KEH CEO Noah Treshnell on building a profitable online resale business

0:05Hello, everyone, and welcome to the Modern Retail Podcast.

0:29years. What I find interesting and I want to go into is that now everyone talks about resale, re-commerce, all that stuff, but KEH has kind of just been doing it before there was really a word. You were just selling used cameras and you've become this huge behemoth ever since. Noah, I believe, joined not too... I think it was a little less than a year ago you joined the company. I might be wrong about that, but I want to talk about just... Yeah, middle of last year. That's what I thought. And so I want to go into how it's been going, what you've been focused on. the overall resale state of cameras and just, I don't know, I'm really interested in hard goods and electronics and how those work with digital marketplaces.

1:10And so I want to go into all of that. But Noah, how are you doing? I'm good. I'm good. I'm happy to be here. And thanks for having me. I'm happy to have you here. So let's start with you. So you said middle of last year, you joined KEH. What were you doing before? What have you been up to? And what led you to the world of camera and camera accessory resale. Yeah, my journey, at least professional journey. I'll keep it there. We are on the clock. So originally from California, Bay Area, I grew up in the Bay Area when it was a really cool time to grow up when technology was really Silicon Valley was just up and coming.

1:51Technology, I would say, was still in a David. Apple, Facebook. It was David versus Goliath. Now, since it's reverse roles. But Silicon Valley was just this very cool, and the Bay Area in general was just a lot of smart people that wanted to make a difference in the world and make an impact. And it was a very cool place to grow up. I started with Product of UC System, went to UC San Diego, and started my career in San Francisco with Payne Weber. So that's been consolidated multiple times over in the financial industry, usually is the case. But I started in as an analyst and was working some crazy hours on East Coast, market hours on the West Coast, you can imagine.

2:42But it was a great learning ground. But I quickly pivoted to direct-to-consumer. That's what we call it now. We didn't really know what to call it then, but it was stores and e-commerce. and I was fortunate enough to get in with Sephora right when they broke or breaking into North America and and that kind of started my trajectory with working with you know brands international brands and moving up through the ranks and and I come from family small run businesses so my dad was in the restaurant business so I grew up in restaurants and my mom's side had general stores So I like to say that retail is kind of in my DNA, retail is in my bones.

3:22And no matter if I wanted to get away from it, I couldn't. There's something about this dynamic nature of, you know, being engaged with customers every single day and trying to better yourself day over day. And it's really a team sport in that sense. And I love that. And so it was with Sephora early days. and then had a couple private equity founder stints. You might have heard of Illuminations. I was part of the team when we were acquired by Yankee. Brought me to Boston on the East Coast. And then went to Resto and was there for, at this stage in my career, was on the executive team with Gary Friedman, who had come over from the Insonoma Pottery Barn.

4:10And Gary was also part of the Meteoric Rise State Gap under Mickey Drexler. And as a small, tight-knit leadership team, we repositioned restoration hardware to RH from white to gray. We quadrupled the business in four years, and we went from public to private back to public again. So that was an amazing transformational journey to be a part of. And then I had a seven-year stint with Levi's, still in the Bay Area, San Francisco. Levi's is a brand that was born and raised in San Francisco, home turf. and had the opportunity to, for most of that time, head up retail, both stores and e-commerce, for the Americas, for Levi's.

4:54And so I went kind of from a multifunctional leader to executive leader to owning full P &L and went from a team of 300 to 16 ,000 people on my team. Wow. And we really built as a team the direct-to-consumer muscle and the direct-to-consumer proposition for a 160-year-old brand that before then was really a wholesale and manufacturer. Quite a good one, but was not the best retailer. And our aim was to become a world-class retailer. And I'd say in my tenure there, we built an amazing team and delivered largely on that promise and helped to, I think one of the things I'm the most proud of is we helped to create a new trajectory and invigorate the brand with a younger consumer.

5:41And then a couple of years down to the CCO CXO with Vineyard Vines, brought me back to the East Coast. And a lot of people don't know Vineyard Vines by the name, but they know it by the whale, the logo. So I was in Connecticut. And then, you know, took a, I wouldn't say a break because I can't sit still. But I started a business with a co-founder that was around sustainability and fashion and helping smaller to mid-sized brands grow much to grow larger. And also joined some boards and did some interesting projects. I got a call from KEH. Well, really, I was working with DQ, the private equity firm, and KEH as part of their portfolio.

6:28And the more I learned about Cage, the more intrigued I became. It's a 40-year-old plus brand established in 1979, headquartered in Atlanta, Georgia. And in many cases, you said it, is the OG of circularity. They were a first mover on circularity before that was even a word. And the business model is super interesting because we buy sell and trade gear, camera video gear, as you said, we're the largest in North America, if not the world. And we're essentially taking product of value and cameras retain their value for a long period of time. And then we're adding value with really hundreds of years of expertise that goes into the gear in teching, inspecting and grading and sometimes repairing.

7:18and then we're putting it back into use in the world. And so we're one of those business models where our for-profit model is born of circularity. And so we can legitimately say that the bigger we get, the better the impact is for the world. And there's very few for-profit companies that can actually say that authentically. And for all those reasons and many more, I joined. And yeah, amazing business, amazing team. And we're on a great trajectory. So it was, I wanted to ask you just sort of what it was that brought you in. I was guessing maybe you'd say like, I liked shooting cameras as a hobby, but it sounds like it was really the circularity aspect that brought you in.

8:05That was part of it. I mean, I kind of, I had a few points that, you know, that boxes that needed to be checked. And one was kind of a mid-sized business that had the opportunity to, you know, two or three X where I could be, I love transformation, but, you know, transformation to me is meaningful disruption, whereas disruption is almost for the sake of disruption often. but transformation is disruption, but with intent. And so I saw the strength of the business model. There's not many in the space that figured out profitability, and we have the strength of growing audience that could grow top lines, so top line and bottom line, exponential growth, opportunity.

8:54And that requires transformational leadership, and I love that. That's what fires me up and being a part of that kind of accelerated growth. And then the harder part was a mission that I really believed in. And because I love putting points on the board, but that's not why I play the game. And the mission of KEH, which is around circularity and less new, less waste, and in providing a price point, getting people in the right gear at an affordable price to do really cool creative things in the world, that checked the box for me. And that was the hardest one, honestly, to check. And KEH did it all.

9:43I wanted to ask just to sort of walk through the business model or, you know, if you was founded in the 70s, how did it manifest back then? Was it just a store where people could drop off their cameras and they'd be resold? And then when the Internet came, it made a marketplace. How has that evolved? Yeah. So King was original founder and he was a camera collector and a camera enthusiast, like a gear enthusiast. I've met him a couple times and he talks a lot about the gear. He doesn't talk a lot about photography, but he really loves the gear. And often those go hand in hand. Sometimes they don't.

10:25Like you can have gearheads and then you have people that love photography. And obviously the camera is a tool for creation. But sometimes you get people that just get really into the gear, like a car collector. It doesn't mean they're the best driver or they're really even not into driving sometimes. But sometimes they are. And so I think for King, at least the sense that I got was that he loved the gear, but got to the point in collecting it that he wanted to share it with the world and almost felt like this need, this internal imperative to do that. and in the course of doing that I think he discovered that there was a lot of demand for pre-owned camera gear and then it spun up from there started to go to camera stores and swaps and and and and buy cameras at a fair price and then you basically tech inspect them clean them up make sure they were of the utmost quality because that's really what is kind of at the core of what we do and what drives trust, which is very important to pre-owned market.

11:28And then he resold it. And so we have this kind of first mover advantage in a way. I was listening to John from one of your previous podcasts and from Ernesta, right? And he was talking about the advantage of second mover. And I think in many industries, that's true because you can learn from other people's mistakes. But for us, I would say it's a rare case of first mover advantage. And in that move, it was setting up a pre-owned resale buy-sell trade business centered around gear that deserves to be put back into use and retains its value. that is also expensive and a considered purchase. And being the first to build a profitable model from that core, from the very beginning, I think is part of the reason why we're so profitable today.

12:25Have you guys always been profitable? For the numbers that I can see, yeah. We've been profitable. It's been a profitable model pretty much from the get-go. I can say we are much more profitable now. than we were. And we've been growing profitability at a nice clip. Yeah, so that's sort of the, I guess that's where it was born. And so we're still driving on that core principle today that were established, you know, 40 plus years ago. I wanted to ask, because you sort of brought this up with the first mover advantage stuff, but the camera community, the general, I guess, art community, you know, there's a certain establish trust that needs to be there, especially when you're dealing with gear.

13:14And so I like, you know, cameras are very cool, but I'm not a gearhead when it comes to that. So I don't really know how things work. Like I know the local store in New York City where I would go and get camera gear, but I don't know about things writ large with it. But like, do you think that given that KEH has been around for so long, the first mover advantage was that it got a recognition within, you know, photographers and other people who are hobbyists who like it, that it was trustworthy? Do you think that was part of that growth? Yeah, I think that's part of it. I mean, you look at, so nowadays we don't call it, from an industry perspective, you wouldn't call it the resale market.

13:56We try to stay away from used because I think used doesn't have the best connotation. Yeah. We use pre-owned. And especially with cameras, they're not inexpensive. And what we find is that people take really good care of their gear. And then we add on top of that. people love their cameras. I mean, they're part of their life. They're capturing some of those most important moments in one's life. And so there's, that's, it means something. It's not just a tool without connection or heart. It's something that I think people often really care about and take good care of. And we find that when people send their gear in.

14:47Being a first mover, is some of that, Were you able to build trust with sort of hobbyists and photographers so that they knew that you were a trusted source by which to get pre-owned material? Yeah, I think having the heritage and history behind us gives us one recognition. We're established. We've got over 150 ,000 very positive reviews. And you know how it's like 4.85 rating. And you can imagine for every review, there's, you know, an exponential, exponentially more customers that have had a positive experience. And so we have the, I think we've established a record of trust and a really strong track record that we've become known for.

15:42And it's not simply over, you know, one or two years or five years. It's over decades. the other thing I'd say is we're known for our expertise part of our operation in Atlanta we have a whole team of techs that inspect the gear clean, grade it, we've got a custom grading system that people have come to know and sometimes repair if needed and then we resell it and that, there are hundreds of years literally hundreds of years of expertise that go into that process. We have technicians that have been doing this for 30 or 40 years each. So it's actually thousands of years, but that almost sounds kind of ridiculous, but it really is thousands of years that goes into this gear.

16:36And so we have the history and the heritage, and we also have the expertise. And in the pre-owned market, I think that is imperative. It's almost, I like to say that trust is the currency in many ways of the pre-owned market, and we are a trusted source. Got it. I just wanted to back up just to make sure I understand how the model works. My understanding is, let's say I have an old SLR, I want to sell it, I would post, go to KEH.com, put it up there. You would give me an instant, probably estimate of what you think it would be worth. I then send it in to you, you guys inspect it, say whether or not that's true.

17:23And then from there, a deal is made and it's sold. Is that generally how it works? Exactly. Yeah. There's, there's three main ways to, I guess, kind of transact with us. And so So it's buy, sell, trade. And so, or we say shop, sell, trade on the site at kh.com. So essentially, if you have gear, we'll purchase it from you. You get a quote on our site. And then you get a shipping label. You send it in for free. We quickly turn that around. We inspect it to make sure that what you said is what it is. And it often is in the ballpark. And then we'll give you an offer. and if it's different from your quote, we'll explain why, if it's higher or lower.

18:07And we see both. And then you can trade that gear. So one really cool thing that we see a lot is that people will have gear they want to sell and then they'll use that essentially K-H credit towards the purchase of new pre-owned gear that they want to trade up into. We also sell new as well, so you can trade in, trade up to new. But obviously, you're going to get a better value if you sell your gear and then trade into pre-owned. And a lot of times, that'll get people into the gear that they've always dreamed of having at a really affordable price, backed by the credit that they got for selling us the gear.

18:52You can also go online and simply shop with us and buy pre-owned gear. But that trade is kind of that, it's almost like that magical way of being truly circular as a customer. And you can sell to us and then buy from us in the same transaction. We're going to take a quick break and we'll be right back. so i'm really interested to know just because this is something that i talk with a lot of companies about especially in the resale re-commerce industry is you know it makes sense people want to do this but the back end is very very difficult especially when you have people physically inspecting things doing estimates that becomes a problem of scale if you get so many cameras how can you get enough people to look at it it also just becomes a problem of business model So what specifically works with KEH?

19:44Is it just that the average order value is so much more because cameras are more expensive and so that works? What has made it so that it's been a profitable model for a KEH? uh good question there's there's um there's several factors that go into this one we have an amazing operation team from the tech team the entire supply chain side of it from receiving to teching to inspecting and then putting into stock the team is like a is a well-run machine. And that's one of those examples where we've improved through 40 years of being in this business. And we have refined the operations because we've evolved over that time.

20:32And it started in a place of profitability, and it allowed us to scale profitably. We've got it down to the science, and yet we're not satisfied. So we're always improving. So that's part of it. It's just the kind of efficiency and productivity of the operation of the business, where because of the volume we do, there's almost no one that can match our volume. But to your point, a lot of times that means with scale, with re-commerce, you see that that means that there's less and less profit, right? Yeah. Especially in apparel, we've seen that. And, you know, I think that's partly in the gear too, right?

21:14It retains its value. It's not light, so it has weight to it, but it's not large cube. And the expertise that we bring to the table is valuable. We're checking and inspecting like a watchmaker would. They're putting this time and energy and using all of their life knowledge into making sure the gear is the very best for whoever's going to buy it on the other side. And I don't think anyone else on the planet does as good a job at it as we do. So pretty much what you're saying is that the aspect of re-commerce is a value add unto itself, whereas if we're talking about apparel, it's just a means to an end of, and likely the product will lose value somewhere in the middle, right?

22:11Exactly. Like if you, there's two components that you have to ask. One, is it a category that dramatically drops off in terms of retaining its value? So is the depreciation curve shallow? That's very important. Especially in e-commerce, we got to think about the cost of shipping, right? That can be a killer. The return rate, those sort of backend dynamics are extremely important. So you have to think about a category that lends itself favorably to those two dynamics. And then I'd say, are you in a category where your people are not simply just inspecting it and putting it on the rack to resell it?

22:56Are they adding value? Are you adding value into the product itself? And if you're adding value into the product itself and you can do those other things, then I think you have a winning formula. If you don't do all three of those things, then you're probably not going to have a profitable e-commerce business. Got it. You mentioned earlier that KAH is likely the largest of its kind in the world. Can you just talk about the international aspect of this? You're based in Georgia. Is everything still done in Georgia? Like if I am in the UK and I want to have my camera sold, will I be shipping it to Georgia or do you have things around the world?

23:36Yeah, so this is also an interesting part of the e-commerce business that we have the complexity of a traditional vertical e-commerce business, DTC. We also have the complexity of the purchasing and the grading. So we have the supply and the demand, which is part of what attracted me to the opportunity with KEH because it is a really interesting business model. And there's a lot of interesting problems to solve. One of the things that strikes me about the industry that's different than almost any other direct-to-consumer business is that we are primarily supply-constrained. You would never hear that from most retailers.

24:21Our number one challenge is supply. But at the end of the day, if we don't have the gear, we can't sell the gear. And so we've got to prioritize both supply creation and demand creation. and part of how we do that is by diversifying our supply our channels for supply and much like you would diversify your channels for demand right you wouldn't rely on one channel for demand well we don't do that and we also don't rely on one channel for supply so the way that we source it is it and purchase is from direct from customers on kh.com we uh we we've got an extensive buyer network where we go to camera stores and we will buy their gear.

25:05We also do events in those stores, co-events, where we'll do trade-in programs where customers can come in and trade in their gear towards buying new in that store. And we purchase the gear. And then we also branch out above and beyond North America, where we source internationally. So we have material sort of, We do material manual purchasing in Tokyo, in Japan, in Germany, in the UK. Essentially, wherever there's cameras in the world that are sitting in people's shelves, in their garage, they're not being put to use. We're going to be there and we're going to offer a fair price to get that, to get purchased that gear and get it back into use in the world.

25:52are the people who are buying the cameras are they specifically seeking out cameras from KEH and they go to the website and check to see what the what the supply is right now or are you you know if I just search Google I want to use SLR or I want something like that you're going to come up and you're the most likely one to have that stock yeah so if you're if you're selling something you might go to google and say i want to sell a camera or i might want to sell this camera we're inevitably going to be in the top three for that paid ad and we're also going to be um generally on the first page in organic search um and then so you might get to us that way you might go right on the cage.com because you already know us um and we love that and and and then go in our top nav, you can shop and you can trade and you can sell to us.

26:47And so you did sell and then basically put in your model and the grade. You self-grade first and then that's part of what we verify when we get it. And then you'll get a quote. And if that's around what you think is fair, then print the label and send it to us. So that would be on kind of the sell side. And then you could trade for that. And we actually do a 10 % trade bonus. So you're incentivized to trade towards something new to you. And then you can also, of course, shop. So you might say, I'm going to buy this camera and we're going to be 30 to 40 % less than the price of new. so that's one of the the great parts of it's kind of a win-win-win proposition right it's it's better for your budget it's better for the planet and it's better when keh is certifying it because you know you're just from a trusted source and you know what you're going to get has there been with the rise of resale becoming so big in apparel have you seen that tide lifting for keh specifically, or have people always been buying pre-owned cameras and it has not really changed the demand curve that much?

28:02We've seen, I mean, if you look at the e-commerce market in total, the e-commerce market is, it's growing substantially. And I think, you know, it's around$354 billion in secondhand items. That's by 2030. So you're talking about a substantial market. And we're obviously a subset of that, but still a substantial subset of that market. The organic growth of re-commerce and resale for direct-to-consumer is double digits. It's around 10%. We're growing a multiple of that. And so we've got tailwind behind us, and we're going substantially faster than even the market is growing. And that's really a testament to the team and our customer.

28:59So our customers are voting every single day with their dollar and we don't take that for granted. We are building on that trust and earning their dollars are top priority. Got it. I wanted to ask if you zoomed out more cultural, not cultural, but just, you know, consumer sentiment questions, just because I've been noticing some things. And maybe I'm completely off base with this. But like, I know that film has been very big over the last few years has been a resurgence in film, people have been using film cameras. Has that been reflected in your sales? And I also want to ask, because I've been noticing this, I see more people with like, older digital cameras, like digital cameras that look like stuff from 10 years ago.

29:39Is that coming back? I swear to God, I've seen four people on the streets who have been using these things that aren't their phones, but are like with the entire back as a screen. Maybe, maybe it's just New York, but is that actually coming back? It is. Um, and like one, it's one of those things that once you get into, uh, creating video and photography, which like with a digital camera, those worlds are blending or with an analog camera with a film camera um it's very different than than creating or taking photos with your iphone it's more immersive it kind of makes you almost take a breath and get in the moment and really think about um the composition and what you're shooting and why you're shooting it and then with a film camera it's even more so because the film costs money like right there's an investment in the camera and the film and then you develop it and so you're very choice you tend to be really choiceful with what you shoot and how you shoot and that really immerses you in your subject matter and so we are seeing I mean for for KEH it's always been part of our business and it's and film cameras are still a substantial part of our business you know it's around 30 percent or so but we do see it growing we see it being really popular with z's and it's almost a way i think of kind of disconnecting from the digital you know because our lives are so they're 24 7 digital and we're on our devices we're staring at a tv screen we're on an ipad zoom right now and and And it's like the analog and the film experience kind of allows you to disconnect from that for a moment and just take a breath and immerse yourself in what you're shooting.

31:41So, yeah, we've seen we've definitely seen resurgence there. And we're one of the few destinations that can can really get you in the right film camera or digital camera, whatever you're looking for. And who is the usual customer? I'm sure it goes all over the place, but is it like mostly hobbyists, mostly professionals, a mix of all of them? Are you seeing a change in that makeup over time? Yeah. Our core, we think about our two core customer segments, you know, the people that, and I know that sounds very, you know, business oriented, but our community is really composed of the professional and the enthusiast.

32:24And the way that I think about that, quite simply, is if you're professional, you have gear and you're getting paid to shoot, right, or for your photo or video. And then the enthusiast is doing it essentially when they're not being paid, if they're not doing it as part of their job. And the interesting thing is a lot, sometimes that's the same person, right? Like if you're doing studio shots all week, but you go to the park on the weekend, you might want to bring a different camera than what you're shooting during the week. But you still love shooting. You love the art of photography. And so the professional is often the enthusiast.