Pretty and Powerful Gen Z Growth with Revolve

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
Thank you for listening in to this TD Cowen Insights Podcast episode. We're excited to be recording live at our ninth annual future of the Consumer Conference in New York City. My name is Oliver Chen. I'm TD Cowen's retail, new platforms, and luxury analyst. I'm thrilled to be hosting Jesse Timmermans today. He's the CFO of REVOLVE. Jesse has served as REVOLVE's CFO since 2017, following his tenure as the CFO of Jobalign and Blue Nile as well. Jesse, it's a pleasure to be here with you.
Jesse Timmermans:
Yeah. Thanks for having me, Oliver. Good to be here.
Oliver Chen:
Jesse, so what sets REVOLVE apart? We view you as a digital fashion experiential leader.
Jesse Timmermans:
Yeah. Yeah. There's really several things that set us apart. I think one is our founder-led culture, Mike and Michael founding the company over 20 years ago and still being actively involved today as co-CEOs. And that's really important, especially in cycles like this. Another differentiator is our strong balance sheet and strong record of generating profitable growth. Not just growth, but profitable growth, which led to that strong balance sheet. Underlying all of that is really data-driven merchandising and focus on technology. Mike and Michael are not fashion guys when they founded the business, so they had to rely on data to make their decisions. And that led into really developing all of the systems that we operate on today, homegrown with our team, and now most recently AI development.
So, having that culture, that data-driven mindset has really led to significant gains in AI most recently. And then we have a great merchandise selection. It's broad, but not stale like a typical department store. It's got that boutique feel, emerging brands, but accessible to customers all around the world. And then that feeds into a great marketing message, and powerful brand, and really connecting with this next-generation consumer where all the purchasing power is moving towards. So, a lot of great differentiators. And still, what we estimate is 3% penetrated in this core demographic. So, a lot of opportunity for growth ahead.
Oliver Chen:
You're famous as a Gen Z leader. You're also famous as a experiential leader with REVOLVE Music Festival and many other events. What's enabled you to keep that up?
Jesse Timmermans:
Yeah. I think it's back to the team, back to the culture that we have. Really, hiring and working with great people that are young, that are in the trend, that are living the brand, living fashion, out there going to music festivals themselves, and really know what the customer is looking for.
Oliver Chen:
Who is your customer? What's your target audience? How many SKUs do you have?
Jesse Timmermans:
Yeah. So, we have about 100,000 SKUs on the side at any given point, across 1,000 brands. And that's across both REVOLVE and FWRD. So, very, again, broad assortment, but also very curated at the same time. And using AI and technology to really make the assortment personalized for her. Our target customer, I'll say her right now, because the majority is still the female. We do have a small men's business that I'm excited about, but it's still primarily that 20 to 40-year-old female. It does skew outside of that range on the high end with FWRD, and on the low end of that age range with beauty, and TikTok, and engaging with that younger customer.
Oliver Chen:
Some of my favorite brands that you have include Lovers and Friends, and GRLFRND Jeans, and Helsa. What percentage of total is owned brands? And these are quite special-owned brands that you have.
Jesse Timmermans:
Yeah, yeah. Love those brands. Love the margin profile on those brands especially. And if you look at our mix of owned brands, it was 36% back in 2019. We were at about 18% in 2024. So, I think I bring up the 36% back in 2019, just as a benchmark to say that we can be bigger than we are today. We want to do so at the right pace. And that's really important to get the assortment right and really not over-index on owned brands too fast. But we are really excited about them and they're different than a private label. They're priced consistently with a comparable third party brand. They're premium brands. They're brands in and of themselves in the eyes of the consumer. The customer doesn't necessarily know that they're a REVOLVE brand. They just know it as Lovers and Friends, as Helsa, as a brand that REVOLVE carries exclusively.
Oliver Chen:
How many events do you do per year? And how do you think about marketing as a percentage of sales?
Jesse Timmermans:
Yeah. Oh, shoot, I can't probably begin to count the number of events we do over the course of a year. I think we did dozens at The Grove Holiday pop-up shop that we had alone. And then we have REVOLVE Festival, one of our marquee events of the year. But dozens of events across the course of the year. And it's really important not just to do the events, but to make them applicable to what's going on in her life, make them really authentic, really aspirational events. So, not just doing them for the sake of doing them. As a percentage of sales, marketing is about 15%. That's not a point of leverage. We want to continue to put the pedal down on marketing. Again, back to the low penetration. There's a lot of opportunity out there to acquire customers, so it's something we want to continue to invest in. Of that marketing line item, about 75% on average is digital performance marketing, and then 25% is that brand marketing, social media activations that we do.
Oliver Chen:
You've been able to manage customer acquisition costs and also be agile with return on ad spend. What are the trends you're seeing there?
Jesse Timmermans:
Yeah. We've been seeing great efficiency coming out of the brand marketing side. So, Rice and her team have been able to do more with less over the last couple of quarters. REVOLVE Festival is a great example. We cut that festival from two days to one day last year. Reduced the budget by millions of dollars, and delivered more press impressions, and social media impressions year over year. So, we were on a really tough comp coming into this year. Challenged the team with that and they delivered. So, we were below last year's budget, and we delivered 40% more press impressions and 25% more social impressions. So, really great work by the team. And beyond just the numbers, it was a great event, from the celebrities to the influencers, to the talent we had performing, to just the overall experience for the people that attended.
Oliver Chen:
On the AI front, Jesse, I'd love for you to share. We've discussed this. You have so many cool initiatives. Could you go through a fair bit of them and tell us about how AI is impacting your business?
Jesse Timmermans:
Yeah. We are really excited about AI. And it's not just a buzzword for us. It's real and it's taking effect. And I think what goes underappreciated and undervalued is just that data-driven technology culture at the core and a team that really embraces technology, which allows us to embrace new technology like AI. If we look at some of the things we're doing, I'll start with maybe the customer-facing website focused things. We developed our own internal search algorithm late last year. So, this was historically operated by a third party. We leverage this third party who is arguably the best in the search technology business. We brought that in-house, developed it on our own, and it outperformed that third party. So, not only outperformed in terms of conversion and revenue gains, but also we're not paying that third party hundreds of thousands of dollars a year.
On the website, also, a lot more personalization and better edits for the customer. Back to the SKU set of 100,000 SKUs. It's really important to kind of edit those SKUs appropriate for each customer using video more, leveraging AI on size and fit, leveraging that kind of merchandise edit into emails, which have been performing really well over the last couple of quarters. We've been leveraging AI to expand our performance marketing reach. Also able to suppress marketing to high return rate customers, which benefits us on marketing and a lower return rate.
And then in the back office, a number of things going on. And we do think AI can touch really all aspects of the business, from intelligently routing customer service inquiries to the best agent, to translating voice calls into texts for better data mining, to intelligently placing inventory around the world to better optimize the shipping lanes, and time for delivery to the customer.
Oliver Chen:
What about AI more creatively? You're also been early to that, too.
Jesse Timmermans:
Yeah. A lot of good stuff going on on the creative front. So, leveraging AI on some of our catalog images, creating videos, using it for some of the editorial product that we're putting out there. So, a lot of opportunity there as well. And that continues. That technology gets better and better. We have a team of two or three people dedicated to just that creative aspect.
Oliver Chen:
You've always been balancing execution and new technology around returns. What's happening with returns? What do you see happening with this returns in the future?
Jesse Timmermans:
Yeah. Back to the founding of the business, returns were part of the thesis. Home has to be the dressing room for this customer. She has to able to buy multiple dresses to find that one for the event on Friday, on Saturday. That said, with technology, we think that experience and that first purchase can be better, and better, and more educated, and she doesn't need to buy as many dresses as she once did. So, we're working on a number of things on return rate. We reduced our policy from 60 days to 30 days. Now, that's a reduction, but still premium experience to almost everybody out there. Started to crack down on high return rate customers in a very REVOLVE customer friendly way. And this gets back into AI and how AI leverages into return rate. Better size and fit guidance on the website, partially third party, partially our own measurements and technology. Better reviews, and sorting and filtering of reviews, better product recommendations.
So, I think going forward, return rates will always be part of the business. Now, I think there's some natural benefits that we'll see as well, product category diversification. Dresses have the highest return rate, and we have historically been over-indexed on dresses. So, as the categories diversify, we'll see a benefit in return rate. If you look at beauty on one end of the spectrum at a low single digit return rate, that has a huge benefit on the return rate. And then physical stores. Physical stores have a lower return rate than online. So, talking about the point we start to expand into physical, that will have a natural benefit.
Oliver Chen:
Jesse, what do you think's least well understood about the REVOLVE story?
Jesse Timmermans:
Maybe back to the culture and the team. I think least understood and least appreciated is just the data-driven culture and mindset, the young work population that we have that's really into what's going on out there, and can really deliver that into the customer experience. And then that founder-led mindset. I'm very focused on the long-term, not managing to any short-term quarter or trying to meet numbers. It's really about the long-term opportunity and doing what's right for the business.
Oliver Chen:
Okay. What are the biggest priorities over the next two years for you and what keeps you up at night?
Jesse Timmermans:
If not for tariffs, I'd be sleeping pretty good, because everything we can control is going really well at the moment. So, in terms of priorities, I think managing through tariffs, of course. And that's very short-term and it's a moment in time when we'll get through that. Then it's back to just really operating, and investing in the core, and not taking our eye off the ball because there's such a massive opportunity on the core. So, that's probably priority number one, is just to really keep that focus. In addition to that, physical retail. We're opening The Grove later this year, testing that in conjunction with our Aspen store to determine our physical rollout strategy. So, that's a big priority for us over the next 12 to 24 months.
I mentioned product category diversification, really leaning into beauty, men's, home and some of the other, even closer to that core demographic fashion apparel. So, category diversification is another big initiative. And then owned brands we talked about a couple times. Feel really great about the owned brand underlying metrics. Got a couple exciting launches coming later this year into early 2026. So, again, really high priority for us.
Oliver Chen:
Jesse, what should the store or the future look like?
Jesse Timmermans:
Yeah. I think it goes back to the experience and the connection with the customer. So, whether that's an online store or a physical store, having a consistent brand message, a consistent experience across both of those, and being able to engage with her wherever she's at. That could be on social, that could be in a physical store, that could be online, that could be via app. Keeping consistent in the messaging, and being relevant and authentic. And I think that's one thing of many we've done really well at over time, is adapting to the different avenues that she's shopping and also adapting to different trends, culture shifts, social media, where she's interacting with-
Oliver Chen:
You have a very nice community, so I'm sure that can be extended much more physically.
Jesse Timmermans:
Yeah, agreed. Yep. And we've seen that in the early days of Aspen and also The Grove, where we're seeing new customers overindexing those stores. And even in LA, which is our hometown, we saw new customers overindexing and customers not knowing about REVOLVE, which gave us excitement about the opportunity.
Oliver Chen:
It is surprising, because you're very iconic LA.
Jesse Timmermans:
Yeah.
Oliver Chen:
If you had to bet on one consumer behavior shift that will define the next five years, what have you spotted, Jesse?
Jesse Timmermans:
Yeah. I think it goes back to that experience and connection. I think, especially coming out of COVID, which is now five years ago, but I think people still feel it and they're looking for connection and experience. And I think that's, again, one thing we've done really well at. So, it's creating a connection between the customer, and the brand, and making that really authentic.
Oliver Chen:
Jesse, it's been a pleasure. It's been great to be with you ever since the IPO and seeing REVOLVE continue to evolve and really master Gen Z, master digital. And a sort to physical meets digital as well, and embrace this new customer, and keep it relevant, keep it fun. Thanks a lot, Jesse.
Jesse Timmermans:
Yeah, thanks for having us. Appreciate it.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.