The RealReal, Inc. (REAL) Earnings Call Transcript & Summary

Good day. And welcome to the Bank of America Consumer Conference fireside chat with The RealReal. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Justin Post. Please go ahead.

Great. Thank you, everyone, for joining us today. I'm here somewhat bunkered up with RealReal to do our fireside chat. I'm here with Matt Gustke, the CFO; and Paul Bieber, Head of IR. And our plan is to just do about 20, 25 minutes of Q&A, and then I'll see if there's any questions on the line for Matt out there in the audience. So thank you for adjusting your schedule. Sorry, we couldn't be live in New York. But hopefully, this is a good proxy and you'll enjoy the call.

So Matt, first of all, thanks for joining us today. I feel like a radio cohost here. But it should be an interesting call and first time I've done a format like this. Maybe I'll just start, top of mind for everyone, just how you think about The RealReal's exposure in a recession, both from a demand side and maybe a supply of bid side on the consignment.

Yes. So yes, thanks, everyone, for joining the call. And I agree, this is a first for me, hopefully last, at a virtual fireside chat format. So obviously, the elephant in the room is the exposure and the coronavirus impact, potential impact on every business. So let me start there and then kind of broaden it to longer-term potential impacts, our potential exposure in a recessionary environment and how we think about it. So first of all, the virus itself. Obviously, it's a very fluid situation. So to sit here and pretend that I know exactly how this is going to play out for us or anybody else is just foolhardy. But here are the things that we -- as we -- as a management team grouped and thought about the potential risks. The first one to top to mind is the risk that consumers or consignors in this case would be uncomfortable inviting strangers into their home to consign, so white glove appointments. So we're actively tracking that. And through this past weekend, we've seen no noticeable impact in cancellation of appointments. So should that continue? That's obviously sort of an encouraging sign that people are not reacting terribly to it. Of course, in New Rochelle, our consignment appointments have stopped for now, but that's not a particularly significant area for us. It shouldn't impact our business. Second is the risk of retail foot traffic. And we haven't seen anything through this past weekend as well. So our San Francisco store opened last week. I saw you there, Justin. So thank you for that. We had 1,000 people come through the store on Saturday, which was pretty good. And similar numbers in our other stores in SoHo and L.A. So consumers still seems to be out and about and are buying. Third risk that we see is a more potential sort of catastrophic risk, which is if somebody in one of our facilities becomes infected and what will we do? So naturally, if someone in one of our warehouses, our operating facilities becomes infected, we would have to shut down. We then take the guidance of the CDC and other public health officials on what to do. And we would have the ability to redirect inbound product to other facilities but would sort of compromise our ability to fulfill products from that particular facility for whatever the duration is. So those are the things that we can sort of conceive of. And sort of beyond that -- and I think it sort of dovetails into the broad economic impact and does this lead into recession, does this start to impact consumer purchasing and demand behaviors? Obviously, I can't really update any and what we're seeing in the near term, but I'll reiterate what we saw as of our earnings call, which is a couple of weeks ago, end of February. But we haven't seen anything of notable impact on the demand side. But to the extent that this becomes deeper and deeper, and leads us into a global recession or anything approaching that, the dynamics that we would expect to see in our business, and again, this is highly speculative because we've never seen anything like this, we've never lived through a recession in our business, but we were born out of one, out of the financial crisis. So what that did and what we see -- it sort of gave birth in e-commerce and in retail, broadly, to off-price as kind of the -- a primary growth engine. So the value orientation of consumers in an economic downturn, I think, plays well for us because that's essentially a core part of our value proposition to buyers: great brands, great condition, authentic products at great value. So I think that would be beneficial. And I hate to think about opportunities in a situation like this, but I think that would be beneficial in terms of customer acquisition. I think it would be beneficial in terms of consignors' likelihood to consider monetizing their assets. They're obviously selling stocks right now, but they may be just as likely to think about selling their -- the Chanel bags and sneakers and watches. So it should be a benefit to customer and consignor growth over the duration. An offsetting impact, the extent of which nobody knows, prices, I think, would come down. And we'd see our AOV decline. Similar to when you see significant retail promotional environment, they can put pressure on resale values, that would be likely to be observed. The magnitude of that is sort of anybody's guess at this point, but those are kind of the puts and takes as we see them. Beyond that, we're well capitalized to sort of endure whatever comes our way. We had $360 million of cash in the balance sheet at the end of the fourth quarter and well-capitalized to kind of ride out whatever storm comes. And we just hope for everybody's sake that it's mild, not worse.

Got it. Just so people can maybe help with their models, and I know you talked about this in the past, just how you think about the expense miss variable versus fixed right now and how you think about that?

Yes. So roughly speaking, and so we disclosed, not knowing that this was going to be as relevant, but it's the first time our contribution margins as part of our most recent earnings release. So it gives you a sense of kind of our variable versus fixed split, which is roughly speaking, 60% variable and 40% fixed. Within the variable portion, that's, of course, marketing. That is all of our variable labor in our warehouses and our sales team that's responsible for bringing in product. But of course, it's going to vary with volume. So there's sort of a natural hedge against fluctuations in volume, unit volume, less than a hedge in terms of value, right? So all those expenses are, more or less, tied to unit of product coming in and being processed. Now to the extent that there is a lower value of those products, that is -- that's harder to control. Fixed, of course, is more easy to control the growth of. And our fixed expenses are largely buildings and headcount functions like technology and G&A functions. So we're going to closely monitor everything. And then the good news is on the buildings, the facilities aspect, not only in terms of operating expenses but in terms of CapEx that's coming up, most of the big step's behind us. Our warehouse in New Jersey will be -- will finish construction this month. And our San Francisco store's open. We've got one store in Chicago coming up this summer. That shouldn't be more than $1 million or $2 million of capital to get that up and running. And outside of that, we have very -- like our -- it's a light CapEx year for us. So conveniently or luckily, that's kind of -- that's in our favor as well.

Okay. Great. We'll move on a little bit from the recession questions and to a bigger picture. Last year, I think you broke $1 billion of GMV, which was a good milestone. And I think you're quoting about $200 billion opportunity for luxury goods. Maybe let's revisit that, and then we'll get into how you -- can you accelerate the unlocking of all those goods?

Sure. Yes. So let's start with the $200 billion number and where that comes from, what it means. So you're right. So that is -- that's an estimate published by Frost & Sullivan of the U.S. addressable opportunity for luxury resale in the categories that we operate. So I -- that is the trapped value in people's homes today of products that are relevant for our marketplace. We were $1 billion of that. We don't know what the actual market size and existing penetration into that TAM is today. But we do know that we are a significant, if not the leading driver of the growth and the development of the market into that TAM. So over time, we think there's a massive opportunity to penetrate the addressable opportunity, which, of course, is going to grow over time to some extent. And our approach is -- I think it's going to be more of the same of what we do. If you kind of trace the company's trajectory and development over time, along the way we've built on the strength of the company, which started with the full-service, in-home, white glove offering, that's still the majority of our supply. But along the way, we picked up additional ways to unlock supply. Sending it to us directly, being given a shipping label, putting in a box, that's nearly 30% of our supply today. Stores are the most recent of our initiatives, and stores are great. We only have a few of them. But what we've seen so far in the markets in which we've operated our stores, almost immediately, you see a noticeable acceleration in consignor growth in that market, creating sort of a halo around the entire market. A single store in New York, a single store in L.A., we're able to do that. We'd expect the same would be the case in the Bay Area. So stores act as an accelerant of our growth and development in unlocking the TAM. But we're just going to do this progressively. So we're not going to -- we see no reason to be overly aggressive at trying to unlock the supply faster than the rate that we've said historically, which we think is just a responsible rate for us to grow at, where we can do so while also delivering on unit economic improvements, and ultimately, EBITDA margin progression because we've always sought to balance those 2. At the same time, growth is our friend. Growth is the best lever for us to continue marching toward profitability. So not to go back to recession, but we don't currently see a strong case to be overly conservative on marketing. And we'll continue investing and continue investing in growth. And we see there's so much opportunity in front of us. We like the efficiency of the marketing that we have and continues to get better. So as long as we see the ROIs and the investments and we see the growth, we're going to continue staying the course.

Got it. Okay. I think from the call, on the processing side, some really interesting data points about copyright and authentication. Will some of the process improvements help you put more resources towards authentication? Or do you see it also maybe helping the supply pipeline? How do you see that working out?

Yes. Both. Of course, our technology investments are oriented towards essentially 3 primary groups of people. Supporting our internal operations, so things like authentication -- I'm sorry, automation in our operations, which we're regularly updating on. We're furthest along in automating pricing. Coming up are -- we've begun automating photo retouching and aspects of copywriting enough so that the copyrighting job has changed to be more balanced toward authentication and other aspects of the job that don't have to do with pricing and certain parts of copyrighting. So that's one group. Second group is consignor experience and generating supply and efficiencies, and removing friction from that process. And the third are buyers, and improving the experience of buyers across multiple platforms, including personalization, continuing development of our app, which is really great for us. So on the internal operations side, our automation investments are paying off for sure. They're delivering on our ability to increase the productivity of the people as measured by units per hour. We take some of those gains and reinvest them back into quality improvements, among which authentication is absolutely there. And specifically, what that means is we're able to invest more on top of the significant training we were already performing. We can do more of that upfront, more ongoing training, have more levels of expertise in a path toward 5 levels of authentication expertise. And there's a clear path that requires incremental training and time and duration and testing in order to kind of move up to the ranks towards expert. So that's one. We're able to invest also incrementally in secondary review and quality control. And we're also able to invest in risk scoring for items to reduce the likelihood that they may get past us. So we've always authenticated items. And we've had, for a long time, risk scoring at an item level. So we know for certain brands or products that they're more likely to be counterfeit than others, price point, brand, et cetera, and a whole algorithm that channels products into an appropriate way, and that's been very effective. Because when you know what you're looking for, it's easier to spot it. More recently, what we added is similar risks going on the consignor side. So we know that even though the product may be low risk, if the consignor is, it will get extra attention and it'll be channeled to kind of a more thorough review. So those 2 things together are helping us just build on what we're already world class at, and we'll always be aiming to get better and better. 100% is not a reasonable goal. There's always going to be something that makes it too difficult despite best efforts. But I'm confident in saying that nobody takes authentication more seriously and is more effective than we are.

Great. That leads us to the next question. And I think people think about a lot of start-ups in the industry. But you've been around for several years now. Just what are the competitive barriers that you've built? You've already discussed some of them, of course. But how do you think about those competitive barriers? And then who are your big competitors?

Yes. So not to belabor the things I already talked about, obviously, having an authentication infrastructure as a foundation for buyer trust is a competitive differentiation and is something that we're very proud of. Our buyer satisfaction reflects that our buyer NPS is consistently north of 70, 71 most recently. So our buyers continue to be very happy with what we do. More broadly, in terms of our competitive moat and differentiation, obviously, we were the first to the game and doing what we do and having a full-service luxury consignment business. So we've got 8-plus years of operating history, 15 million-plus items that have moved through our operations, which says a lot of things. It means we become much, much more efficient in processing those items. So the cost to move things through our operations is a fraction of what it was years ago. All the underlying data that has accompanied all of those items and those sales transactions allows us to automate pricing and do -- make investments and automate a lot of these steps, which you can only do once you have a richness of data behind you. And that data sort of permeates our business and, frankly, every aspect of what we do. And you can't buy the data, right? You have -- you just have to get it and build it. It's foundational to our authentication efforts. Everything that we see is documented and is used as training materials. So combination of first-mover advantage, scale that leads to operating efficiencies, create an amazing data asset. And then the scale that we have has enabled us to do build on top of those successes and go from strength of strength. And doing things like opening stores. It doesn't make much sense to open retail stores as your first avenue of trying to build this business. Being multi-category has also helped to give us some hedge and some flexibility in things like take rate, where we have the ability to be competitive in take rates in more competitive categories and sort of fund that through take rate -- higher take rates, sort of an increasing take rates and other areas of the business. And you've seen that progressively over the past years, where our take rates actually moved up as we've grown to now the 36%, 37% neighborhood. So we feel very good that the benefits that we have are now then compounding with traditional network effects. And those -- that's not specific to us. But when you have a marketplace that gets to scale, those traditional effects are real and they provide a pretty strong tailwind. What is unique to us or highly unusual is what we call the flywheel effect of having buyers become consignors and vice versa. And having that active 2-sided participation really is pretty -- is a powerful driver of not only our growth, but our marketing efficiencies and kind of the lock on repeat rates and contributions from repeat buyers and consignors altogether adds up to a pretty, we think, formidable competitive moat. They only get stronger by the day. So in terms of who our competitors are. On the supply side -- and that's really a 2-sided marketplace. You have to distinguish between the 2. On the supply side, still, our primary competition is Inertia. By and large, people in the world still do not have consignment of their luxury goods as top of mind. Our most recent brand awareness survey indicate to be only 21% aided awareness. So it's still not just part of the natural rhythm of people when they're buying goods that they presume when they're done with them that they will consign them. So that's -- we'll still just keep chipping away at. And over time, that should be a benefit to us as well as it becomes a more normal pattern of consumer behavior. The other part on the supply side, to the extent we are competing with any entity, it's going to be the incumbent consignment industry, and that's concentrated -- it's not concentrated, it's distributed across 10,000-plus small consignment shops across the country. There's no kind of scaled player in that industry. And I think our kind of advantages versus those stores are readily apparent. Our sales people rarely talk. Like we ask all the time are we hearing anything about any other competitors on the supply side, and there's just -- there's no theme or trend to speak of. So that's literally it. So we kind of were in a bit of white space as it relates to developing the market. So it's kind of on our back to grow into the TAM. On the demand side, we compete with everybody, everybody for people's discretionary dollars, whether it's for like products with retail or with Apple and people buying new technology versus that. It's -- yes, we compete for people's wallet share, but I think our cohort behavior and performance NPS, customer retention and the GMV per active buyer north of $1,700 a year, I think just points to like we're being pretty effective at maintaining a compelling proposition for buyers. So as long as we continue driving the development of the market, bringing in quality supply, maintain and improve our standards for doing so, we feel very good about the prospect of having a lot more growth ahead of us than behind us.

Got it. Great. Going back to the quarter, and I think this is really interesting just to understand your business model, go back on marketing a little bit and reaccelerating the marketing spend in 1Q. So I mean, a, just maybe talk us through what went on? And then, b, what do we learn about your business from kind of the last 2 quarters?

Yes. Well, we've learned a lot. So I'll start by the decision to kind of pull back on marketing in Q4 was a decision made well in advance. It was our strategy coming into 2019 to redistribute our marketing investments across the quarters differently than we had in 2018. The effect of which was to pull money forward from Q4 into Q3, and to some extent, even into the first quarter of 2019. So we execute against that strategy all throughout the year. And from the perspective of marketing ROI, it was fantastic. We delivered on decreased by our acquisition cost of almost 20% year-over-year. In the fourth quarter, it's almost 30%. So from that measurement, tremendously successful. From the perspective of what it does to volatility of our growth rates, perhaps we could have been a little bit more thoughtful about that. So we did see kind of coming out of the fourth quarter, specifically in December and then into January, we saw a reduction in the growth rates of new buyers and new consignors. So mid-January, we -- according to our plan for 2020 is going to be a little bit more balanced, where we're not -- we're still going to be disciplined about our marketing ROIs, but we're also -- we're going to try to balance that with reducing the volatility in our growth rates from quarter-to-quarter. Because volatility in GMV growth means volatility in supply growth, which means stress on our operations. It means we either have too many people or not enough people to be optimal for the supply and the flow that we have. So in everyone's interest, it's better to be more stable going forward. So that's what we're going to aim to do this year. So those 2 things will always be, to some extent, in conflict, but we'll try to balance them the best that we can. So we expect to have 30% to 32% growth in GMV this quarter, and that's more or less stable for the balance of the year. More likely a little bit higher than that in the second quarter as we kind of get into a traditionally strong period for supplies. And in the third quarter, we're going to be lapping our IPO quarter, so expect that to come up down before then bouncing back up again. But we're talking about a few percentage points rather than the more significant swings we've seen in the past couple of quarters.

Got it. And I know I can't ask about March. But as of the day you report it, was that new marketing going to be effective? It's kind of reactivating the growth in buyers and consignors.

Yes. And I think we talked a little bit about this on our call that as of the time of our earnings call, which was a couple of weeks ago, we have resumed marketing, of course, in the second week of January. And the various earliest indicators, which -- it starts with traffic and then that then converts into member growth. And member just simply means we have an email address. And all of those trends were going in the direction, meaning February was trending to better growth than we saw in January. And then that leads into kind of growth of new buyers, that was also happening, and that was trending in the direction we wanted to see. The supply side takes a little bit longer because it's not as simple as you responding to our marketing message and going to the site and making a purchase. Get to start the process, right? You start -- you submit a form online to say you're interested to have a white glove appointment usually. And then we have to schedule a call. And that's the point that has to happen. And the products have to get to us, so we could process it. So there's almost a month lag between like fulsome demand resurgence and supply actually coming back to the site. So too early to see that. But like all the earliest indicators, were turning the way that we wanted and expected to see as of the earnings call.

Great. And I know you probably don't want to mention specific companies, but I would be interested, when you did pull back on marketing and -- was there some channels that looked more effective than others? And maybe we can do broader, like social versus search features off-line? Anything that you learned out of that, that you can...

Yes. I guess, I mean, like the -- and when we increase or decrease, it's impacting all channels. So we're incredibly disciplined and ROI-driven. So we were a little early to lean into TV. We were doing that kind of progressively ramping our TV investments since the second quarter of 2017. So we're almost 3 years into this and it's getting the -- the majority of our spend today and even more of the growth of our marketing is going there. So our digital investments, while growing, like they're more steady, so we're kind of trading in and out based on opportunities that we see. So naturally, if we're swinging up or down and our absolute investment that's going to impact our TV the most, so you maybe even noticed. So like -- as soon as we got into January, you're more likely to see us on TV. So that's the broadest trend that I can point to. And I don't want to really get into incredible granularity on how we do things. Just a little bit different, frankly, than a lot of e-commerce companies. And arguably, it's more effective. So it's a bit of the secret sauce in how we operate. But broadly speaking, we find TV remains a very attractive channel for us to acquire quantities of new buyers, consignors cost effectively with LTVs that look great.

Great. John, we've got another 10 minutes. Why don't we see if there's any questions out in the audience before I keep going?

[Operator Instructions] We have no questions at this time.

Okay. Great. We'll keep going. I thought one of the most interesting things about your call was the gross margins. And talk about the changes in the shipping contracts that you're able to negotiate. And after we get through 1 year of getting that benefit, is there still room after that?

So I'm giddy already. I've heard you. Yes, so let me just kind of start at the highest level, kind of what the guidance for the year and sort of the literal interpretations and maybe a little bit of -- underneath the covers. So our guidance for this year implies 700 to 800 basis points of EBITDA margin leverage versus mid-500 basis points last year. So more leverage this year than last year. Part of that is kind of a lower intensity of increased fixed costs as related to being a public company and warehouse costs, et cetera. But there's also kind of a bit more leverage coming to your point, on the gross margin side. But I want to unpack that a little bit, folks. Roughly 500 basis points of that leverage comes from gross profit. Simplistically, it's not exactly this. But just break it like half and half. Half of it is shipping related, the majority of which comes from a renegotiated UPS contract that was secured in December of '19. So we've got -- had a few months of actuals to validate that, that contract is delivering double-digit shipping expense improvements, double-digit percent. There are other operational things that we've done that are helping on shipping expense as well, but the UPS contract is the biggest. All of these contracts, they're really -- they're pricing agreements that are multiyear. But as we continue to grow in scale, we'll evaluate it whether it's appropriate to go back to the market and look to -- to seek even more favorable terms. But where we'd expect it to be from a -- we talk a lot about gross profit per order as a key metric. And I think it's -- arguably it's far better than -- revenue is a highly imperfect metric -- measure for us given that the mix of direct and consignment sales in our business. So we tend to focus on how much money do we keep for every order that we sell. In 2019, that was $92 per order. With the gross margin improvement, modest AOV increases, modest take rate improvements, we think that gets into the high 90s, which is within striking distance of the $100 number that we've indicated. That's where we think we need to be for the business to reach breakeven and kind of scale from there. So it'll be within kind of striking distance of that based on what happens this year. The other half of gross margin improvement is an expected reduction in direct sales as a percent of GMV. The direct business has gross margins in the teens. Consignment in the low mid-70% range. So just -- and that -- so that's kind of an artificial mix, really, that's more of an accounting thing. And the effect of that is the leverage that would have been observed in operating expenses moves up into gross margin for that. So you have reported less. So that's why I think, I'd encourage everybody, when they're looking at our business and analyzing it to not only look at things as a percent of revenue, but GMV is going to be your better metric to just kind of track the changes and see where leverage is actually coming. So that is -- that's good. So that's the gross margin story, 500 basis points. Most of the rest of the leverage you'd see this year will be coming from marketing. And similar reasons that we've seen leverage for 3 consecutive years. We're bullish that we'll continue seeing them throughout this year and beyond.

Great. And the decreasing percentage of direct revenue, I know there's been some controversy that suggests higher returns. Is that anything related to return rates or just more of an accounting issue?

Well, ultimately, it's going to be related to return rates. So the -- and specifically, out of policy returns. And out of policy can be because we allow buyers to return things outside of the stated return policy. But more specifically, why we have some seasonality in direct is because we extend the typical return window during the holiday season as most retailers do, but we don't expose our consignors to that. So there -- if things don't return within the normal 14-day window, we'll pay consignors. We end up buying out more products coming out of the first quarter into the -- fourth quarter into the first quarter. '19 just happened to benefit from a shorter holiday season. Thanksgiving started a lot later, so there's -- it was a less amount of time for that effect to take place. So that's likely to decrease direct sales as a percent this year, and that's going to ebb and flow a little bit from year-to-year based on the calendar, frankly.

Got it. Okay. One thing that I think was really interesting. We got a lot of questions on during the IPO was brands and how they feel about RealReal. So maybe just high level, your -- how you feel about your relationships with some of the top-selling brands on the platform, and any partnerships that you'd like to call out or anything of note on that side.

Yes. I guess first, disclaimer that, obviously, as a marketplace, explicit cooperation of partnerships with brands is not required in order to be able to sell any brand. So that said, of course, we'd love to have cooperative relationships and official kind of partnerships with as many brands as we'd like to work with us. It just lends credibility to us as a company and our brand, and our operations and the service that we provide. And it sort of -- it puts those brands squarely on the side of supporting the development of resale for all of its myriad of benefits, including sustainability. So I think that trend is real, and we'll be enduring that this is an increasingly important aspect to every company in their future. So I'd expect to see more brands embrace resale in the next 24 -- 12 to 24 months. Some of those, we hope, certainly will work with us. But to the extent that they don't and they go out on their own to try building a resell business, we wish them luck. And I think it's going to only help in the kind of the development of unlocking supply and developing the luxury resource space. So it's like -- no matter what, it's a win-win for us.

Got it. And then why don't we talk about international expansion. I know it's an area that could be interesting for you to get unlimited capital. So you've got to kind of balance that, I'm sure, especially in this potential market. How you're thinking about that and where you are today and where you'd like to be 5 to 10 years out.

Yes. Yes, we're not very far today as you know. So ultimately, we see this as an international business, not necessarily global. Because wherever we are, we're going to have boots on the ground with the local operations and likely in key cities. So it's going to be a slow build outside of the U.S. We do ship outside of -- we ship cross-border, about 5% of our GMV goes to buyers outside of the U.S., and that's been relatively steady and we don't really invest much in that. Don't expect us to see -- us to do anything this year. To your point, that's -- that opportunity is still out there and it's not closing by any means. The U.S. consumption in primary luxury is about 1/3 of the globe. So 2/3 of the opportunity for us remains beyond the borders of the U.S. So we'll absolutely be there, but not likely for a while, and we'll test before we make any substantial commitment to investment.

Okay. And maybe we'll just conclude with this. I think you mentioned profitability Q4 of '21 and for all of '22. So when you look across your metrics, what makes you most confident? Is it the gross profit per order achieving a certain level? Is it the repeat rates which -- like they're staying very solid? But how do you -- what gives you that confidence when you talk to people or you think internally about getting to those numbers?

Yes. I mean there's a handful of metrics that are sort of in the model required to get there. Number one is growth. So you need to sustain GMV growth at about 30% more or less. Gross profit per order, to your point, getting to $100. Marketing efficiencies, doing what they're doing. And well, on the gross profit piece, I think we're more or less there or will be very shortly. On the marketing efficiency side, the contribution from repeats are back, are more or less there. So this year -- as we kind of exit this year, most of the key measures will be in the rearview mirror. So that really just is a matter of continuing to maintain healthy rates of growth, which enable continuing improvements in underlying unit economics, leveraging fixed expenses, giving us more volume to push through to get more productivity in our variable expenses. And of course, the benefits of automation will continue to accrue. Again, most of those will be in the rearview mirror by the time we exit this year. So it's really just -- well, all the ingredients are in place and we just have to have another strong year of growth, and we feel pretty confident.

Great. And just looking at Street numbers, not yours. I think we're kind of in the $2 billion-plus range in '22. So you're thinking that kind of scale is where you need to be to kind of leverage all the fixed costs.

That sounds about right.

Okay. Great. I think we'll wrap it up there. Thanks, everyone, for joining us on the call. This is our first virtual conference. I hope it has been helpful and informative for you. And if you have follow-up questions, Paul is here at the RealReal. I'm sure he'd be happy to help. So thank you.

Thanks, Justin.

Bye, everyone.

This concludes today's call. Thank you for your participation, you may now disconnect.