How Croissant is trying to bring more retailers into the resale space

0:04Hello, everyone, and welcome to the Modern Retail Podcast.

0:30will be, and they get pretty much a confirmed, if they buy it, then they'll be able to resell it sort of thing. So it's helping people know what they might be able to resell it for. It works in the general re-commerce space, and it's trying to sort of, I guess you could say, change shopping patterns. It's been getting some buzz. I think it's a really fascinating model, and I want to talk about how it works, what the plans are, how the rollout thus far has been, and all that jazz. But John, how are you doing? I'm doing great, Kale, and great intro. As you can probably tell it's tough to boil down what we do into one line, but you did it about as well as anyone.

1:03Oh, wow. Well, thank you very much. Yeah, I've been doing some reading and it's one of those things where I think I can, I visualize the concept and I understand how it works. But then when you say it, it's sort of difficult to say in a concise sentence. So why don't we start with that? Because I did my best, but can you just explain exactly what the idea behind croissant is and how it works? Absolutely. So at our very essence, we describe ourselves as the first shopping tool that provides guaranteed resale values at the point of sale and beyond. So our product that we're delivering are these guaranteed resale values.

1:38We call them guaranteed buybacks for shorthand, and I'll probably use that a number of times as we talk. So I just want to get that out there up front. Guaranteed buybacks is sort of our moniker for the guaranteed resale values we provide. And what we've done is we've taken this big idea that guaranteed resale values change the way that people think about shopping and selling. And we've built a whole product suite and ecosystem around that idea. So what we're doing is we're benefiting retailers and brands, we're benefiting consumers, and we're benefiting the resale ecosystem writ large through the provision of guaranteed buybacks.

2:11Got it. And correct me if I'm wrong, but the way that that manifests to the shopper is it's an extension I can download on my browser. And if I'm looking for, say, a bag, I'll get a notification that if I buy this bag new, Croissant will be able to resell it within a year for a set price that you have determined. Is that correct? Yeah. So the way that customers see guaranteed buybacks is threefold. So the first one you just described, customers can install a shopping extension in their Google Chrome browser or in their Safari browser on their iPhone. And everywhere they're browsing, 150 plus retailers today, all the big names that you'd be familiar with, have their products show up with croissants guaranteed buybacks real time as people are browsing.

2:53So you'd see right there at the point of sale, maybe you're looking at a$600 blazer at Nordstrom. You're thinking, should I pull the trigger or not? It looks really great. I'm not sure if it's exactly the right fit. But alongside that message, you're going to be prompted with a notice that you can get$250 in guaranteed resale value if you were to resell that. So what Crescent is doing is surfacing this idea that it's not just the out-of-pocket money that you're spending up front that should be as part of your purchase consideration, but actually a lot of what we buy is a value-retaining asset that has ongoing value after you purchase it.

3:28And starting to think about that in your purchase decision gives you a more 360 degree view of what you're buying. So product one is the shopping extensions. I often describe that as being self-directed. Usually what happens is when customers discover Croissant, they get excited about this idea of building a collection value of these guaranteed buybacks. And they'll install those extensions and go out shopping at basically everywhere that they shop. Usually the way that people first find us is through one of the other two paths that you can get guaranteed buybacks as a user. So one of those is with our integrated retail partners.

4:01So a number of partners have us not just as an extension relationship, but actually have us integrated into their checkout, like a payment option, right? Like you might see your favorite credit card option or PayPal. You'll also see at checkout guaranteed buybacks from croissant surface to you. And the distinction there between the extensions and those integrated relationships is that every single person that visits that retailer site is going to see guaranteed buybacks surface to them as they go through their shopping journey. Not only is that advantageous offering to our retailers, which I'll get into as we go through this conversation, but we see significant lifts in their average order values when people start thinking about guaranteed buybacks.

4:37We see boosts in conversion rates and actually some downstream impacts as well. But we also see that that's a great intro to customers for this idea of guaranteed buybacks. People will often discover at one of our integrated partner sites and then later on go out and install the extension to make sure that they're getting guaranteed buybacks everywhere else. And then the third place that you can get guaranteed buybacks as a user is in our app, which we just announced two weeks ago. In our app, you'll see all of the things that you purchase through our shopping extensions or through our integrated retail partners show up automatically for you.

5:10Think of it as looking almost like a stock portfolio of your things with the description of the product and then the buyback value that it's eligible for listed there. But it's not just things that you purchased with Croissant that you can see there. we actually give you the ability to sync your Gmail account and we'll pull in past purchases as well. And we have some neat AI tooling that is able to go through Gmail inbox, detect eligible items, and instantaneously provide guaranteed buybacks on those items that you already own too. So what we often see is somebody will discover us at an integrated site, will come into our app to see the items that they just bought, they'll sync their Gmail, And on average, we see$2 ,500 of additional collection value added to that user's account from stuff that they already own.

5:54And then they'll go and install our extensions and go start shopping at all of the retailers where Cressana's offered, that 150-plus extension partner retailers that I mentioned earlier. Got it. Okay, there's a lot I want to dive into, but let's start with the retail partners. Can you give some examples of retail partners that you have official partnerships with? Sure. Most of those today on the directly integrated side are mid-market brands. A good example would be there's a popular brand out of LA called Favorite Daughter. So sort of a contemporary designer. We have a great maternity wear brand that's been an awesome partner for us called Hatch.

6:31And we're about to launch with our first mega multi-brand retailer and doing a number of other things that we can sort of talk through as we go. Got it, got it. So with the integrated retailers, on the UI side for the customer, is it pretty much the shopper would choose an item from that brand or retailer, click croissant, and then from there, they would get an account, which would then open them up to all the other things that you mentioned? Is that pretty much what happens when they choose that at the retailer site? Exactly right. So often retailers will choose to decorate their PDP pages with guaranteed buyback values.

7:09So like I was describing earlier in that example where you might be shopping for a$600 blazer and seeing a guaranteed buyback of$250, oftentimes retailers will put those numbers really close to each other because what we see is customers are thinking about those as almost offsetting factors, right? There's the amount they're about to spend, but there's also a value that they can retain for the longer term. That'll usually be the first place you see it as a user is right there on the PDP, on the product detail page. as a counterpoint, an additional piece of info in addition to the product price and all the other descriptions of that product.

7:40But then when you go into the cart, that's where you'll really have the chance to opt in to Croissant. So the user experience is, you'll see the aggregated value of all the guaranteed buybacks applicable to the cart that you're going to check out with. You can opt in with the touch of a toggle and that's it. The customer doesn't pay anything for it. There's no signup page. There's kind of no obligations on the customer until after they check out. And then at that point, they can go and create their croissant account and take advantage of all the other features that we talked through briefly at the top of the conversation.

8:11Can you talk about how you are figuring out the resale value? Because correct me if I'm wrong, it's a guaranteed buyback, as you said, for a year. And so, I don't know, trends change, things change. So what if a Burberry bag or a Nordstrom Blazer is worth$250 now, but it might be worth$150 next year? How are you sort of figuring out the data so that you're correct about that in terms of a time span? Yeah, and Cale, it's actually at least a year. So we have nothing shorter than a year, but in some cases, it's longer. Okay. Well, so the very core of this is a very interesting data science problem, which is how do you try to project trends and seasonality and fluctuations in resale price out into the future?

8:56That is an ever-evolving, ever-shifting target. But the basic way that you do it is we're constantly scanning the secondhand sites and we're pulling down data on everything that's listed, millions of data points across all the existing secondhand marketplaces and consignment ecosystems. And we're able to see listing prices as well as in many cases sold prices. And we're pulling that data into a big data lake, as we call it. And then we're using that data to inform the pricing that we deliver, usually against pretty basic parameters like brand and category. but then also more specific parameters around how seasonal that item might be or the materials that went into making it.

9:36So there's that running sort of ongoing data science exercise. But if that was all there was here, I think you would be right to challenge me on the business model because this is a really tough thing to get right and you're not going to get it right 100 % of the time. So what we found is we've actually been really precise so far. And when people resell, we're able to go and recoup at least that amount if not a slight bit more. But we're not treating that as a profit center. For us, the main motivation for Croissant is to help people shop differently right at the initial point of sale. And what we see is that guaranteed buybacks really strengthen the relationships that our retailer partner have with their customers and also the upfront spend.

10:17We see on average a 50 % AOV boost, an average order value boost of 50 % higher for the same customers at the same retailers with the only difference being whether they were opted into croissant or not, a true apples to apples comparison. So when we're able to use these guaranteed resale values to drive better business for our retail partners, we get to share in the economics of that in a small commission when people opt into croissant. That is our main economic lever that lets all the rest happen. So while we're running our resale operation as precisely as we can, and we're trying not to get that totally wrong, we do have some flexibility in that because that's not what we're looking to, like maybe some of the other resale companies you've talked to in the past.

10:59That's not our core economic motivation, the resale side. Our core economic motivation is to provide a delightful user experience and to strengthen the business of our retail partners and share in some of the economics from that activity. And so the resale stuff is really just a supporting function underpinning that. Okay, so just so I understand clearly, pretty much what you're saying is that with the retailers and brands that you're working with, is it a revenue share model? Is it that you get a cut of each purchase or are there other parts of it? No, it's just a simple revenue share, usage-based model.

11:28So when somebody checks out and opts into croissant, we take a small commission from that retailer. And is that percentage or like how much is that? It's a percentage of the cart. And does it depend on each brand how much of the percentages? Yeah, but think of it in the low single digits. And what we see is that we're securing for our brand partners usually in the realm of 5 % to 6 % total top line lift. And after you factor in the opt-in rate and the fee that we charge, we're charging something like 8 % of that benefit. Think of it somewhere between 5 % and 10 % of that total lift gets shared to Croissant while the brand gets to retain 90 % to 95 % of that lift that we create for them.

12:07Got it. But if I'm using the extension, for example, and I buy something that's not with a retail partner, then pretty much the money that you would have come in, would that just be the future money you would make on if they resold that product? Actually, with many of our extension partners, we are monetizing those relationships too. So whether integrated or not, we have economic relationships with dozens of these partners, big name multi-brand retailers who in some cases have not directly integrated us yet, but are still partnered with us on the extension side because of the AOV lift and the new customer sourcing that we're able to drive for them.

12:44So we have affiliate relationships with many of those partners that you see on our site that it mirrors the same economics, whether you're an integrated partner or you're an affiliate partner directly showing up on site or through our extension, it's still the same thing. It's a usage-based fee that goes to the retailer when somebody opts into Croissant and checks out with our guaranteed buybacks enabled. Got it. And for the Croissant users that you have, how many of those purchases either are with an integrated retailer or with an affiliated retailer or not at all? Like, are you mostly using that affiliate slash integrated model for those purchases?

13:18We are, yes. Interesting. All right. And so can you talk about the other side of things, the buyback? Because that's where I imagine there's a lot of, I don't know if headaches is the right word, but that's where you're actually taking the product, right? And you're reselling the product. So how does that work? So we currently have two facilities in the US. We have one in Texas and one in Nashville, Tennessee. One of those is an in-house facility and the other is a third-party logistics platform that's built for this kind of individual skew, pick and pack, reverse logistics. The majority of our inventory goes to that 3PL.

13:54The really valuable stuff comes to our own facility in Nashville for an extra layer of TLC, let's call it. We see some really fascinating, valuable stuff being sold through Croissant. This morning, in fact, I was notified that through our Safari extension, somebody just bought their wedding dress on Croissant. So we saw a$4 ,500 purchase at My Teresa go through today for a bridal dress. So there's some really special items that are already aggregating in people's collections. And when they sell those higher value things, we want to have that extra touch. So that goes to our own facility. But the vast majority of what's resold to us goes through 3PL that has figured this all out.

14:34So we're not building a massive ThredUp-style operation around being able to process inventory. we are leveraging the infrastructure that's out there today to manage that reverse logistics component of our business. For the 3PL aspect, are they giving it to like surplus? Are they putting it on eBay? Like what are they doing with that product? We have built all the technology that supports the subsequent resale. So this is a really cool distinction because it gives you a sense for how we're resale adjacent and not really a resale player in many ways. You can't go to croissant.com and shop for used inventory today.

15:14We go and resell through the existing marketplaces and consignment options that are already out there. So we've, we looked at this, we said, you know, there's decades of investment in managing these complex businesses. Those folks are doing that a lot better than us. Think your Poshmarks and your Depops and your Threadups and, and the list goes on. Let's leverage what they already have built to move this inventory on and not build that ourselves. We're going to focus on everything upstream in all the value that we can create for our retail partners and all of the delight that we can create for our users and offering the most seamless resale experience on the market as far as they're concerned.

15:49So what we then do is we build a couple of different software integrations using a combination of third party and our own software to allow us to multi-list items and get them out to the relevant resale marketplaces where they're going to sell best. And we'll create a listing across five or six different sites for a given product. And we'll go find a buyer as quickly as we can and move that item onto that buyer. And again, we're not trying to make a real profit margin on that side of the business. We're trying to find a buyer quickly and get that inventory on to somebody else who's going to enjoy it.

16:26We do have a good aligning incentive with our brands in that since we're on the hook for the guaranteed resale value, we're not a liquidator. We're not out there just blasting things into surplus or trying to sell at bargain basement prices. Actually, we're quite aligned in making sure that our listings are appealing and that we command the highest possible price that we can. But we do it through existing third-party sites. So our 3PL, to your question originally, is leveraging that technology that we've built to ingest things, take pictures, give us the data that we need to then allow our software tooling to go and create those listings across the right marketplaces for those items.

17:06Got it. And so is the work you're doing on that resale side of things, working with a 3PO, as you grow and as you scale, and let's say you get to many millions of customers, it seems like you would reach a bottleneck in terms of that, or potentially you'd be sitting on a lot of inventory, which then it might be advantageous for you to actually get more into the resale side of things. What are your thoughts in terms of, is this a stepping stone up to a new place down the line as you grow? Or do you think it'll always be this type of model? What I'll tell you is that for the foreseeable future, we think this model scales with us really nicely.

17:40This is not the only third-party logistics partner that can do what they're doing for us, but they're doing a good job and there's not a ceiling in sight in terms of what they can handle. but we would probably continue to add on other partners as we go as a first step. But then what you're getting at is a really interesting sort of unfolding of options in front of us because there are a lot of paths this could take. We are quietly building a sort of a shadow marketplace at the moment, right? We have all this supply on our marketplace. There's a world in which we could turn that on and allow people to shop from one another's collections too.

18:14That's not in the near-term product roadmap, but that is a possibility and one way that we could continue to sort of advance the scale here. There's a really robust and sort of under-the-radar community of pro-sellers that are out there who are trying to source inventory like what we have to then take it, do the listings, find the next buyer, sort of running this as a side hustle. Our estimate of that is somewhere in like the 5-6 million people range doing that as an active side hustle. So opening up our inventory, maybe not direct peer-to-peer, but directly to pro sellers is another option. So there are a lot of paths this can take.

18:54Our main objective, as always, is to ensure that we're doing the right thing by our brand partners and creating a delightful user experience for our own selling users. And the rest that happens downstream from that is sort of flexible and can change as the business continues to scale. Well, I want to back up a little because we sort of just dove right into it because I wanted to know about the business model. But let's start with how did this idea come about? How long has this been the process? And what were you doing before you decided to launch this app? So when I look back at the founding story of Chrisan, I sometimes am amazed and chuckled to myself a little bit because a few things had to align really nicely for this to kind of happen.

19:36My background is in more traditional financial services. So out of college, I went down the investment banking to private equity track. And I spent the last eight years before founding Croissant at KKR. So I started in New York. I moved to London for five years. I came back to New York. And the thread sort of tying my experience together at KKR was I was investing in all things financial services and fintech. So you hear that background and then you think, resale, retail business. That doesn't really jive. How did we get here? And, you know, that's the first star that had to align out of kind of the three I'd point to.

20:11So the first one was my unique vantage point at KKR was I was spending a lot of time thinking about our payments and commerce enablement technology investing. And I was watching the proliferation of what I was calling the 3.0 wave of payment solutions starting to emerge to change customer psychology. So let's look back at 20 years ago, payments 1.0 was how do we allow people to accept debit and credit cards online? 2.0 started to become more about synthesized checkout flows, mobile wallets, the PayPals of the world, now sort of culminating in Shopify's experience with the quick text to your phone and you're done.

20:51Payments 3.0, though, to me was about how do we not just streamline the flow a little bit, but how do we actually activate customer psychology in a different way around the purchase in a way that gets them excited about their purchase, in a way that makes them less reliant on old tricks of the trade like discount codes? And really importantly, how do we build in not just a successful first transaction, but subsequent transactions to that first moment of conversion? Because as we know, it's not good enough to just get the one sale done these days. So we've got to build in a loyalty loop. So I was watching a variety of businesses pulling on these threads.

21:28And the only ones I really saw taking off looked like some variation of the buy now, pay later companies. I think you're a firms and Klarna's and after pays. It's clear that what they were doing was driving some value for retailers. Because in the early days of those companies, they were commanding 7 % and 8 % type commissions on the total basket size when people would check out with those pay-in-for options. But one, I didn't think that was sustainable because what they're offering is really not that differentiated. It's just divide by four and let people pay in installments. Two, it wasn't positive for the user.

22:02I just couldn't get my mind around all of this investment capital, all this time being spent on yet another way to give consumers debt as the only way to strengthen retail businesses. So the question I had been asking myself for a long time, all eight years really of my time at KKR was, there's so much work being done on the liability side of the customer's balance sheet. What is being done on the asset side of the customer's proverbial balance sheet? How do we get people to think more about the things that they own as assets? How do we empower people with different savings mechanisms? And so that was a theme that I had always been interested in at KKR.

22:39My seat there gave me a unique vantage point. That was a big aha moment for Croissant, which was, wow, the things that we buy are value-retaining assets, especially as the resale ecosystem gets deeper and more liquid and more people are expressing interest in it. And as you know, it's growing at many times the rate of retail overall. There is something here in that we can help people factor that into their initial purchase decision. So that was point one. Point two was a personal experience. I was living in the UK at the end of the pandemic, and my wife and I had moved out to Oxfordshire, and she was pursuing a graduate degree at the University of Oxford.

23:15When the pandemic kicked in, our favorite coffee shop shut down, and so I was thinking about what our alternatives were going to be. And I was researching coffee machines. I went down a CNET wire cutter kind of vortex, researching what the best options were. And I got my eyes set on the Breville Barista Pro. and over in the UK it costs 750 pounds sterling. And so I was looking at that and I was thinking, who knows how long this pandemic is going to last, what's the payback period on these cups of coffee that I'm going to make. And I finally converted, I pulled the trigger, I bought the coffee machine and I loved it.

23:49But lo and behold, six or seven months later, KKR asked me to move back to New York and I couldn't bring the machine with me because it had the UK plug so it wasn't going to work in our New York apartment. So I went to go list it on Facebook Marketplace And that coffee machine that I paid 750 pounds for sold for 675 pounds to another buyer. And I sat back and I thought to myself, oh my goodness, if I had known that up front, my whole deliberation cycle, all this research I was doing, all the payback math I was running would have been really significantly shortcut had I known what I was really buying, that it was a value retaining asset.