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Lulus CEO on supply chain issues: 'Two big elements' protected our business model

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Lulus CEO David McCreight joins Yahoo Finance to discuss the fashion company's debut as a public company on the NASDAQ.

Video Transcript

- We want to talk about another IPO in this red hot IPO market that came to market today debuting on the NASDAQ, that would be Lulu's Fashion Lounge. And we have the CEO here with us, David McCreight.

And David, thank you for joining us. Congratulations on your IPO there at the NASDAQ. And I'd just like to ask you, this is a great environment for a lot of IPOs but I'm wondering why your company in particular selected now.

DAVID MCCREIGHT: Oh, great question and thank you very much for the congratulations. We had hundreds of members of the Lulus crew who've worked really hard to bring us to the stage. And of course, we've had the support of millions of loyal customers, brand fans who've been helping the business model continue to grow.

Yeah, the decision to go public was something we've been looking at Over the years and the board felt it was a good time to move forward, given what's going on in the capital markets.

- Well, I'm looking at some of the terms of your deal. You sold 5.75 million shares at $16 a piece, stock trading opened a little bit lower than that today. I'm wondering what you're making of that stock price today.

DAVID MCCREIGHT: Yeah. So, we are-- what we're seeing I think is what the story we've heard for several months where smaller issuances have started off slowly when they come out. But that ultimately doesn't concern us because we're really focused on sort of executing our business plan and continuing to sort of hit targets. So we know that the market will understand the value and see the value of the business as we go forward.

- Well, and I understand there is-- well, supply issues are plaguing a number of firms, I'm just wondering how exposed you are to a lot of the supply chain constraints that we've seen plague entire industries.

DAVID MCCREIGHT: Yeah, great question. So, we have not felt it, similarly as you read the headlines and you hear a lot through our industry, we have had delays in the manner of weeks but not months. But what sort of protected the Lulus business model from this is two big elements. One is we're a data driven company where we have meticulously calculated algorithms that suggest we test learn and then reorder a product.

And when we reorder, we use those algorithms to help us predict how much we're going to buy, and so we can see that far in advance and we can order within enough cushion. The second thing is we're not really on the bleeding edge of fashion, we're much more of a fast follower.

So that sense of timing and any delays doesn't hurt us as much because our styles are a little more enduring. And then finally, we have very quick turns, inventory turns, so any type of delays or shortage, we're protected as well.

- So I'm just wondering then, just mentioned another business RH also known as, or what used to be known as Restoration Hardware, they don't have any holiday themed items in their stores. In other words, there's nothing, Christmas themes, Thanksgiving themes, and that just allows them to offer more products year round. I'm wondering, it sounds like you might be employing a similar strategy in your digital rollout here.

DAVID MCCREIGHT: Yeah, precisely. Again, stylistically we don't have to be on the bleeding edge and in fact, our business model is driven by peaks in Q2 and Q3, which really help us because we don't have to compete in the very expensive sort of bloody arena for eyeballs or customer traffic in holiday.

So what we end up doing, and we have opportunities to continue to grow but we're not really a gift destination, we're more sort of an events dressing destination or a complete sort of brand lifestyle.

- Yeah. I guess what I'm intrigued about here is that as your algos, basically being able to detect or maybe even predict fashion trends, I'm just now wondering, in the time that you've been forming and building your company, have the algos gotten increasingly smarter? Are they doing a better job than they were, say two or three or four years ago?

DAVID MCCREIGHT: Yeah, yeah, they absolutely have. And we have a really talented group of team members who are constantly looking out for continuous improvement and the use of AI and use of a number of components, trying to always revise and learn from those algorithms.

So, again, we take every single product that we put on the site as part of a test protocol in which case, we then evaluate the performance and then if it meets those rehurdles and then runs through that reorder algorithm.

So, a number of people in the industry are talking about engaging in this testing protocol but we do it for every single product and we've built up a great deal of data behind it, which then helps us and informs new products that we test as well. So, ultimately leading to, not only a really good financial model but customers who are very pleased with the offering.

- And in your formulating your outlook for the next year, not necessarily your formal financial guidance or anything like that but just general business planning, what's on your mind here? Headwinds, tailwinds, anything.

DAVID MCCREIGHT: Well, I think every business is watching the potential pressures, the supply chain or will inflation hit their businesses. And, again, we think we're very well protected from that, we'll feel it but nowhere to the extent that others do.

For ours it's really about making sure that we continue, we're a company who's grown mostly through word of mouth, it's the number one driver of new customers for us. And what we're trying to do now is build on our brand awareness. So, we're focused really leading in, we're very optimistic about our growth prospects and we'll be talking about executing and really telling the story of Lulus through our media channels.

- We appreciate your stopping by here. Once again, congratulations on your NASDAQ IPO and debut. David McCreight, Lulus' fashion Lounge CEO.