Q3 2020 RealReal Inc Earnings Call

Thank you for standing by and welcome to the real real third quarter 2020 earnings results Conference call.

This time all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session.

Yes. Good question during the session you wouldn't need to press star one on your telephone keypad I would now like to turn the call I've heard you Paul Bieber, Sir you may begin.

Thank you Corey good afternoon, and welcome to the real real earnings.

At September 30 of 2020.

Oh lever.

<unk> relations after real real.

Joining me today to discuss <unk>.

Our results are out there and see are truly Wainwright Chief financial officer.

We got a chance to read our press release and stockholder letter or we distributed earlier today, both of which are available on our Investor Relations website.

Before we begin I'd like to remind you that we will be making forward looking statements. During the course of this call. These.

These forward looking statements involve known and unknown risks and uncertainties and our actual results could differ materially.

Find more information about these risks uncertainties and other factors that could affect our operating results.

Most recent periodic reports.

Okay.

<unk> quarterly reports on form 10-Q, and in our earnings release from earlier today.

This presentation includes certain non-GAAP financial measures for which we have provided reconciliations.

Comparable GAAP measures.

In our earnings press release.

With that I'll hand, the call, we're going to we first Dr. Mark <unk>.

Great. Thanks.

Thanks, and welcome to our Q3 earnings call everyone.

When we provided our last update I guess, we're seeing encouraging signs of recovery in Japan in July our supply returned to profit and GMB was on the customer.

Improving trends in our Alley, and New York City markets led by the influx of supply into where we open luxury consignment officers on this let's see Ellis and retail stores and an increase to request a white glove service.

We're all contributed to our improving GMP and our G.M.D. part of growth. Consequently, we started reinvesting in marketing sales hiring and expanding our retail footprint with the launch of T.R.R. in Chicago.

We are learning how to work safely in a competitive environment and feel comfortable making these investments for current and future growth.

In fact, we are beginning to show results, the 17% quarter over quarter improvement in Q3, G.M.B. underscores our improving I know fundamental.

And so far in Q4 retail and LTL supply increased 48% year on year in October compared with down 20% year on year in Q3 and down 81% year over year in Q2. This.

This week, how we collaborate amplifies our overall supply recovery and gives us optimism that a return to positive year on year GMB growth could happen over the balance of Q4.

While uncertainty remains we are leaving laser focused on making operational changes and strategic investments that will position us to emerge from Cove, and a stronger more agile company and set us up for long term sustainable growth going forward once.

Once again, we'd like to thank all of our employees for their dedication continuing to move the company forward. During these unprecedented times.

And with that I'll turn it over to questions.

At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from like you press the pound key.

One moment for your first question.

Your first question comes from the line of Justin Post with Bank of America.

Sir your line is open.

Great I guess cost a couple of questions here, obviously vaccine news or when you look out nine months to 12 months, what could be different for your supply acquisition and you know you think that can really get a lot easier for your next year and do you think as people go virtual and curbside you could really see some savings now that you have more experience.

With that and.

And then second on the marketing spend picks up and the by the new buyers were I think 5 million in the quarter.

Do you feel about the efficiency of that marketing spend and do you think it will get more efficient as we move forward. Thank you.

I'll start and then I'll turn it over to Matt So how's covert Adam Here's what we you don't really know what it does look like but we have a pretty good indication that virtual it's here to stay and we're pretty early in the phases I begin in that it's a tactic. So it's hard to project great efficiencies, but it's a really.

A good way for our elements to work and for our Gamal against some of our Jim I wanted just to work in our watch extra tossed out so that will definitely be in the Mexico going forward.

The stores are going to be on the Mac. Since we bought we opened the store we're seen as Weve noted and and our L.C.L.'s influx of product people are really comfortable dropping off product and that's starting to get into an October a record number. We're also going to test took a mini store L.C.L. concept.

Similar to the one.

Our Madison store in New York City, very small footprint two to 3000 square feet with about 400 to 500, skews Max and the fraud, and then luxury consignment offices in the back but it'd be running that has to occur in the next 120 850 days, we should have three of them with our one open.

The next week I in Palo Alto, so that we believe will be part of the mix because Madison as a neighborhood store a small footprint neighborhood store with a luxury consignment office has really come back quickly.

We also believe vendor is going to be a more important part of our mix to maybe a greater percentage, we've always used spender strategically to offset or to go after certain product lines. We believe for the next year until at least 18 months, we're going to have even better quality vendor products and we're already seeing some of that.

Nick changed out some vendor won't be you know a huge percent, but it'll be a more prominent part of our business, maybe 15% of the G.M.D. It may be as high as 20.

So we will see continue to see product mix shifts to it was noted in other businesses apparel and footwear have been down for us well fine jewelry handbags amends have done really well as long with along with home and art.

So all of those things, we expect to more normalize if people get out and about and go into offices again. So we expect all of our categories to start growing again and healthy numbers I'm going to make one comment about the marketing efficiency and then turn it over to Matt <unk>, but we.

Our really great at driving down our cost of acquisition, but now wasn't the time to really pulled back on putting money into the marketplace because what we're doing what we're doing is not just generating demand, but future consigners. So while our marketing efficiency is that what it was prior to.

Coal that we do expect it to return to a nice number and then a declining number over time. It just makes sense because we still have an.

Amazing flywheel effect, where buyers become consigners and our consigners become buyers, but with that I'll turn it over to map for more color.

Yeah. Thanks, Thanks, Julien Thanks for the question Justin Justin.

So couple was a think about marketing efficiency and I think it's a little bit of danger in getting too.

Focused on the very short term. So if you would go back to like the second quarter for example.

Our marketing investment was close to zero as we've ever been in the marketing efficiency and up here. It was off the charts right. So naturally there is some sort of correlation between spend inefficiency, we saw signs of recovery and as early as early may at which point, we began to progressive leader.

Reinvest.

So we have continued to progress we reinvest as we continue to see signs of recovery in both a supply and GMB and most recently with retail starting to come back we were feeling that it's the right decision for us to make it's going to take time to the typical a path for people to turning it into buyers is there.

First become members and then they either become a buyer or they become a consigners investments that were making for today are helping us today, but they're going to help US next month next quarter and beyond. So we are laser focused on setting ourselves up to come out of the year and a strong trajectory and set ourselves up for a strong post Cobra.

Okay.

Hey, Thanks, really thinks about it I'll get back in the queue appreciate it.

Thank you.

Your next question comes from the line of all or Oliver Chen from Cowen.

Sir your line is open.

Hi, Julian Matt regarding the regions, you've seen improvement in supply in New York in L.A., but New York looks like it's improved.

Faster than L.A., which is less negative.

Could you help us understand how those markets are manifesting in any differences or similarities between them.

Also the inbound operation unit cost ahead.

Like in an opportunity for automation. So what would you generally highlight for efficiencies that you're seeing ahead of us we look forward to that as well.

Hi, Oliver I'll start again, and it's nice to hear your voice and turn it over to Matt and New York. The schools are back [laughter]. So just to be blunt. The AD schools are open and people came back at faster into the urban area. So.

And when our we reopened so Ho and then reopen Madison and if they have the stories became vibrant the LTL got busy quickly So new York well still not performing as you know, it's phenomenally as well as it did last year and beginning of this year it seems like last year.

And it's coming back faster. So that's what we think is a prime reason, it's just people are back and engaged in in New York and New York area.

So that I mean, there isn't I know no matter. If you have another theory because every other number shows that its just we can tell you when people started coming back and when Hampton started shutting down our business started ticking up now I guess, yeah huh.

Too soon but they're not the only other thing to add to that is we do have an extra store and extra consignment office in New York. So they have a little bit more of a retail presence. There. So I can just certainly contribute at the very tail end of the quarter and certainly into October but you know, we're obviously encouraged by the trends in both the markets, but right.

There's still a very long way to go to where we were.

No and no.

Second Yeah second question, Yeah, how are you.

On inbound automation inefficiencies so.

So we're progressing very nicely even during code Red Oh, we basically got into our stated goal of 75 per cent automation in the Big three project, we've talked about repeatedly by the end of the third quarter. We think there are some more incremental room for us to go to automate a little bit more but the.

The games that are going to come from that or not so much by further automation is driving increasing volume through the system because there's a tremendous amount of leverage. This comes from a steady amount steady amount of a lot of supply that helps us leverage the people that we have in there are certain aspects of the costs that are fixed so getting back.

The growth is when are really going to start to see even more benefit than we had recently okay.

Okay, and then finally on the order count Q3 orders being down 5% in your average order value I'm being being up.

Would you expect a similar dynamic like how does that interplay with the supply units and door.

The changes you're witnessing and mix.

Yeah, So I'll start that one.

So underneath.

We'll be is our selling prices and in items per transaction.

And prices have remained elevated throughout cold, but really that's really on the back of a mix shift toward more handbags jewelry and to some extent men's products.

So that we would expect to see continuing into the fourth quarter, but the other part of your current transaction, that's more tightly correlated with the abundance of supply.

The total available supply in the marketplace was still down.

A fair amount throughout the third quarter, so as our supply build back up that's where we'd expect to see that's starting to come back up and get our it'll be overall back to where it was pre kelvin.

Thanks, Congrats on good she best regards.

Thanks, Thanks Oliver.

Operator, we'll take.

Your next question comes from the line of Michael Binetti, Sorry. Your line is open.

Hey, guys. Thanks for taking our questions here just want to ask a quick one on the <unk> on the short term.

<unk>.

I want to I want to understand how you're getting back to flat Jim de was positive in November December restart.

We're starting off I think negative five in October you know, obviously, we're seeing headlines of Covance Viking again, but I'm sure you're more prepared than you were last time you saw these spikes, but you know I would assume that that would that could hurt supply again until there's a vaccine available, which obviously got nice news on today, but maybe walk us through how you're building to the quarter getting back to positive.

I'll answer that and then I'll turn it over to Matt and we don't really I'm not.

Colin out there and you know, it's kind of going away, but I would say our.

Signers and our sales team is learning how to live with that and pick up products safely dry and stored drop offs really aren't changing.

The dynamics in key markets for US right now, even though we only have a few stores open by Ed, but not just stores LTL dropouts also so we're not as worried about a big step down like we had before where we could not parade at all I think going certainly Tobin.

It's ramping but it's it's more under control in the urban area than it was before so we feel like we will be able to we've already seen some improvement in supply and we're going to be able to continue to grow supply.

And we are as we said we're also testing another you know the mini star LTL analysis like the one on Madison, that's going to happen in Palo Alto, So we feel pretty good about.

Where we are what we've seen I mean, the number we gave out on the LTL plus retail started drop off up 48% year on year in October I think bodes well as we move into the winter.

So that's that's why we feel good and we do think expect to see seasonality in gift, giving during the holiday time so.

You know, it's still uncertain times, we don't want to sound overly optimistic, but we have enough early indicators that we felt I'm. Good oh, yeah, not to slice this too finely but I think.

Just to add on another level so.

So what we saw throughout Q3 was relatively steady improvements in supply and GMP sort of Oliver we had a little bit about lapping thing in the middle of the quarter becoming into a into October.

Things were a little slow the VAT recovery kind of stalled out for a couple of weeks, but then really started to pick up momentum in the back end of October retail was a big driver of that and by retail that's inclusive of the LTL.

General recovery amplified by retail in the tail end of October and that supply as you know Michael that applies not going to get the site for two to three or maybe even four weeks from the end of October and is going to benefit us as we kind of got deeper into the holiday season.

Okay.

It's it's a fine tooth question method on the if we take out the supply coming in through retail in LTL It looks like the.

The other area, that's only 18% I think you said of the supply in the in the shareholder letter. It means the Roes are the rest of the channel will be over 80% and it looks like that would be.

That was supply coming in through other channels is probably up high single digits third quarter. It seems like at least quite a bit of room for that to decelerate in the fourth quarter and still get to your.

Double digit gross target is that are you seeing slower trends in other areas or is that just conservatism would be you know.

Be a fair answer I'm, just curious what you're seeing in the other areas.

No no its not certainly not how were thinking about it so I won't answer all those parts because it little bit apples and oranges that the the supply value versus supply units, but here's how I'd characterize it but we are caught like we're calling it like we see it but I think there's enough uncertainty in the world. So we don't want to add to that answer.

On t. by unnecessarily, providing conservatism on top of our guidance I don't think that serves anyone well. So we're being asked transparent as we can possibly be given all the uncertainty around us and telling you exactly what we think is going to happen. So that's work. We're confident that we can see a return to growth over the balance of the quarter and the entire.

Our organization is laser focused on getting us they're not just to deliver this quarter were weren't certainly not thinking exclusively about the short term. We're we're very focused on setting ourselves up to exit the year with strong momentum so that when I hope. It is behind US then we can really be a significant part of the bounce back story.

Okay. Thanks for all helped us.

Your next question comes from the line of Eric Sheridan from you be yet.

Sorry your line is open.

Thanks, So much for taking my question I'll come back to the newer sales reps that are joining the organization now how does that compared to some of the efficiency way up.

Oh.

I lost him.

We lost Eric, but I dare to deal with US operator or are you still there, yes, sorry, you're still in the call and he his line.

And I'm showing his line still connected and open.

At least on our end [laughter].

Did you guys done real good.

Now you're about [laughter] sorry.

Sorry about that.

About sales reps, joining the organization now what you're seeing from an efficiency standpoint, and a productivity ramp versus before we open.

Now that might fail and then I apologize if I missed it earlier in the call, but I'm on hold and related expenses of a permanent nature Albertsons tribute nature.

Whatever that happens when we're on the other side of this thing how to think about the impacts on the cost structure all well within.

Thanks Scott.

Uh-huh so.

So I would say, we're still learning how to ramp our team and train our team and we've had some wins and we've had some opportunity for improvement so and it's more challenging and coking times. We used 10 people used to shadow each other so I would say that Ed you know its been I need.

Then some really big wins, but it's been uneven. So we have work to do in our training of bringing on new people efficiencies virtual still a neutral or learning how to work with that that's more I think a long term I'm situation, we've only been doing berchtold now for a few months.

Oh, and that's that we do expect efficiencies over time, but right now were more worried about getting and as much product as possible and and that taking advantage of some interesting trends that we've seen most notably again and a lot of people are dropping off at the L.C.L. King.

And the sort so we're capitalizing on that and add you know moving forward yeah. There's a couple of things amplifying that so at.

It always takes our new sales people a few months to ramp up and kind of as a natural trajectory since the beginning of the company.

But we were amplified that because of how intensely the change from one quarter to the next in terms of the number of sales people then it's in the second quarter, we weren't hiring anybody in fact, we had to let a number of sales people go so from that low point to where we're heading in Q4, the sheer number of new people.

It's higher than really any period than I can remember as a percentage of the base. So there's a short term productivity, but I think as we kind of get into into next year that should normalize.

The second question with respect to coal bed expenses.

From memory I think we're looking at about $6 million of corporate expense cobot specific expenses.

For 2020, and that's going to continue on you know realistically at least until next summer at about two to two and a half million dollars a quarter.

After which we think it should sort of trail off.

Hopefully by this time next year cold it is in the past and cover.

Corporate expenses are as well.

[noise] operator, we'll go Jordan.

Yes, Sir your next question comes from the line.

Hi.

For Cho from Wells Fargo, Sorry, Your line is open.

Hey, everyone. Thanks, so much for the question Networkone wanted to dig into the direct business just to make sure I understand what's going on today. The last couple of quarters. The thoughts for Q4 and this high level into next year, how to think about it I mean, the penetration has obviously gone up I think you'd explain what's going on the gross margins have been down.

I'd sum up year over year trying to understand how to think about that into the fourth quarter and then how do you see this kind of normalizing into next year as it's going to take some time until.

Until things into a clean signal improved.

Anything as we look out on the profitability and the drivers of what's going on there would be helpful.

Sure.

So for for those who aren't as familiar so we have a component of our revenue that is booked on a gross basis, that's direct sales.

That's really anything anything that originated from product that is on our balance sheet as inventory most of that product. Historically has come from have laid customer returns that we have access to it.

Something back.

Yielded about 6% to 7% of our total GMV coming from that channel. It's been a touch higher over the course of this year and that's largely due to having a relative lack of supply. So we've had to sell harder into the inventory that we had on hand, so that's a temporary phenomenon.

And as we build back supply that component of direct it should normalize out.

Now we are starting to ramp, though it's very small still a buy upfront programs that we use selectively with both individual consigners and some of our business our vendor sellers, where we offer to the by products upfront that yields a slightly better margin for us the end of the day, but.

<unk> are highly selective in the products that we offer that to not have a small impact now expected to be a relatively small impact going forward.

That said given the nature of that business, where the costs are essentially fixed upfront and the GMB that comes from Matt it's subject to a little bit of.

ASP pressure, that's where you kind of get that that margin variability, but it's a small part of our overall mix of GMB and doesn't really have any material impact by the time, you get down to what really matters, which is our gross profit per order.

So going forward I think you're going to see percentage margin variability anywhere from you know the you know the low teens or let's call it 20%, but it doesn't really have a weighted average material impact on gross margin.

And is there anything on the inventory on the balance sheet today mapped it makes you uncomfortable you pretty.

Pretty clean but.

Thank you your inventories are now.

Yeah, Yeah, Yeah, I mean, our inventories at the end of the quarter. So I think it's still sub $20 million I'm sorry, yes, it's all very small inventory balance in the in the Grand scheme of things and we're we're not looking at that and.

Thinking about any significant inventory risk.

Okay. Thanks, good luck.

Your next question comes from the line of Edward Yakima from Keybanc capital markets Sorry. Your line is open.

Hey, good evening guys. Thanks for taking the questions I guess first Matt just a quick modeling question, you said somewhere in the trouble or that you expect a unit shipped to approach double digit and yet GMB is expected to be flat. So just wanted to square those two comments and then I guess second and you you pointed out some mix issues, a favorable mix issues, but ultimately, resulting a lower take.

I think 190 Bips a decrease year over year do you expect this mix to kind of hold in the short to medium term and there have been some publicized large competitors that are seemingly incentivizing somebody's categories are you seeing downward pressure on somebody's hot items like sneakers in watches. Thank you.

Okay, I will start with the supply demand and maybe what I'm talking about for the category trends worth.

We're seeing good so what we laid out a shareholder letter with supply outpacing demand that's entirely consistent with what we anticipated and what we in fact, new needed to happen coming out of the year because the reality is we were in a supply imbalance the deficit in available.

Supply versus where we were a year ago. So in order to get the marketplace back in true balance so that we can supply and demand can grow in lockstep going forward. The first needed to get back to kind of even water level. So that is the simple math so for for a growing supply in the high single digits over the balance of the year that'll enable.

Allow us to kind of get back to seeing positive growth in a gym gets done.

And then I'll start on the on the category piece, you're right higher higher selling price products have an inverse correlation with take rate handbags jewelry watches et cetera in the very short term I think that mix stays because that's cobot or not that is the typical holiday.

So, particularly as we get into the the peak of the holiday season, I would expect to see elevated levels of of.

Those product categories more or less consistent with what we saw in Q3, frankly, maybe a little bit higher but then as we get into next year. We are seeing interesting signs of a recovery across categories. So it's not like no. One is buying women's ready ready to where that is coming back nicely as well, particularly as we get closer to the end.

The call, but I think we'll start to see our product mix drift back to what its historical level ones.

And when you're talking about increased competition, we have such a large tam, we really don't feel especially when peer to peer market places start garden going down to maybe you know no commission or aggressive commission, that's and wait for them to compete snap really to sell posting world really isn't.

In our consumer base and so we don't see that is there any.

Competition for product at all and.

Oh, Yeah, I mean, I think that's probably that's Paris, why the tape, but we do participate in a very large town [laughter].

And for US, it's just getting that is.

Just getting them getting mad the product back and again that it's coming in nicely for us so.

Great. Thank you.

Well go next.

Okay. Your next question comes from the line of Aaron Kessler from Raymond James Sir Your line is open.

Great. Thank you actually a couple of questions first is on the play.

Why acquisition can you give me a rough sense for where that fits today bye bye.

Let's see how do you see that changing longer term should we expect somebody as many stores to replace some of the historical kind of white glove service as well how are you thinking about maybe the cut off for white.

Hi, how are you looking at deciding when you send out a salesperson to a person's home going forward. Thank you.

And now I like the mix hasn't changed that much I mean, we've been pushing certain categories. Because if we go into high seasonality. So we've always tell a lot of handbags fine jewelry and watches. So if you go to our site and you see any kind of promotion, it's just our normal perhaps for high season now.

Andy.

On the mini sorry.

I think first it's probably a good and a moment to take a step back when we saw the fourq how bad we saw at <unk>, where people were dropping out things at the L.C. Elds and the story when we got up to about 18% bad supply value coming into those channels.

We changed the shift of <unk>, but that's the type of people that are at work in those stores and our LMDS did not to.

Facilitate that transaction with our Consigner that we've already we change that I would assume that if these many start to work then we will have a different mix. We have more of associates more sales associates and Consigner associates working to assist the consigners and those stores and they are.

It can be a set up a more efficient model for us I don't know that amphitheater and Terry Yes. Most of it. So then the other question is what what how were thinking about the traditional white glove in home service well.

I cut off we you know we've always had we have we sort of work the way the Consigner works, but we are average and this really has been passing to watch even with our virtual virtual appointments and curbside pickup we've always gotten about two and a half times more value by go.

Going to someone's home and if they tend to then to us and that's just the nature of having a close relationship with the container and qualifying them before we go into the home. So we've always had that and I don't expect that to change. It all what may change is the mix and a market, especially if we if these many many still.

<unk> start working with instead of maybe hiring more people and a regional market. It would shift to a different type of sales associate in the store <unk>. What's clear is that the virtual style of appointment is not just a carbon phenomenon and it's here to stay and works very well for for for certain people.

But the exact mix of in home versus virtual going forward. We don't know, we're certainly going to let our consigners largely to lead us there because at the end of the day, where we're providing a service we want to make sure that our consumers are satisfied as they can be interestingly very recently.

<unk> been starting to see an uptick in the interest for in home appointments again, So I think that's kind of another sign to us that people are kind of settling in to just trying to think about there the post covered lives.

Got it thank you.

Oh anger.

Your next question comes from the line.

Rick Patel from Needham and company Sir Your line is open.

Hi, good afternoon, and hope everyone as well I'd.

Question on the vendor programs, but I believe you mentioned this could reach 15% to 20% of the business does this happen over the next year or do you see this long.

Long term target and second can you provide some additional color on the areas of investments that we needed to support growth here I'm just curious how it affects the margin trajectory. If you think about the coming quarter.

<unk>, it's really more of a long term and probably more of an 18 month plan and ticket the vendor at that level, we have already started.

Staffing and changing our staff to have category expertise and bringing in more senior people in that category, we're not quite and change the entire team are strengthening the team, but it's getting there, but it's more within the next 12 to 18 months, we'd expect that she has to happen.

Yeah, and so part of part of getting there is staffing up and creating a category expertise and focus technology is as another.

He portion of the strategy, where we used to build out certain technology that can support selling multiple quantities, but similar item and that itself is it's a that's a multi quarter journey to get that launched in really streamlined and in terms of the impact on on margins what's.

True, but it's hard to say, if we don't know exactly what the vendor products is going to be but if it's similar to how it has been historically.

It tends to be significantly higher than average value in terms of selling price per product.

Of course, I mean, the take rate is lower but when you translate that down to the actual number of dollars of of GMP and gross profit dollars per unit it tends to be significantly higher than average so it should be additive to our contribution margin overtime.

Can you talk about the competitive backdrop as well.

Holiday promotion starting earlier this year are you seeing any impact on your business in terms of average selling price or perhaps gross margin as you used to price competitively.

Yeah, I'll start that no.

Simple answer I mean, our average selling price.

Well it was up 9% and end up in the quarter.

<unk> continues to be up year over year. So you know, we're not seeing any any particular impact that's connected to the retail environment. So part of that is given the mix of products that we have right now which is skewed more toward handbags jewelry watches what's the inherently have much less promotional pressure potential.

Oh, that's a good news bad news right no other supply starts to come back it's going to be coming back in demand is going to be coming back.

Even more so in women's ready to wear but that will be a nice problem for us to have going forward.

Thank you all the best itself.

Thank you. Thank you operator over there.

Your next question comes from the line of Susan Anderson from B. Riley Ma'am your line is open.

Hi, it's Alex on for Susan Thanks for taking our question Justin.

Just to go back on those many store formats are you able to provide any details on the type of locations you targeted.

Our city centers are suburbs, and then have you looked into mall locations by chance.

Hmm, yes.

Yes. So again, we are the best Pets example, we have is our Madison store in New York City, which has a bearing neighborhood store certainly it's still very urban but its very neighborhood. So we're looking at.

And neighborhoods something around key markets. So our first store in that we're going to test that's outside of New York City isn't Palo Alto, but we're looking and and I'd say, we're looking anywhere outside the main center, but still important centers and in both California, and New York still very populous state taxes.

Well see how it goes again, we're going to open three and see how that works. We have looked at malls with continued to look at lost they are.

[noise] there they still don't look like they're the answer for us than many for many different reasons, including their L. A fairly aggressive and their cost structure, where they want a percent of sales. When there is a lot of really nice retail space.

Everywhere now and that you did 3000 square foot space and neighborhoods that we think are going to be better for us financially and perhaps better for us and we'll find out in terms of that customer adoption.

Okay. Thank you very helpful and then on the new Chicago store. Congratulations on that are you able to provide how that's performed relative to the other four locations.

I guess, just the general reception of that store.

All right. So, yes, I am I am so glad [laughter].

I happen to be there and the opening weekend. It was the best opening weekend, we've ever had her store and it was boarded up as most stories to tell where as the power cost and going into the election.

I'm happy to say it it continues to do very well in the boards are coming up this week and we're just thrilled it's a great location on Michigan Avenue <unk>, our single biggest store under one group I think I lay has similar square feet, but its two different stories you have to go outside to get into the other ones.

So.

And it looks like it's off to a very very good start.

That's great. Thank you.

And operator, I think we'll take our last question.

Oh, Okay. Sorry. Your last question comes from the line of Simeon Siegel from BMO capital markets. Sir Your line is open.

Thanks, everyone. Good afternoon, Matt just touching back on your supply demand come in the high single digits Delta between supply demand is that the normal like you'd expect to run or was that a catch up and then any way to quantify how much of the increase was mix versus like for like thank you.

Sure Yeah. It is entirely a catch up are available supply in the marketplace was down upon approximately 10% year over year.

Throughout the duration of the third quarter Mr. It really allows us to kind of get back to a normalized state now it's not always the case that supply and demand going in lock step in a given month or even quarter. There are periods of supply to build and supplies sell through but in a normalized state we have to just kind of catch up.

So that we can on an annual basis at least kind of get back into balance going forward.

And then the remind me of the second question.

If you can quantify it yeah.

It's a mix it's all mix, it's all it's all mix toward toward handbags watches jewelry and on the smaller the agreements with just slightly higher than the average.

Like for like is it.

Great. Thank you you have a view on which product category mix are endemic focus versus much like we won't see.

Any longer lasting trend.

Yeah, I think it's all to be honest I think it's all pandemic focus because apparel slowly coming back but apparel it.

And fine jewelry and watches are growing.

Manages growing apparel still down although it's significantly better than it was added during Q2, yeah. The one exception to that is going on here.

Were also down so yep. She was there more down that apparel. So I think that's somewhat entertaining on a pure level, we [laughter] categories to return to a more <unk> more normal rate when people go back to work and get go more and go out more I think other occasions right with the exception that our men's business is still significantly under penetrated.

Relative to the rest of the business. So we would expect to see that continue to grow at higher rates over the next few years and their overall business.

And it's growing now yeah.

That's why for holiday. Thank you.

Thank you thanks, well that concludes our Q3 that next time, we'll be talking to you. It will be on the other side of the holiday. So I want to wish you all a happy and safe holiday and and I. Appreciate your time today. Thank you very much.

Ladies everyone else has left the call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect.

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