Is it possible to compete with Amazon? Julie Wainwright, former CEO of Amazon-backed Pets.com, thinks it is. And she says her luxury-goods consignment service, The Real Real, is living proof that there are segments of the e-commerce market where the online retail giant does not want to be. The site raised $20 million in Series C funding last month.
Here are her four key strategies for competing with Amazon.
1. Avoid markets in which Amazon will compete.
"Amazon will rule the economic world," says Wainwright. "If you want to buy anything, they will find a way to sell it cheaper and better. This made me realize that if I wanted to start an e-commerce company, I would need to get backing for something that Amazon can't do."
2. Give your customers compelling value.
A friend of Wainwright's gave her an idea for what that something would be. "I have a girlfriend who spends $10,000 to $20,000 a month on clothes," Wainwright says. "She said that she spends most of the money on previously owned designer dresses from Chanel and Gucci. The reason, she told me, is that I know the owner, it's a beautiful store, and I get amazing deals. She makes money through consignment."
Wainwright did research and found out that most consignment shops were slightly sleazy and had lots of inefficiencies that she thought she could eliminate by creating a luxury-goods consignment experience that people like her friend would use. Moreover, this was not a market that would play to Amazon's strengths.
"We are different than a marketplace like eBay, because we take possession of the goods, and we screen out fakes," Wainwright says. "We have gemologists, art curators, and other experts on staff to inspect the articles to make sure they are in compliance with our brand standards. We have a sales team that researches the value of the items and picks them up. And we take photographs of the items and display them on The Real Real," explains Wainwright.
3. Create a viable business model.
What good is creating value for customers if you can't make money? Whereas Pets.com did not really know its market and lost millions of dollars, Wainwright is not making that mistake with The Real Real.
How does it break down for her new business? She notes: "We are operating at an annual run rate of $125 million and are close to breakeven with about 230 employees, including 30 in the field. We keep 30 percent of the price, and the other 70 percent goes to the consigner. We run these sales for 72 hours. We have 2.4 million members, process more than 40,000 luxury items per month, and have shipped more than 450,000 luxury items to date."
4. Understand where investors want to be.
Wainwright had experience as a brand manager at Clorox before Pets.com. This experience gives her a brand manager’s perspective on retailing and venture investing.
"I pay close attention to venture capital investor sentiment, which changes quickly," she says. "If a venture-backed company pulls its initial public offering from the market at the last minute, that means VCs will not want to invest in a company in that category. Conversely, if a VC-backed startup has a successful IPO, VCs will want to pour more money into startups that compete with it."