Madhappy CEO Peiman Raf on thoughtfully growing the LA-centric apparel brand

0:28Hello, everyone, and welcome to the Modern Retail Podcast. really cool collabs over the last years. I'm pretty sure you just announced a fun one with Uggs just pretty recently, but you've been with Lululemon, Katz's Deli I saw in my research. You've been all over the place, but I want to talk about that. I want to talk about just sort of how you've grown the brand. And then I know that you've done some interesting things on the marketing side with like, you have a magazine and I, as someone in media, I always like to talk with why brands are entering the awful business that is magazines, but I'm sure I'm sure you have your reasons.

0:59But Payman, how are you doing? Thanks for joining. I'm doing well, Kale. Thank you for having me and love the show. So excited to be here. Ah, thank you so much. So first, let's start with you. It was you, your brother, and a couple of other co-founders, right, who started Mad Happy? It was, it was. Yeah, I could start quickly going back. So we were talking before the show, but my family's originally from Iran. So Persian background, actually was born in Italy, which is where my parents moved after the revolution in Iran. And then we moved to LA when I was pretty young, six, and my brother Noah, who's one of my partners, four.

1:34So really grew up in LA and happy to get into whatever you think next. What was your professional background that led you to starting Mad Happy? Yeah, good question. I think for myself, fashion was never in the cards per se. My brother was quite the opposite. Him and Mason, who are two of my partners, had started a brand together in high school, just like on the fly. You can go to downtown LA, pretty much make anything you want. And they saw the ups and downs of that, the challenging business aspects of it. And a couple of years later, late 2016, Mason was sort of going through this tough time in his life where he wasn't sure what he was going to do.

2:12And he had dealt with a lot of mental health challenges growing up. And he had thought of this name, Mad Happy, and sort of this low moment for him of like, wow, like this power behind the word and the optimism that we felt from saying that word. And it was like, you know, you can be an optimist despite all the hard things that happen in our life. And that name really stuck with both of them. And they were definitely much more of the creative kids at the time. And so we decided to come together and start the brand together with me more focused on some of the business aspects. My background was I went to the University of Michigan, went to the business school undergrad and didn't really know what I wanted to do.

2:50Got into banking after college. But the idea for me was I always knew I want to start something, but I guess just waiting for the right time and opportunity and sort of mad happy started as a small side project that eventually grew into this bigger thing that we ended up all doing full time. And of course, we're still doing today. When it originally started, was it just one product? Because you guys are pretty known for your hoodies. Was it that you launched a hoodie and you saw how it went? Really how it started was, yeah, just a few products, like a hoodie, a tee, and a hat. So really just like three products and we tried to do them in our own unique way.

3:23I think the name was really a gateway for like what the product and brand was because I think it spoke to a lot of people. There's like a lot of inherent meaning in that, even if people have different interpretations of what the name means. And then, yeah, just a couple of products pretty early on. And that was 2017? Yeah, early 2017. So we launched like end of March of 2017. And like, I feel like there are two different tracks you can take. Not there are many different tracks, but there are two in my mind right now as an apparel brand. When you launch, there's like the DTC track of like, we'll get a brand.

3:56We'll go on Amazon or not Amazon. We'll go on Instagram. We'll get our name known. But then you mentioned that your brother and his friend, like you sort of did an LA track or he did an LA track where I imagine that's where you do sort of a community thing. Maybe you have like a pop-up store or something like that. How did you go about it in 2017? Was it more of the national thing or was it very LA-based? Yeah, for sure. I think it was like everything that was sort of the opposite of what you would consider traditional direct-to-consumer, especially at that time, which would have been raising money before you launch, paying a company to do a brand book and guide and all this stuff for you, and then come out with this huge bang and be running Instagram ads from day one.

4:33I think for us, it was like a couple products, very locally focused in LA. at a time where everyone was like, retail's dead, we'll never open up retail stores. We did a pop-up two weeks after we launched and really grew the brand in much more of a grassroots way. Again, just really what we knew and what felt natural to us to try to build something, especially in the small nature in which it started. I feel like, at least in the stories that I've read, you had a lot of people repping the brand in the early days. Can you just walk me and the listeners through just sort of that growth, how that happened, whose eyeballs you got in front, like all that.

5:11Yeah, I think we've been fortunate in that we have this inherent meaning in the brand around optimism and mental health in a bigger way. And I think for the time, especially when we launched 2017, even, you know, now people say like, everyone's always talking about mental health and all these sorts of things, but there wasn't really a brand that was doing it at the time. So it was sort of early in a way. And I think the name really spoke to people. So we were super lucky that people wanted to represent the brand, both in terms of in our community, as well as like celebrities of, you know, LeBron James or Jay-Z, you know, people that we grew up, of course, like idolizing in many ways and really respecting their, you know, their craft.

5:52And I think we've been lucky to continue to see that support as we've continued to grow. How were you able to get that message across so early? I mean, we'll talk, we can talk about the magazine soon and things like that, where you're doing very intentional brand messaging, but when you have, you know, a hoodie, a tee and a t-shirt and it says mad happy, what next to be like, this is what we're about. Yeah. Great question. I think, I think there's like this essence and feeling with the brand. And we try to do a lot of stuff in person, whether it was in those pop-ups or the events around those pop-ups early on that really made you feel the brand.

6:23And I think, you know, a lot of people at the time were like, well, why would you do that when you can just run Instagram ads? And I think for us, it was like people, two, three, 400 people being in a space for a launch party, all of them sharing it on social media, you know, that's much bigger than a local event. And I think those things early on started the small like ripple effects that eventually grew into a much bigger brand. And so when and how did the collaboration start? Yeah. So our first collaboration is really what started it all. And we always admired the store Colette in Paris, if you're familiar.

6:57And we had heard that, you know, they're closing at the end of 2017. And so through a mutual friend, we had a small connection to Sarah Andelman, who had been running it with her mom for 20 years. And we pitched this idea of like a hoodie that we could do with them as sort of one of their last collaborations before they closed. And we sent her the designs and she really liked it. And so we produced a small batch and sent it to her and it sold like super well, like really fast. She asked for more of them. Thankfully we had already made more. So we sent her more and then they're all wearing it on the last day of the store.

7:31So if you look at all the articles, it's like her wearing our hoodie, which is pretty crazy for like a seven, eight month old brand to kind of get that recognition early on. And we were like, wow, you know, partnerships are so unique and valuable if you do them the right way. And it set this high bar for us to want to achieve and do better than that and keep, keep improving as we got bigger. So that's really where it started. How were you able to sort of get that? Was that just you had a mutual friend and one thing led to another? Or I always wonder how you're able to try and make something like that.

8:05Yeah. It's a great question because I think one of the things we've been good at is kind of being resourceful and figuring it out along the way. We were a tiny team, three, four of us that started the brand early on for the first few years, we didn't really have any other employees, but we just worked like hard at whatever angles we had, you know? And so whether we knew someone or we would send them product or, you know, engage with them in different ways, and then things would lead to another and, and we, you know, have an opportunity to partner. Do you see these collaborations and partnerships as more brand building or revenue building revenue driving or both?

8:41Like I, a lot of them, I get the sense that they're limited edition, they're more droppy. But they also get a ton of press. Like if I do a Google search for Mad Happy, I see all of the Mad Happy X, Lululemon, Mad Happy X, that. And so how does that work in terms of the business dynamics? Great question. I think for us, like it depends and things grow over time, right? So I think limited is relative to the size of the brand. And so as we've grown, of course, it's become a piece of our business. But, you know, I think we always try to keep the right balance between our core assortment, our core products and new products we're launching, as well as collaborations.

9:17and really have them all mesh together and speak well and show up well together. And so talk me through the overall assortment now and over the years. So you launched in 2017 with those three products. How did you expand upon that? Have any other things become core? What has that trajectory been like? For us, the idea was always creating a world of Mad Happy. And that started in this small way, like you said, with those three products. But beyond that, I think the feeling of what is a Mad Happy product is quite broad. And so we've tried to do a good job of growing that base over time. And of course, we have this core assortment of fleece, whether the hoodies, crewnecks, hats, some of the core accessory stuff.

10:01But then we've grown across knitwear. So whether it's cashmere or knitted sweaters or outerwear like our cozy puffers. So that kind of scope has grown a bit. And I think for us, it's always like the balance of not too much product and every product having a reason to exist in this like world of Mad Happy, right? So like we don't come out with products with no branding or blanks or stuff like that, right? Because I think for us, it's like, why is Mad Happy making this product, you know? And like that's what we try to think about. And so it allows us to do more and test more and have fun trying certain products and then figuring out which pieces we want to keep in, what doesn't make as much sense, and we learn and we continue to go.

10:45What does it have to be in order to fit within the Mad Happy rubric if you're able to sort of do these weird tests? Like, do you have a list of, you know, it needs to be this type of apparel or like, you know, what makes something work? Yeah, I think with my brother and Mason who are more focused on the design side as well as the design side, that team that we've built here, I don't think we give it too much of a rubric, right? Like I think it's very hard to give designers too tight of a wheelhouse, but I think it's a kind of a feeling thing, right? So it's like if you're wearing that brown sweater, like if we were to do that, we would want people to know like it's mad happy in some way.

11:21So is there a label somewhere that makes it clear or is it in the color, right? Or is it in the texture? So I think you could get quite creative on how you do it. But I think for us, it's important. And we've learned like, oh, OK, this feels more right for us versus, you know, if another brand was releasing that same product. Got it. Got it. Do you have a target for how many partnerships or collabs you do a year or like size? Like, given that it seems like you do all different types of companies and brands and organizations you work with, how do you decide how many to do so that you don't overextend yourself?

11:54Yeah, not overextending is like something super important and something that we're continuing to work on. You know, I think focus is a very hard thing, especially for us, a company that's only six, six and a half years old. And so we've tried to continue to get better at like, okay, what are the different areas that we want to definitely work with partners on, right? Categories that we're not necessarily producing or interesting moments of the year that we could do fun things, but also not try to make it where, you know, we have so many obligations, so many things that we're doing. that it becomes too much and each one isn't getting the energy it needs.

12:28We're going to take a quick break and we'll be right back. I wanted to zoom back and talk a little bit about just overall marketing and getting the word out. It seems like you guys were very lucky with some of the early evangelists you had, but how has the marketing strategy grown? Has it been mostly organic or what have you been thinking about in terms of getting more people to know the Mad Happy brand? Yeah, I think it's all sort of a byproduct of how we launch, which is with no capital. And so when you launch with very little capital, you have to do things much more the organic sort of grassroots way, which we did early on.

13:07And even a few years later, as we were growing and decided to raise a small round, we still wanted it to be less focused on venture investors, more focused on long-term partners that we aligned with that made sense for us. Because the way we wanted to grow was always in this more organic way, right? And so thus far in the history of our company, even as we've gotten great partners on board, like LVMH, who is a part of that round, as well as other great founders and brand builders that we really wanted to learn from, we've stayed pretty disciplined in terms of being primarily focused on using everything that we're doing, whether it's our seasonal retail stores, our collaborations, our campaigns, to sort of do the marketing for us.

13:54instead of relying on Facebook ads and some of the more inorganic stuff that usually brands are doing much earlier, as well as wholesale and those pieces as well that we've kept quite limited so far. And it doesn't mean that we can't do those things in the future, but I think we've tried to figure out the right times where things make sense and flow them in in a small way over time. Got it. Yeah, I wanted to ask about the LVMH thing, which congrats, that's a great early investor to have. So what kind of interactions do you have with them? Have they been able to open the doors to you for things that wouldn't have been there before?

14:26Or sort of what's the interaction you have with such a huge company? Yeah, I think all you can ask for in any partner you have is that they're there for you, you know, when you need them, whether it's for support or questions or advice or introductions. and of course having such a prestigious institution that thinks in such a long-term way is such a benefit and has been for us because it's our first company. I'm 29, I was 22 when we started the company. We're just building a brand for the very first time and so we're going through a lot of the ups and the downs and the journey of it. And so having sort of a stabilizing force that can support and help guide us when we need them has been amazing.

15:08Got it. You mentioned you've limited wholesale. What wholesale do you have? We actually just launched in the Japanese market. So at Dover Street in Ginza. So that's our first market there. We're really excited about the Japanese market. And we're going to be doing much more there in the coming year. And then we've done small launches with Essence as well. And we're working with a couple other retailers that will launch more in the shop and shop format early next year. So that's sort of what's coming up. I saw the Japan thing and it kind of, it makes a lot of sense if you're going into a new market, trying to, to get a stronghold via, you know, wholesale over there.

15:49But how has, have you ever thought that wholesale will ever be a major part? Like you have these few things with essence that are, do you ever want to be in, you know, many, many doors, or do you think it's better to avoid that and use it in just specific circumstances? I'd say like we definitely never say never. I think in the US or at least in North America, we feel quite confident with like our own footprint. So whether that be our seasonal stores, our e-com, our flagships that we'll be building. So I don't think that this market would ever be majority wholesale or even wholesale in a big way.

16:23But I do think we're open in the other areas to enter the market and to build great businesses with partners. We're quite open to that. Got it. I wanted to ask about the stores because you've done a lot of pop-ups over the years. I saw in July, you're opening up a flagship in LA, right? Yeah, we are. So we've done 20-something seasonal stores all across the US. And I think we got really good at that, which is opening a store for anywhere from three to nine months long. And of course, they each take a lot of work. And I think we always wanted more than just what maybe some others would imagine a pop-up is.

16:59So they all felt really kind of permanent in feel and nature when you're in there. And really each one was sort of this unique experience. And so for us, being based here in LA was really important for us as we thought about a permanent store to do the first one here. So super excited. And we're getting pretty close to that opening up. Yeah, I wanted to ask, what's the timeline? Because I saw in a July article, it was going to be this year, but now is it going to be next year? No, no. So it is going to be this year. so I don't know when this is going to air but it's going to be opening November 18th so next Saturday so definitely yeah definitely coming up and quite a quite a feat for us just because it's like our first permanent store has taken so long we've learned a lot we've made many mistakes but we're really excited for it.

17:44Wow that's I imagine when you have a permanent store opening you get very stressed out eight days before. Yeah you know I think like for us since we've opened so many stores, like we're pretty used to like this feeling of like, oh shit, like the store's opening in a week, you know, uh, cause we've had that feeling like 25 times, but, uh, but it is different, you know, it being permanent and has a lot of elements that are new for the brand. So we're, we're quite excited with, with the pop-ups now that you've had, you know, two dozen under your belt, do you have a so-called formula? Is there a certain threshold of what you need to happen?

18:18Do the stores, like, for example, I talked with a lot of founders and they say a pop-up is only good if the stores themselves are profitable. Others say as long as it's brand building, it's okay. What are your thoughts in terms of what's a successful pop-up and what you might replicate? Yeah, I think for us we're always trying to grow the brand in terms of awareness. But I think a piece of that is also in the sales and the profitability of these stores. So we've always taken a much more sort of long view, conservative view, and do things that not only build the brand, but also generate enough revenue to make sense financially.

18:52And so for us, we've always approached it that way. And for the most part, we'll always approach it that way. Is the permanent store going to differ greatly in setup and the layout from the pop-ups? Or what should we expect from that? Yeah, since this will probably come out after. It'll be a little bit after like a week, I think. Yeah, so if this is after, then I can share. So we're actually launching a new cafe concept in the flagship called The Pantry. So we have this courtyard in our space, which is 8906 Melrose, Melrose and Robertson area. Cool, really cool block, really great area for us for the first store.

19:29But the concept with The Pantry is bringing together all these great LA food establishments, as well as some international partners and having a great coffee, matcha offering, as well as Bagels with Courage Bagels, Juiceda Pastries, John and Vinny's Pastries, Beverly Hills Juice. So a lot of really cool partners involved there. And we're really excited to have that as an element. We also have this amazing conversation pit, which is sort of set up, not necessarily for shopping, but for hanging out, for conversation, those sorts of things. As well as this like experience room where you go in and you wear headphones, you watch this like video audio experience that we think is quite unique and all that plus shopping plus events that'll happen in the store.

20:12So really like 360 like brand experience for us and really excited about getting that open. How many square feet is this? Because that sounds like a lot of different spaces. It's like around 2 ,400 square feet and then the courtyard has kind of its own space. So it's pretty cool. You should definitely come by when you're here next. Next time I'm in LA, I absolutely will. And you mentioned Courage Bagels and correct me if I'm wrong, you guys have done a collab with them, haven't you? Yeah, we've done a partnership with them that was super great. And we've loved having them, of course, here in LA.

20:42And the way that they've grown has been amazing. And so, you know, anything we could do to support. And I think really excited to have them as a part of what we're doing here in our store as well. Do all of the partners who are in the store, should we expect to see some type of other like merch partnership with them or no? Yeah, I think, you know, I think we always like to do what we do best. So definitely some product with anyone that we're partnering with in a bigger way. I wanted to switch gears and go back to the marketing stuff. I know that you have this, the magazine, it's called Local Optimist, right?

21:14Yes. Can you give us a little bit of background for the listeners about exactly what that is, how it works? Yeah, I mean, I think this concept and name in Local Optimist we've had since the early days of the brand, Chuck, who's one of our earliest designers who's still here with us today, had thought of this name as sort of like, you know, if we're all optimists in our own community, then maybe we can make a big impact in the world by just like the actions we take every day. And so that concept has been around with the brand for a long time. And earlier this year, we decided to launch a print magazine called The Local Optimist, sort of two, three issue a year type magazine that allows us to tell great human stories.

21:54And at the end of the day, we think great human stories, whether they're artists, musicians, everyday people, people that live in the US, people that live all over the world. We thought that telling these human stories would tell this like broader optimism story, this broader mental health story of, you know, life stories, cool experiences, and then hopefully give people a cool, tangible thing that they can grab, whether in the store or online and really be a part of the brand, even in a smaller way that's not tied directly to the apparel. Got it. And is that only available like in the stores or is that sent mailed out to customers or how does that all work?

22:31Yeah. So right now it's available in stores as well as online. But I think the idea for us is we'll grow the distribution of that in a different way, right? Sort of how magazines grow and get that in different markets, get that in different retailers, a product that really we want to see the light of day. Like how much of it is repping Mad Happy as a brand? Like, do you, are you talking about products in there or sort of how, How are you able to ladder that into the business of being an apparel brand? Yeah, it's a good question. I think that there's nuance in how we do that. Of course, it has the feel of the brand.

23:07Some of the product may be featured in there. But I think broadly for us, it's a piece to what we're doing on the marketing side. I think it's a passion project in many ways for us. And I think we've enjoyed doing this as an outlet. And then, of course, working with those different artists and musicians in different ways with the brand as well. So I think that it just creates an extra touchpoint for the brand that's been exciting. I don't know. I'm always so fascinated. There have been a few different brands who have done magazines. And it makes a lot of sense as just having, I don't know, magazines have a very specific place in people's minds as like a very, I guess you could say, precious or premium object.

23:47but sometimes brands will start them and then we'll forget about them and I'll look into them and they stop. Like how do you want this to be a part of the long term of Mad Happy or what are your thoughts on having this type of product? Totally, it's such a good question. You know, I think it's our, because it's our first time doing it, we're still learning a lot, right? Like how many issues can we really do a year with everything else we have going on? Just being very like realistic with ourselves about those things. Because I think the idea is it will always live on. Like how many issues and those sorts of things We'll still figure out, but it does feel like a great part of what we're doing and a byproduct of everything we were already working on anyways.

24:25And so it's an exciting piece for us. Now that you're opening up this flagship, should we be hearing about more permanent storefronts down the line? Or sort of what are you thinking about as it relates to physical retail? Yeah, we're strong believers in physical retail. And so definitely that's something you could expect from us more sort of around the U.S. and then in key markets overseas as well. And we'll continue doing the seasonal stuff as well because it always will be a part of what we're doing in a really fun area that we really like to explore and we feel like we excel at. So a bit of both, but definitely big on physical for us.