Innovation and Entrepreneurship

Today’s episode is a case study of leadership, a commitment to customers and other stakeholders – including the environment – and how a modern, learning organization created not just a new business, but the leading business in its category.

In less than five years, URBN Brands’ Nuuly has gone from a concept to the leading company in the clothing rental subscription business, surpassing Rent the Runway in terms of the number of subscribers.

Nuuly’s Kim Gallagher shares the story of how URBN identified a new business opportunity through customer insights that leveraged its core competencies – including its enlightened leadership team and the broader, supportive organization – and the not purely incidental benefit of a clothing business with more social responsibility in terms of sustainability.

 It’s an inspiring lesson that the power of customer-led innovation, a willingness to take risks (especially amid the COVID pandemic) and a leadership team that empowers a learning organization can do great things that benefit all stakeholders in a pretty short period of time.

Hosted by Phil Rubin.

Show Notes:

1) URBN Brands

2) Nuuly

3) Kim Gallagher 

Audio Transcript

Paula: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m Paula Thomas, the Founder and CEO of Let’s Talk Loyalty. Today’s episode is hosted by Phil Rubin. The Founder of Grey Space Matters, an innovation and growth advisory firm in the US focused on driving profitable growth.

If you work in loyalty marketing, make sure to join Let’s Talk Loyalty every Tuesday, Wednesday, and Thursday to hear the latest ideas from loyalty experts around the world.

This show is brought to you by Comarch, a global provider of powerful loyalty management tools to increase customer lifetime value and improve your return on investment. Recognized as one of the top loyalty technology solutions providers in the Forrester Wave Loyalty Technology Solutions Report Quarter 1 2023, Comarch is responsible for over 120 loyalty initiatives in 50 countries around the world. Comarch Technologies help companies design, build, and manage highly immersive loyalty programs that bring results. For more information, please visit comarch.com.

Phil: Hi everybody, and welcome back to Let’s Talk Loyalty. I’m Phil Rubin, Founder of Grey Space Matters and your host for today’s podcast. Today my guest is Kim Gallagher, who Heads up Marketing and Customer Success at Nuuly, the leading apparel rental company that was started inside of URBN brands. Kim’s been with URBN since starting as an intern in 2011 while she was an MBA student at the Wharton School that included studying under Professor Peter Fader.

She’s held a number of significant roles prior to starting Nuuly, including leading CRM and customer engagement for anthropology and digital strategy and advanced analytics for URBN across all its brands. With that introduction, let’s get to talking with Kim and learning about what it’s like to build the leading company in its space from scratch as an entrepreneur.

Phil: Kim Gallagher, it’s great to see you. How are you? 

Kim: I’m good. How are you, Phil? 

Phil: I’m doing great. Really excited to catch up with you today and hear about everything that’s going on with you and the world, the wonderful wor, world of Nuuly. But of course, we always start with the proverbial Let’s Talk Loyalty first question, which of course is, Kim what’s your favorite loyalty program? 

Kim: My favorite loyalty program, I think is actually REI. REI’s Co-op program, which is, it’s a pretty simple program. It’s a 30 dollar buy-in for a lifetime membership, but for whatever reason, it it, it makes me, and, and I think my whole family kind of, kind of feel, like a member of the REI family and I, I, it just keeps them top of mind, for any kind of outdoor, or biking or athletic gear that we need.

So, I, I don’t know their, their sale emails always get me. I feel like it, it, they just keep me coming back and it’s just because I paid that 30 dollars one time upfront. 

Phil: That’s a great answer. And they are a great organization. You know, they were membership before membership was…

Kim: Agreed. 

Phil: The bright, the bright shiny thing that it is today.

Kim: Yes, yes. 

Phil: Stephanie Haeger from REI just came over and, and joined us at The Loyalty Summit CXM in Zurich, to join a panel on stakeholder loyalty. And she, it was, it was great to have her over there. They do… they really do some, some great things. 

Kim: Agreed. 

Phil: Today we wanna talk about Nuuly, but I think before we get into Nuuly, you have such a, I mean, you and I have known each other for a while.

And I know a little bit about your background, but for the, for, for the listeners if you could, because you didn’t start in marketing and retail, give us a quick thumbnail of how you got to Urban, and your sort of journey since you’ve been there. Cause you’ve had, you’ve been fortunate enough I think to have some really interesting roles that have impacted the business there.

Kim: Sure. So I guess my, my earliest start was in marketing, but on the PR side of the house, which, which was somewhat short-lived. I, I worked in a PR agency and, and worked, I was an American Studies major undergrad and had no idea what I wanted to do and ended up in a role where I was working for a federal, federally commissioned group that celebrated Brent Franklin’s 300th birthday.

So somehow I weaved in my American Studies major, but from there I realized that I, I was really interested in, a role that was maybe a little bit more data driven and moved to a CRM and digital marketing agency, before deciding that I really wanted some more formal business education, and went back to school to get my MBA at Wharton. And I, at that time at Wharton, there was I’d say, pretty limited classes in the analytics space.

It was, you know, it was 2010. It was kind of a more of an emerging discipline and. I was really interested in it. So I kind of sought out what classes I could find. I was in a marketing major, but really seeking out some more analytics focus and found, found a professor there, Peter Fader, who was teaching, he taught both the CRM class and this, advanced marketing models class that was really focused on customer lifetime value.

And it really opened my eyes to the, the power of customer data and made me  specifically really interested at working at a company that had access to that kind of data and retail was, was really, you know, where I was looking because they were, I would say retailers were, you know, a lot of them were at early stages of like understanding their own customer data, developing, you know CRM databases.

And, I reached out to Urban Outfitters. I was, I was local to Philly. I was at School at Wharton, and I just kind of asked if they would consider an MBA intern and was able, was able to make that happen. I think, I showed up that, you know, they were like, what can you do for us? It was, it was very, a very, unorganized internship program at the time.

Now it is much different and much, really robust internship program at Urban. But I, I worked in a role, my first role at Urban was called, was on the database marketing team, which sounds so crazy there. I, I, I don’t think those that function exists anymore. But, we were onboarding CRM database across all the URBN brands.

And I learned SQL, I learned how to kind of query to learn more about our customers and developed some of our early reports. And I loved it. It was just so fascinating. I ended up freelancing, my second year at, at MBA, staying at Urban and, and took a full-time role there, at the anthropology brand.

And that was where I met you, Phil, and working on some of the loyalty initiatives at Anthropology, but I kind of bounced between marketing and analytics, at my time at Anthropology, and then had the opportunity to move to, a newly formed digital group that was across all of our brands in a strategy role.

And it was during that time that we were really interested in new business models, in the digital space that URBN should maybe be considering. And, and rental was one of those models, as was resale. We were looking at subscription boxes, kind of like all, all of the, the buzzy initiatives out there, although some of them were, were quite nascent at the time.

This was, I would say around 2017. So I started doing a lot of customer research and, and kind of figuring out where, where, where was our customer going? I’d say that’s one of the kind of key mantras at URBN  is kind of look towards where the customer’s going and, and try to be a little ahead of it, but always, meet the customer.

So, so really we saw that rental might be a really great opportunity in that. It was very, very low from an adoption perspective, but from an interest perspective it was very high amongst our customers. And we also were taking a bit. We had a bit of a hypothesis, and, and research board out a bit, but that our customer was really, is really motivated by fashion.

She loves to shop. Convenience is not her key motivator, and we really felt that rental kind of fit what she was looking for. We also noticed that. From a macro perspective, sustainability was definitely something that was growing as, as an interest, but so was, kind of interest in fashion newness, and they’re kind of a paradox, so…

Phil: Right.

Kim: We felt like rental really kind of solved that need. So, so I guess, I mean that’s a long-winded, kind of description, but it ended up from that we, we pitched a, a new brand. And build a new brand, called Nuuly, which is a subscription rental business. And we, we build out the team, starting in 2018, launched in 2019, and we’ve, we’ve seen a lot of growth since then. I oversee, marketing, creative analytics, customer service at Nuuly.

Phil: It, it’s an was thinking back on. Launching in 2019, getting started in 2018. Obviously none of us had any idea what was gonna happen in 2020, but it’s worth repeating how prescient you guys were in recognizing the sustainability impact before, you know, before Jamie Dimon came out with the proclamation about stakeholder capitalism.

And before the sort of greenwashing business sort of, sort of came about that there is that authenticity and also I think it’s, it’s wonderful the focus that this was really customer led innovation and, and…

Kim: For sure 

Phil: Entrepreneurship or entrepreneurship inside of a well-established multi-brand retailer.

Kim: Yes. 

Phil: Share a little bit about what that was like. Not that Urban is such a hierarchical, siloed off company. I think you guys are pretty progressive from what I’ve seen and, and, and what I read. But you’ve got the firsthand account, so I think our listeners would love to hear that. 

Kim: Sure. So I, I think, I think kind of what you just touched on around the entrepreneuria nature, at URBN was one of the things that really attracted me to working there to begin with. I somehow, being a 50 plus year old company, it’s been able to maintain that. I think some of it is because it’s a key value of, of our founder. And, and he’s always led, led that way. But also, you know, the brands have a lot of individual autonomy.

It’s not. It’s very, you know, there, there’s a lot of separation between the brands and how they operate and really everyone is encouraged to come forward with ideas. And I, I, you know, I’ve seen firsthand that these ideas can happen. I’m watching it right now through, the development of our ERG is the employee resource groups and kind of seeing ideas come to life that are spearheaded through these groups.

It’s, it’s really been really fun to watch, but it’s definitely, it is, you know, it’s, it’s a great aspect of URBN you know, there’s always a flip side when there’s a positive, there’s always a flip side, so it’s, it’s a little bit less of a, maybe a structured career path than some companies provide.

There isn’t, you know, some of that formal, those formal programs. And you know, I tell people that when I interview I say, you know, like this is this, this really works well for some people who want to, build their own career path and kind of are excited to take it in new directions. But if you really want a lot more structure that there might be another avenue that’s better.

Phil: It’s, it’s tough, right? Because with structure comes a certain amount of rigidity, especially with mature quote unquote mature companies. You know, company that’s been around the half a century, so many of them are set in their ways. It, it’s refreshing to hear that. 

Kim: Yeah. It’s fun. 

Phil: So you guys launched in 2019 and then what about 13 months ago? Well, no, not 13 months ago, three years and, and a month ago everything changed. What was that like? 

Kim: Yes. 

Phil: And how did that impact the business and, and how’d you guys react to that? 

Kim: Well, I mean, it was, it was pretty devastating for a new business. So we, we launched in July 2019. As soon as, as soon as Covid hit, we really, you know, we really just saw it.

We had been growing really quickly and we just saw it kind of completely come to a hall. And, and all of our customers really go to a paused or canceled state, which was pretty scary. To be honest, we, you know, people just didn’t have the need for new clothes that they were only gonna keep for a month as they’re in lockdown in their homes.

So it was completely understandable. I think we were, you know, the, the very early days, there was so much uncertainty across the board, not just at Nuuly, but in literally every company, about what, what was gonna happen. So, you know, we were not immune to that. But following that and seeing kind of this stability of our sister brands and kind of how they, they, how, how prepared they were from an e-commerce perspective. We had always been kind of, leading in, in e-commerce and we were early to e-commerce, so they were really well prepared for that, and they, they were doing well, which, which really, really helped Nuuly, and I’m very grateful for it. I think that, you know, our, our executive team really believed in the Nuuly concept and believed that it would still, be a winning concept as the pandemic died down.

But we did have, you know, definitely a period where we would see, you know, pretty dramatic, impacts from every time there was a new Covid outbreak. 

Phil: So now we look back. And your friend Pete Fader’s partner, Dan McCarthy was my first guest when I, when I did this. But you know, all their work has been, and especially Dan has been focused on how things have returned right back to where they were.

I assume you guys are seeing that in your business and just seeing the performance that you guys are turning in. It’s not insignificant. 

Kim: No. I, I think, I mean, I, I think hindsight being what it is. We were, we were lucky that, you know, it was that time allowed us to really get, get our logistics in a good spot, really learn how our business operated.

I think there could have been a chance that we, we grew very quickly out of the gate and, and ran into some struggles and so I, I think, we were lucky and in that regard and, but now we’re, it’s been, you know, off to the races the past year and a half. The growth has been really incredible. We’re, we’re now sitting, over 150,000 subscribers and, yeah, and, and growing every day.

Phil: It is so interesting when we, if you think, when we think back to what it was like in those early days of kind of Q2 2020 and the unknown and the uncertainty, which of course is where all the anxiety come, comes from. But now with the benefit of hindsight, looking back on it, it’s, so, it’s, it’s, it’s so interesting to hear you talk about the fortune of having that pause to make sure that operationally you guys were so tight and set up for the growth.

Kim: For sure. Yeah. I don’t know that we, we recognized it as much in the very early stage of it, but, but have grown to be appreciative. 

Phil: So recognizing that it’s entirely possible that there could be some unforeseen, not to sound like a pessimist, but it’s, it seems healthy to think about or at least to hear from your perspective.

Having gone through starting a business right around then and seeing the impact and also seeing sort of things change with the benefit of time. When you look back at that, what do you, what are your big takeaways in terms of implications for whatever some unforeseen event is in the future? Do you know, have you thought about that much?

Because it, I, I have, and so much of it is, it’s never, as, you know, things are never as bad as they seem. Things are never as good as they seem, which is an oversimplification. 

Kim: Yes. 

Phil: But does that resonate with what you went through? 

Kim: Yeah. I mean, I, I think that, I think the pandemic might have been. One of the bigger shockers that that many of us are gonna are going to deal with business wise.

So it does feel like having that under all of our belts makes us pretty well positioned to navigate, like kind of any kind of change or turmoil, as you know, from a leadership, from, from all of these different angles, whether it’s logistics or management, or marketing. so I, I, I think that, that, that is helpful, even if it gave us all a few more gray hairs.

But yeah, I, I, I feel like they’re, they’re, you know, I’m sure we’ll we’ll run into unforeseen things in the future, but I, I feel like we can, we can handle it. 

Phil: Yeah. Yeah. That’s, that’s, that’s so great to hear. And I, I, I totally share that, that sentiment. Let’s, let’s shift a little bit to the idea of, of looking at the retail landscape and think, you know, there are a lot of new brands that emerge on their own, but when you think about new brands that have come out of existing retailers, mono-brand, multi-brand, that have been really successful at least recently. 

I mean, you could think about like an athletic and a gap as a, as a, as a great example, but what was a, and I’m sure, I’m sure inside of URBN, there was a lot of support enthusiasm for what you were doing, but were people surprised? Are people surprised at sort of the trajectory that you guys are on today? 

Kim: I think that, I think that we had, we’ve, we’ve always had a lot of support from the executive team at URBN  and a lot of belief and buy-in, and I, I imagine it’s a similar situation in other brands that kind of are good at developing new brands in-house and that.

They, we were able to strike this balance between leveraging some of our, our resources across URBN. So things like, we had a lot of support from the URBN  tech team. We had support from the finance team, the legal team, our development team who helped us build a warehouse in record time. I, we would not have been able to go to market both as quickly and as, effectively as we did without, without leveraging those, those resources.

But at the same time, there was a willingness to kind of let us work off to the side and develop a lot of things from scratch. So, so while we did leverage some of the technology and we certainly leveraged some of like the, the expertise, we built a lot of, a lot of our tech stack from the ground up which, which was costly. but. But was the right move. 

And, you know, I think I, I think the, the, the way that URBN  allowed us to do that and, and invest it. Invested in this not as like a strategy team side project. They invested in this as a business that they want it to grow to quite a large business.

I think that that was a real difference. And I think that when I look at how other people approach some of these new business models, they approach it in much more of like a small, let’s test this way, but they don’t go all in and you kind of have to go all in if you wanna see the upside. 

Phil: Which is pretty remarkable. Also, again, not just for retail as a exist leg, let’s call it legacy retail as a category, but also for a public company because of the pressure, because of the scrutiny, visibility. And, and ultimately transparency to the street. Which you guys seem to manage pretty well.

Kim: Yeah, I mean, I, you know, luckily we have a great team, in our, within our, URBN on corporate team that, that handles that.

And we’re honestly like some of our earliest champions and, and believers in the concept. So I think getting that buy-in from, from day one was absolutely critical. 

Phil: It sounds so cliche yet it’s, it, it seems that it’s, there’s an under-appreciation of that kind of leadership, both in terms of risk management, risk tolerance.

And being willing to, to take those risks in tandem with. The sort of the strong support that that flows through the organization to get the kind of effort that you guys had to get that business started and, and get it to where it is today, especially  in retail.

Kim: Yeah. I mean, I, I have to say there, it’s not, we were. We were concerned about cannibalization in, in the early stage. So it wasn’t, it, it wasn’t like we were pushing that off to the side. And certainly our sister brands, you know, raised that question as they, as they should have. If we launched this business where we’re renting clothes, many of which come from our sister brands, are people going to stop shopping?

And I guess, you know, upfront we decided, we’re gonna, we’re still gonna do this because if this is a concept that’s gonna take hold, which we believed it would, even if we weren’t going to do it, someone would eventually do it and succeed. In which case, you know, we’d rather them rent from us and maybe, maybe even disrupt ourselves then, be disrupted by, by someone else in the market.

And I think it’s, it’s kind of similar to those early discussions when, when it was like, the stores versus online and, and our, you know, what’s gonna happen. And so I think, I think Urban had a similar approach then. And, what we’ve seen, we have measured it and we look at, you know, we’ve, we do these incrementality studies to, to to measure it. 

And what we found is that, We don’t see cannibalization. We actually see that when someone signs up for Nuuly, they, they shop more than lookalikes that don’t sign up, sign up for Nuuly. So we’ve been ple that, that’s been a great, you know, but that was our hope. But, we’ve, we’ve been happy to, to see those results.

Phil: It reminds me of doing some work in the cable industry, which is fitting, given that Comcast is, has such a big presence in Philadelphia. 

Kim: Yes. 

Phil: But back a little, not too long ago, cable viewed that there were, there was, there were sort of two views in cable where they viewed things like theaters, maybe initially as competition.

But what they real, what they came to realize is people actually went to see films in theaters were bigger consumers of cable delivered entertainment than people who weren’t. And it’s a category thing. Which, which seems very similar to what you guys have learned. 

Kim: Yes. 

Phil:  What are some of the other things that you can share that some of the other URBN  brands have learned from what you guys have done inside a Nuuly, and I imagine as much as there was either anxiety or a little skepticism, a bit support early on.

Now they’re probably looking to Nuuly. Almost as a leader within the brands because of what you guys are accomplishing and what you guys are learning that probably is relevant to those, to the other other retail brands you guys have.

Kim: Yeah, we’ve had, we’ve had great partnership from the other brands. So you know, everything from, our, our buying team at Nuuly sits alongside the buyers from the other brands to kind of, you know, make selections about what, what we’re gonna acquire for our business. But obviously like us partnering and, and the scale that we’ve gotten helps, helps everyone. So us us working together is mutually beneficial, in that regard.

The other thing that, that we’re able to do, which is pretty unique, is we collect data on garments, over time. So we really have an in-depth understanding of product durability and how it holds up through, throughout, throughout laundry, throughout, you know, and what needs to be repaired and why.

And we can feed that information back, to our sister brands, but also probably most importantly, to URBN’s production team, which is a shared service across the brand and, and works on, works with our vendor partners to, you know, design and produce our clothes. 

Phil: Which, which brings us back to sustainability and sort of that aspect of stakeholder capitalism and ESG and all those things, and there’s so many skeptics yet, particularly the apparel, the soft goods business is really traditionally not the best participant in terms of affecting.

I mean, it’s not a terribly green business to begin with. 

Kim: Right? Yep. 

Phil: How do you, how do you address the skeptics? Not just within, not just within the apparel business, but more broadly? Because so many people are l, you know, it’s, well, this is what capitalism, or don’t believe the hype in terms of climate data and, and not, not trying to take this in a political direction.

Kim: Sure. 

Phil: But you guys actually, this was form, this was an, an important component from the start. 

Kim: Yes. So I think, I think what, what we’ve, what we’ve learned is that it works if you, if you don’t go against what the customer actually wants. So, so I guess what I’m saying is, a business that is, that is leans heavily on the sustainability side, but, but at its core maybe resists some key customer wants is probably not gonna be successful.

We’ve, we’ve been, I guess, lucky enough to, to launch a business where those two things are aligned, which I think is rare. So like, so I guess what I’m saying is that yes, the, does the customer want sustainability? Yes. But it’s not always the primary motivator as much as sometimes we want it to be, it, it isn’t always. The primary motivator for the customer signing up for Nuuly is she wants access to new fashion, at a, at a good price and, and I think the fact that we can reinforce that with a sustainability and a message and the fact that this is a circular business model is, is great.

But I think even, maybe more meaningful than the customer, even whether or not the customer cares. What we’ve learned is that it is changing her behavior.

So when we ask customers and we regularly do, to assess how they’re, how they’re buying after they sign up for Nuuly, almost 90% say they’re buying less clothes. So, you know, I think, I think whether or not it’s, it’s in line exactly what the customer that, that the customer had the intent to do, that the, the outcome is that she’s buying less clothes.

I mean, I think what’s, what’s interesting and what can be hard to. For some people to wrap their heads around is that she’s actually not buying less clothes from URBN. Like I said, our, our incrementality studies have shown that, there’s a positive lift. So, but, but if we at URBN are using Nuuly data to make clothes that are more durable, like, you know, it’s, it’s not a, it’s not a zero sum game within the URBN. It’s, it’s about our customer. And where’s her share of wallet shifting? So she’s, she’s buying less, she’s renting more, but she is buying more from URBN. And I think that’s, that’s all a positive from a URBN standpoint. 

Phil: And it’s so interesting because I imagine a lot of people would think about it and assume just the opposite in terms of outcome as opposed to, and I’m sup.

There’s this little bit of supposition what I’m about to say, but she might be buying less overall, but there’s probably more SKUs in her closet over time because of the rental?

Kim: Maybe, maybe not at a, in a given moment, but yes over time I would say, is, it’s likely. But you know, she’s sharing, she’s sharing those units with 150,000 other customers, which is pretty cool.

Phil: It is pretty cool. It’s also especially cool the cascade effect on the other brands. 

Kim: Agree. I mean now I, what we see is, you know, like, let’s take the anthropology brand for example. Anthropology is such a great performer in our rental assortment. The, the customer at Nuuly average age is just under 30.

And which is much younger than the average age of the anthropology customer. So I think it’s really exciting that, that it exposes these younger customers to the anthropology brand. And I think, there’s a pretty good chance that many of them will become loyal and throw shoppers long term.

So I think there’s a lot of, you know, there’s a lot of instances where we see that kind of mutually beneficial behavior. 

Phil: That’s so cool. So it’s maybe not the gateway drug, that’s not the right way to say it, but it’s the gateway good for the young. A younger customer into some of the other brands.

Kim: Exactly. 

Phil: It’s, it’s, it’s so smart. And, you know, having started my career in retail, I, I struggle a lot with what’s happened to so much legacy retail where, where they lack innovation. And I think some of that just comes down to leadership and risk, risk aversion and sort of the, I had an old boss who, who, who’s a creative director and writer, said, well, you know, gotta remember the Safeway, a grocery store, which was sort of his cue for it.

You’ve gotta be willing to take risks. Especially when those risks have, have that sort of good attached to them. Right? Like are you mentioned REI  at the beginning or you think about that whole category? REI, Patagonia, North Face and, and of course it’s natural they have the commitment to the earth.

But that just seems, and there’s a fine line, right? Because you can’t be preachy. It’s more of an incidental benefit. 

Kim: Yes. I, I strongly agree with that. I, I, I mean, I, you know, I think sometimes maybe we skew too far the opposite and we really like, like, do it, don’t say it like, you know, I think it’s, and you know, we’re just keep doing, making the, we, we kind of, when we set out, we, we we kind of decided let’s just, we had the benefit, and I wanna be clear that not every company has this benefit. We started a new business. You have much more ability to make sustainable choices from the outset when you’re in that position. Legacy companies, it is, it is harder, it’s more expensive. Because you’re, you know, you’re, you’re, you’re raising expenses in many cases, and you have to, you have to have a reason and a, and a way to make that happen. 

So I, I recognize like kind of the position that we were in being really favorable in that regard. So like when we, when we started thinking about packaging, we, we had the opportunity to really be thoughtful about the type of package that we developed. We knew we wanted it to be reusable and we, we really are, are thrilled with what we’ve come up with.

And, you know, it’s, it’s you know, the fact that we’re not sending car boxes back and forth with every shipment, it’s a really, it’s a really big deal, thoughtful about how we clean that package and, made sure it was minimal from, you know, we don’t, we, we sanitize it, we don’t use water. And even in all of our laundry processes, we’re able to be really thoughtful about making sure that they were as energy efficient and green as possible. 

But, yeah, I, it’s been, and, and honestly like another benefit is that we’ve been able to hire great people who, who really care about, they, they care about the fact that this is, you know, a circular business model. And that’s one of the reasons that attracts them to the brand. So I think that’s been a win as well.

Phil: I can’t help but think of, I’m gonna date myself a little bit. The, the idea of a learning organization, a learning corporation, which was, I’ve at least first really learned about that, not to overuse the word learning, in the fifth discipline, the book by Peter saying, I don’t know, gosh, it was probably 20 years ago, but it sounds like you guys really are a learning organization.

And that there’s, and I think that goes with sort of the lack of rigidity, which is being open to new ideas and trying new things. 

Kim: Yes. 

Phil: With conviction, 

Kim: I think that that’s dead on. Yes. 

Phil: One other question specific about URBN  and Nuuly, what comes first, Nuuly or other URBN brands, or is the answer to that both.

Meaning your, your member base, your subscriber base. What percentage of them, and you don’t, you don’t need to be specific, I wanna respect that, but I’m curious in terms of, you’re clearly attracting new, as you said, you’re attracting new customers to the anthropology brand. Those are, are those net new?

And it sounds like these are a lot of net new customers to URBN  across the board as opposed to cross-selling existing URBN  brand customers to Nuuly? 

Kim: It’s a mix. So, so in, in what I had the, kind of what I had stated around that, that we don’t see the cannibalization and we see a lift that’s not inclusive of new customers. That that is just with existing. 

In terms of new customers, what we see is, a little under half of people who sign up for Nuuly have not engaged with our company in the past year. So they’ve not been shopping with any of the brands, beyond a year. Totally not new, it’s about, you know, around a quarter have, have never shopped, which is, which is kind of a lot because URBN brands aren’t small.

I mean, most people have popped into an Urban Outfitters at one time. So I think it’s, it’s pretty substantial. 

Phil: That’s it. It’s just so fascinating being a similar data nerd to you, to, to, to really think about that kind of, that kind of cross brand behavior. This is a podcast called Let’s Talk Loyalty. So I would be completely remiss if I didn’t ask you about Nuuly dollars. 

Kim: Yeah. 

Phil: And the 10% back. And keeping, keeping those dollars sort of inside the ecosystem talk and be, and especially because you guys are not, you guys have never been the, oh, let’s just go do points and rewards and that sort of old school expected loyalty paradigm. 

Talk a little bit, share, share, share sort of a little bit about sort of the genesis of that and what you’re seeing in terms of, of, I mean, obvi, there’re obvious benefits, right? Like you’re reducing transaction costs from a, from an MDR standpoint, but beyond that, it’s sort of, it seems like it’s sort of that ultimate virtuous circle that we’re always trying to see with customers.

Kim: Yeah, so, so, I, I, this was, I guess, one, maybe our only somewhat of a, of a pivot, but not, you know, we, we obviously went, went back to our core of rental, but during, the pandemic, we were, we definitely were, were, were thinking, this might stretch on a little bit longer than maybe we thought in that first week.

And we have a team of engineers on hand that we probably don’t need to be churn out new rent features for, because everyone’s paused or canceled right now. So they actually got to work developing, Nuuly Thrift, which is a peer-to-peer resell platform, that also serves the purpose of us being able to sell end of life inventory for Nuuly rent.

So, so we are Nuuly rent is a seller on the Nuuly thrift platform. What we did is, we allow sellers, when they sell something, they can take their payout either, you know, in cash to their bank account or they can take it as Nuuly cash, which is worth 10% more and can be used across all of our brands.

And, you know, the, the idea there was, and, and to your point, we hadn’t done a lot like that. That was like very, we, we, that was cross URBN  in that way. But the idea was that, you know, it, it’s something that, that could be mutually beneficial. The Urban Outfitters customers we knew was already engaged in resale.

They can sell a Nuuly Thrift. And then get money, to shop more at Urban Outfitters. So I, I think that that was the idea. And we’ve, we’ve really seen like that people use that Nuuly cash pretty evenly across the brands, which is interesting. But yeah, but that was kind of the genesis. 

Phil: I love that. that’s, that’s, that’s fabulous.

While we have a little bit of time, I want to ask you a couple other, like shift, shift the conversation just a little bit in that, you know, I think of the, the, the Jeff Bezos quote about how you can be more innovative focusing on the customer versus your competition. And you guys clearly em, embrace that idea.

But where do you, where do you look for inspiration externally? Because I imagine there are pockets that you see pockets of things in other retail. Retail brands or retail applications, but clearly you guys look beyond retail. 

Kim: Sure, yeah. I, I think we look everywhere. I, I, I, I agree. Like, it, it, we’re, we’re trying to grow a new market more so than, it’s not about, like, it’s not about gaining market share, it’s about growing, growing the market overall from a rental perspective.

So, yeah, I mean, gosh, I you know, I listen to, I, I think I look in the tech space a lot. I think, I, you know, from an innovation standpoint, really try to keep tabs on what’s going on there. I talk to my colleagues at the sister brands as well, really try to maintain those relationships. I think they’re all pushing forward and really unique directions, and as well as the URBN Tech Team. 

So I think we have, we, you know, the benefit of having a lot of people within URBN  who aren’t in the, the silo of, of the Nuuly business that I can, I can tap into and often can offer a really great fresh perspective. But yeah, it’s everything from podcast to newsletters to just conversations or, you know. I’m not, I’m not afraid to send a LinkedIn message to someone I don’t know and who I think might have some good insight and ask for, ask for a chat. 

Phil: Imagine that as a business, you guys hear from all kinds of people interested in partnering, doing the same thing, wanting to, to, to glean insights from things that you guys have learned in, in building that business. So I, I would be surprised if that doesn’t go both ways.

Kim: Yeah. I mean, I, we do, and it’s, it’s great. It’s really fun like that. That’s one of my, my favorite things. Well, I’d say on the, on the partner side, one thing that I didn’t necessarily anticipate, but it’s, I mean, not super surprising now that it’s happened, is that we are our business is such a great fit for creators slash influencers. 

They need new product. They don’t necessarily wanna own it forever. But they, that’s part of their business is, is their, their style and their fashion. So we get, I mean, so many inbound requests to partner from that standpoint, which is such a great position to be in. So we’ve, we are recently just started, just started kind of like a soft launch of our Club Nuuly, where people can go on our site and apply to be part of our ambassador program as creators. And really, a lot of them are interested in, you know, getting a free month of Nuuly.

So it’s very, it’s not, there’s a lot of benefit to them from just being, being a Nuuly subscriber and, we get to reach their audience. So that’s, that’s been great. And then, you know, I definitely get, I, I’m still really well connected with, a lot of folks at Wharton. So I hear a lot from students who are interested in the space, or something similar.

And I, I lo I, I learn a lot from those conversations too. So that’s been great talking to professors there. So yeah, definitely love to it, that, that keeps me excited and motivated to, I mean, we, we’ve talked Phil over the years to just kind of share ideas and that, I don’t know, it’s, it’s fun for me and it gets the creativity and innovation flowing.

Phil: Well, thanks. I totally agree. I last night I got to lecture at Georgia State. And it’s just always fun, especially grad level students because they, they bring so much experience into the classroom. Before we wrap, let’s talk back, let’s, let’s shift back to loyalty cause that’s where you and I first, first the context in which, in which you and I first met.

What’s your view in terms like, what, what have you seen that has surprised you or inspired you relative to what other brands are doing specific to lo loyalty and, and sort of make customers feel better about the brands they’re doing business with? Anything stand out?

Kim: Yeah, so I think, I think what I’ve been noticing lately and, and kind of has been helpful to observe is that even some of the, the biggest businesses have run into challenges lately with programs, especially given the macroeconomic climate climate and how, you know, an explicit loyalty program. Changes in macroeconomics can really impact margin.

And I think I, I think it, it hasn’t been as glaring to me before as it is, it has been more recently. And, just kind of what the drawbacks can be of having an explicit loyalty program versus something that’s maybe, happening more behind the scenes. So I, I’ve had eyes on that. Obviously Starbucks was a big recent example of having to make those changes.

And just like, you know, also, I do see some, like some new companies. Probably start thinking about loyalty programs too soon or too early. And, and having, you know, we’re at, at Nuuly, we’re, we’re not four years old yet, but you really need to really understand your business very intimately and understand where the product market fit is, what the different segments of your customers look like.

Like I, I, I can’t even imagine having developed something early at Nuuly. So I think, I think it’s just such a, such a cross-functional, data-driven area, that you, it takes time and a lot of discipline to develop the, the program or the strategy that’s that’s right for your business. 

Phil: I love that. Obviously I’m, I’m a staunch advocate around the idea that loyalty is not a program. 

Kim: Yes. Same.

Phil: And, and that loyalty is, is very stuck in so many places, especially retail. It’s refreshing because to hear, to hear you say that just because a great product and, and especially when it’s customer led, a business is customer led by definition, loyalty’s embedded into that.

As opposed to, and we won’t call out any of the companies that have devalued their loyalty currencies, but, you know, never in the history of the world has a loyalty currency been, been increased in terms of its value. 

Kim: Of course. 

Phil: Right? 

Kim: Of course. 

Phil: Well, good. Any, any closing thoughts? Any, any, any anything? Not to put you on the spot, but any brands that, that you think have, are really kind of lighting things up in terms of doing things where you say, gosh, I, I, I, I so appreciate brand X because they’re doing these types of things that just seemed so smart and effective. 

Kim: I still think some of, some of the, the best examples of people that keep you hooked in are, are, I mean, there, there’s still some of the credit card and airline companies that, that do it really well.

I think, I don’t know, I think a lot of, a lot of the other things I see out there, I don’t know, sometimes I like even questioned, I, you can tell you’re like, they’re, you’re giving too much away. You shouldn’t be doing that. So I think you can learn from that too, though. I, I always think about as a consumer, you know, if I’m, if I’m in a loyalty program or like, I think about those every benefit and I’m like, would I, like, do they need to be giving me this?

And so a lot of times the answer’s no. So I, I feel like just being kind of a, a really eyes wide open consumer of loyalty helps, helps you with your own strategy. 

Phil: Well said. Well said. Well, on that note, I’m gonna say, Kim Gallagher, thank you so much for being with us. Congratulations on being part of the team, building this great new business at Nuuly and wishing you nothing but great success going forward.

Kim: Thanks so much, Phil. 

Paula: This show is sponsored by The Loyalty People, a global strategic consultancy with the laser focused on loyalty, CRM and customer engagement. The Loyalty People work with clients in lots of different ways, whether it’s the strategic design of your loyalty program or a full service, including loyalty, project execution.

And they can also advise you on choosing the right technology and service partners. On their website, The loyalty people also runs a free global community for loyalty practitioners, and they also publish their own loyalty expert insights. So for more information and to subscribe, check out theloyaltypeople.global.

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