The Secret to Customer Retention From A Multimillion Dollar Company

0:00If you get somebody their product on time and in a good quality condition every time, that is what's going to feel your growth. Hello and welcome to Shopify Masters, your companion for starting and building a business. I'm your host, Shuang Esther Shan. How do you reach profitability, maintain sustainable growth for decades, all while keeping your employees happy? Well, Crystal Lansom has the answers. She's the CEO of Lulu's, a 10-figure fashion brand dedicated to making luxurious and chic clothing more affordable. Crystal is here today to share how she went from contractor to CEO, overhauled the company's finances, and how Lulu's is surpassing business goals while re-entering retail.

0:44Crystal, welcome to the show. Thanks for having me. So what I think is amazing about your career is the fact that you joined Lulu's in 2016, not as a official employee, actually on contract just to consult on operations and finances. So tell us, where were some of the initial things you did to get Lulu's in a good financial position? So I have to say, when I started at Lulu's, it was already a pretty phenomenal business. I think our founders had created a culture of profitability and customer first. And really, when I joined, my job was to bridge for a CFO that had given two weeks notice and needed to move on to other things very quickly.

1:28So my job was to drink from a fire hose, figure out all the things that he did, and then help transition to a new CFO. But the challenge that I had was I just didn't want to leave. I loved it so much. They loved me. And it turned into this really great relationship where, as a contractor, for three months, I was able to affect some change once I started full-time. And that was the 2016 date. we started to really dig into the business and just found there are a lot of really special things about Lulu's financially, but also with the customer base and just the overall opportunity. I think one of the most impactful changes that I made was when I had taken over inventory planning.

2:06The way that we run our business model is a very test and learn, and it's the most efficient, low-waste way to buy product, listen to customer feedback, make deeper investments in the product that works. And when I started at Lulu's, there was a budget cap. And it was mostly around financials, making sure that we didn't run out of money. But if you think about our business, we turn inventory so quickly, we're selling product before we have to pay for it. So it felt a little risky at the time. But now in hindsight, it's actually what makes our business so awesome is we took the budget cap off of these really data driven reorder products.

2:40And we went from a double digit growth comp to a triple digit growth comp in a matter of months. Wow. Oh, it was amazing. And that's what's so cool about Lulu's and I think e-com and just being a part of a very small startup company. You make decisions and you can see that impact so quickly and then figure out how much you want to invest, how much you want to take to the bottom line, how much you want to reinvest in your customers. And at that time, it was really great. We could take all of that profitability and push it through product, give better quality product and really reinforce to our customers.

3:11This is attainable luxury. This is a really great product and value for the price. So there are a lot of other little things. I think it's 69, 70 million is what we were at when I started. there's so much opportunity for process and to really put in you know just controls around finances and sharpening up the budget it was such an amazing time to join that I think it was really opportunity and just chasing after it and feeling comfortable with being a little bit uncomfortable from where the founders had started the business which was you know that we joked a lot around the open to buy was an Amex card and when that Amex card got filled that's when you stop buying product.

3:51And so changing that mindset to relying on the data, listen to your customer and really go after it. So I think back on those early days, it was a really, really fun, really, really fun time. It still is, obviously. But we've evolved a little bit on public, have done a little more revenue since then. Just gotten a little bit bigger. Teeny bit. Just a teeny bit, just triple digits in the millions, no big deal. So I think even with that one seemingly simple change where you removed some of that budget cap, it is still a big mental hurdle for some of the founders and operators. What are some other things that founders should keep in mind when they're thinking about growth and profitability and when they're reviewing their finances?

4:37Yeah, that's a really great question. And so for Lulu's, and it can be really, really challenging for founders to make the tradeoff between growth and profitability, but quality of product, put your customer first and don't invest ahead of your growth. And that can be really, really hard to you. I mean, you've got to have a very dedicated team that can jump on the wild roller coaster, especially in the early days. But for us, it was really important that we didn't invest in warehouse capabilities or expanding operations or overhiring in the early days before the growth came. And our founders, I mean, they started this business with$10 ,000 that they never took outside capital to grow it.

5:19And even when they brought on new partners, that was all secondary. It wasn't money that had to go back in the business because all of our operating expenses were always in line or just lagging our growth. And that can be very intense, candidly. For any founder starting a business, I think they'll all say it's very intense. And for us not hiring ahead of where we were and not building out. So for us, warehouse operations, we think about that as a customer service lever. If you get somebody their product on time and in a good quality condition every time, that is what's going to fuel your growth.

5:52And so I think in my time at Lulu's, we've grown into and out of five warehouses. But we didn't invest ahead of that growth. And we saw other econ DTC players that were coming up at the same time we were building these beautiful, I mean, just glorious warehouses and headquarters and putting money into things that didn't drive value for the customer, where we're very scrappy. We still are. I mean, I sit at an Ikea desk because that's not what's important for growing a business. What's important is investing in your customers. Two things. One is don't invest ahead of your growth because you don't know what the world is going to throw at you.

6:29The last three years has absolutely shown us that. It can be a pandemic. It can be consumer hiccups. It can be massive trend shifts that you just don't know. And putting the money ahead of that growth is very risky, especially in the early days. And I think from an OPEX perspective, we've always been very scrappy. And if you think about how we managed our open to buy, it was in Google Docs until I think we were over 100 million. Then we started investing in Excel and using Excel levers to run an open to buy until we got to about maybe 150, 175 million. And then we bought the planning software as our team started to grow and started to scale.

7:08That's a large business to run on Excel and one of the most important parts of our business. But if it didn't add value, we didn't invest in it. And that can be really challenging, especially when you're running hard and fast and you feel lean and scrappy. But that's how you build a business. You have to really prioritize where you're spending your money. And there are a lot of really sexy software tools out there. There's a lot of things that claim to automate and make your life easier. But in the early days, Excel, Google Docs, you know, there's tools that you can do it manually. And it's just fine.

7:41So I think not being drawn into the allure of all of these, like set it and forget it automation tools is also really important to wait until you hit scale where that makes sense. And for employees to being scrappy, looking at things manually, whether it's an Excel or a Google sheet or even, you know, handwritten notes, there's something about that that connects your employees to your customer more by having to go through it manually. It sounds crazy, especially at our size, but we're still looking at every single customer exit survey that comes through in a very raw just data dump into our email every morning.

8:15The entire leadership team looks at it. It's not aggregated. It's not streamlined. It's just raw customer feedback every day. And we're big. Yeah. It sounds like there's a great deal of financial discipline and also being just resourceful and still staying closely grounded to the customer base. What I also love is how you mentioned that the team is also loving this process. And I think a lot of founders feel like I need to be splashy or I need to invest in order to keep my team happy. And what's beautiful about Lulu's is the fact that the team is profitable, and yet the team is also happy. So talk to us about the things that founders should keep in mind when they're growing their business, but also building up culture and building a good team together as well?

9:06Company culture is so important. And looking back at Lulu's in the early days, we weren't paying out of market. It wasn't that everybody was getting these crazy salaries. And it was more about having fun and seeing the value in what you did every day and creating a culture that people value to be a part of. It's why I joined Lulu's full time. I mean, I had a great consulting career going. And I just felt like this was a place that's really, truly special. And at some point we actually sat down and tried to document, okay, what is it? How do we put that into text, into a message that we can convey?

9:43Because it really is special to be at Lulu's. So we've kind of coined it as all voices, all in, always evolving. And what that means to Lulu's is that it doesn't matter where you are, what your position is. If there's trash on the floor, pick it up. We had a warehouse flood. And everybody, including our founder, had a broom out there and we were pushing water off the floor and we managed to save inventory and save our peak spring season because we all just got in with a broom and pushed water out the warehouse door. And we actually had a really great time. Everybody sat down. We had blisters on our hands.

10:16We ate some pizza. We were laughing about how like this random freak thing could happen right before we built up to busy season. And it was just a connectedness, I think, across employees. and that culture is it's how we get really great employees to come on board as well. Because you do reach that tipping point where you need to get experienced people that have been there and done that and getting them to leave bigger companies to come to a smaller company like Lulu's. It's the culture. It's the people. It's the energy and that excitement. And I think it grounds itself around focusing on the customer.

10:51And if you listen to the customer, and we have really, really awesome customers. I should start there. I think that's part of what makes our culture so fun. She is hysterical. She doesn't take herself too seriously. And that's very much how we are internally at Lulu's. We're all a little bit goofy, but we have a really great time doing our job. And you spend so much time at work. If you don't love it, what's the point? The culture and reinforcing that and hiring people that are going to continue to foster that, especially in leadership, I think is really important. So part of our core values is that we are always evolving.

11:22And I think that's right. Every new hire that you bring on can change your culture. And I think for us, it's been critical to just make sure that we hire the right people that can continue investing in the culture that's made us successful and just being very cautious about who we hire and when. And then pivoting quickly if it's not a good match. And that's been very successful for us. For Shopify as well, I think our culture is so special and important to us. And what we think about a lot is every new hire changes culture because it is a symbiotic relationship. So for Lulu's, how are you and the team evolving culture over the different chapters of change as the company grows?

12:06I think it's finding the balance between the corporate discipline, especially being a public company, that obviously is going to change your culture. But I think what we've done is hire people and also invest in the culture where we want to keep that scrappy entrepreneurial spirit. While we're not a startup anymore, you still feel that startup energy and the way we approach our finances and how we're investing and the way that we work with our people. We're still very much an open door company. Anybody can walk up to our executive team and have a conversation. They have an idea. We can talk through it.

12:39part of our culture is also just always evolving and continuing on to change. And I think the way that you said it, every new person that you hire brings a cultural change and just making sure that we latch onto the core pieces that made us special and not getting too serious or too corporate, but also adding the disciplines that we need to in order to obviously protect our shareholders as a public company and finding that balance and hiring the right people at the right time, I think is also very, very important. And not hiring too far ahead of yourself, but adding resources, skills, and personalities that you need in that moment.

13:17Another question I'm dying to ask is the fact that we talked about this at the top of the show, you entered only on the assumption that you were gonna be at Lulu's for maybe three months. But that's also an important decision for you to make personally, right? Why do you want to invest your time, your career into Lulu's, what was it that was the right call for you? Oh, there's so many things. First of all, when coming through the financials and looking at the data, I was like, this is going to be big and I want to be a part of it. Beyond that, there was something really special about our founders, the culture that they had built, the team that was there.

13:55And for me, this may be a little bit of oversharing, but I've always had lied about my age and my career prior to Lulu's because I was in management at a very young age. And there was always this feeling of I'm older than you. How am I reporting to you? How old are you actually? And when I started at Lulu's and when I had interviewed for the consulting work, they had asked me, how old are you? I said, I'm 32. They're like, you're young and you're smart. That's rad. And I remember feeling for the first time, I didn't have to tell a room full of management that I was 40. And by the way, when you say that you're 40 at 26, no one believes you.

14:30But that was a pivotal moment for me where I thought this is a place that does not care about your age, your gender, any like just be yourself. If you work hard and you're smart and you add value and we protect that still, that is still very much our culture. And you be the weirdest, most awesome version of you, as long as you're taking care of our customers and you work hard, that's all that matters. And that was a really special thing. And Alibaba for what it's worth, had a really great culture as well. And so I had come from a company that had this really fun, really dynamic. They also were like, you're a smart woman.

15:04We want to elevate you. This is great. I felt that same connection with our founders and with the rest of the team at Lulu's. And it just felt, it felt like the right, right thing to do. And I'm a person that very much values enjoying my job. I love to work and I love what I do. And if you're excited to go to work every day, and it's really hard not to be at Lulu's, that's what I value more than money or title or anything else. And that was what drew me in at that moment. And just seeing the opportunity. I've said it a few times, but it is very special. It really is. And I'm so privileged to be chosen to lead this company.

15:39It's really a wonderful place. Yeah. I mean, we spend most of our waking hours at work. So it's important to enjoy those hours. Before we dig even deeper, we're going to take a moment and thank our listeners for tuning into the show. We would love to know what you think of today's episode. So leave us a review with your feedback. And if you haven't already, be sure to follow or subscribe to Shopify Masters wherever you get your podcast. Thank you so much. what's also so exciting is lulu's is having a full circle moment you're re-entering into retail tell us about all the different processes and thoughts you've had before making this decision several reasons i'd say first and foremost we're a very customer data driven business and we the leadership team reads exit surveys every day and she has been telling us for years and we had actually talked about it leading up into the pandemic, potentially testing into extended pop-ups or potentially a retail store.

16:40Obviously the world changed in 2020. And so we had to pull back a little bit on in-person experiences, but as the world opened up again, she just kept telling us every day, Lulu's open a store near me. I'm ready for in-person. Let's do this. So just looking and reacting at customer data, that's the primary decision factor there where if she's telling us she wants it, we should just give that to her. It's the same way with the products and the way that we source our merchandise. She tells us she wants it, we buy it. So from a just purely customer experience perspective, we want to make her happy.

17:13Melrose was chosen because it's very close to home. We have an Ontario facility where all of our product funnels through before being distributed to our distribution network. And so for us, it's a really great test to see how our business model can apply to retail. We do fashion very differently and we're not the traditional retailer that's buying and placing bets and taking risks long-term. And it's just easier for us to say, okay, we're going to open this up in LA, close to home. Let's figure out how we can integrate this awesome business model into brick and mortar retail. And so this is really a testing experience for us, learning what she likes, what she doesn't like.

17:50And what we're really excited about is our Bridal Boutique and giving her the option for she trusts us with her most intimate moments. Being able to experience that in person. And when you see our product in person and you touch it and you feel it and you compare it to other contemporary brands and even luxury brands, you cannot believe the price for the quality. And so for us, it's just a rational decision to put product in her hands, let her engage with it, get some user generated content while we're at it, because we all know that helps grow a business. And so we're just really excited about that.

18:22and interacting with her in person and taking that kind of brand hug, as we call it internally, our culture, our staff, our customer service, and welcoming her in person. So seemed like the next natural progression for us. And also an exciting one. So it sounds like there's three different businesses within Lulu's now with online, retail, and a bridal boutique. How are you using different customer data from these touch points to make new decisions for the business. Yeah, it's interesting with Lulu's because we're so well known for our event wear and our event dresses. When you hear Lulu's, you associate it with dresses.

18:59And having that retail touch point, it's easier to fit a dress on your body in person and like rather than ordering a bunch online, trying it on, which we also support and we love her for that. And I think finding ways to merge the two together and really just listening to our customer. I'd say our goal was to bring the boutique experience to her online and now bringing that online experience back to her in boutiques is it's kind of perfect the integration of event wear with non-event wear I think is where we have so much opportunity because she hasn't always known us as a destination for the rest of the year fashion she knows us for event wear giving her that option in the store is part of our just most rational evolution for us but also introducing her to the rest of our product line and really helping to grow and facilitate that, but in a low risk way, because we are very much a test, learn, react company.

19:48We don't ever want to invest ahead of knowing when it's going to start to pay off. So that's a very long winded way of saying this is an experiment and a low risk, highly efficient experiment because we don't want to invest in anything that's going to cause us to not be profitable. I think profitability and quality first before anything else is how you really grow a business. And I see that through line of being financially disciplined and making those sound decisions while you're experimenting. Now that the retail space is open and the Bridal Boutique is open, what is on your checklist for opening up retail?

20:24What are some essential things that founders should think about before they go brick and mortar? Oh gosh, that's a great question. So I think for us, it's a big learning exercise. So there's still a lot to be understood. from a technology integration and a customer experience integration. That's first and foremost what we're trying to get out of the store. How can we migrate our tech stack, which is custom proprietary for now and figure out how to make a seamless experience between online and brick and mortar. Also from a product assortment perspective, understanding what she wants to experience and where.

20:59We might see a different expectation in Los Angeles versus what we would see if we had a store in New York or Miami or Nashville. So part of it is also understanding how to curate and reacting very quickly to what she wants and what she doesn't want, because we have a very big catalog. So those are the biggest things that I'd say we want to take away from this retail store is product strategy and then the technology and what we need to do to improve the experience for her in an integrated way across multiple channels. For others that are considering retail, I think it's a question of are customers looking for that and do they want it?

21:35Because it seems like a rational decision for everybody, but it may not be. It really just depends on whether customers are looking to, do they prefer to engage online? Do they prefer to engage in person? Or is it a combination of both? Also for Lulu's, the team has experimented with pop-ups before committing to a full-blown retail experience. So I guess when you're running those pop-ups, what were you keeping your eye on or what kind of hypothesis were you trying to validate before you can commit to a full-blown retail store? Customer feedback. And it was such an amazing pop-up that we ran in 2019, the foot traffic, the lines out the door.

22:12What we learned from that experience is dressing rooms and having enough, making sure that we could give her a positive experience. And we also learned from an assortment perspective that Melrose pop-up did not align with our sales mix online. It was a very different expectation. And so we've taken those learnings and applied that to the store, and we're still calibrating, we're going to be constantly shuffling through the assortment. But the two things that we learned, again, was technology and how to integrate that, we have a loyalty program, making sure that customers see their benefit of shopping in the store as well as online, making sure that all stays integrated, and then understanding what she wants and being able to pivot quickly and having a very fluid store layout to be able to pivot and adjust.

22:55Because what we found in December was working really great for what she wanted. January is a completely different story. She's coming to us for different things. And so being agile, being able to switch things out, it's the pop-up shop gave us all of these learnings in advance so that as we built the store out, we know we need mobile store displays. We know she loves to see product on mannequins. We know that she wants dressing rooms that are accessible and that there isn't a big long line around the block like we had in our previous pop-up. So testing it and geographies to see what is the reception going to be, but then also understanding her expectation when she gets in there, I 100 % recommend it.

23:33Even if it's an expensive experience for short term, long term, the learnings will help make your first retail store much more cost effective and you know where to invest and where not to invest. Wow. So many great learnings. Looking forward, how are you thinking about balancing growth for both retail and online for the rest of the year? So I would say what we're focused on with the retail store now is, again, just calibrating, understanding, you know, from the learnings, what do we need to change? What do we need to pivot? Our hope is that we can take away the technology and customer-centric learnings and then figure out how that's going to apply to our next retail.

24:11And it could be we end up doing a pop-up shop in another geography, calibrate, figure out, is this where she wants us next? Is this where we have the best payoff? We have some pockets where return rates, for example, are super high. Is that a strategic location for a store? We don't know. If we had a pop-up, let's test it. Let's get her feedback. Let's have focus groups, talk to her about what she wants and what she doesn't want. And then figuring out what the next logical geography is. And if you think about like Miami, that might be more swim cocktail party or Vegas, same thing. But if we went to New York in the winter, that might be more of an outerwear experience or potentially bridal only.

24:52I think having those pop-ups and testing into those geographies and really learning first, is this a rational decision? It's worth it versus getting into a big long-term lease with all the capex that you have to invest in. It's just more of a getting more certainty that the money spent will be high ROI. Yeah, sounds great. Well, we look forward to all the ways that Lulu's is going to grow both online and offline. Thank you so much for being here, Crystal. Thank you for having me. This is great. That's Crystal Lansom, the CEO of Lulu's. Our show is produced by Gogo Zoger and Megan Coyle. Our sound engineers are Miku Betlam and Matt Shorts.