Italic Membership Strategy

Retrospective (2026): Why This Was a Bad Idea

I wrote this memo in 2020. Looking back, I think we identified the problem correctly and chose the wrong solution. We were struggling to give customers a reason to buy from Italic more often. Instead of improving that, we invented a new way to charge them.

The pitch was seductive: pay once a year and shop high-quality goods at cost. But we were asking customers to buy a membership before they had bought into the products. Membership is a reward for an existing habit, not a substitute for creating one. Costco gets away with it because people buy groceries every week. People don't buy luggage, bedding, and leather goods every week.

Worse, we assumed lower prices would create demand. Price matters, but it cannot make a product desirable. At-cost pricing also didn't make shipping, returns, customer service, product development, or acquisition free. We replaced transactional margin with a fixed annual fee and then needed enough repeat purchases and renewals to make the math work.

The irony is that this memo contains a section literally titled "Nobody Cares What's Under the Hood." Then I spent the rest of it designing an entirely new hood. We were overthinking the business model when we should have been making products people loved enough to come back for. That's the lesson I wish I'd learned sooner: earn the repeat purchase first. Monetize the loyalty later.

The original internal strategy memo from around 2020 follows, preserved as an archive. Its figures and plans reflect that time. I removed the product-by-product price grids because the original comparison images were missing.

Market Conditions

We are in the midst of a DTC reckoning — category leaders that previously commanded massive premiums have failed to deliver the revenue growth or exits comparable to software peers and have since taken significant valuation haircuts as smart money seeks yield elsewhere. At the same time, smaller venture-backed brands are struggling to raise their next round, with a majority of the investment community souring on the market altogether or, at best, valuing at multiples of earnings instead of revenue. To make matters worse, all economic indicators suggest that we’ve just entered a recession in which consumer spending is expected to plummet for the first time in a decade.

So, then, the question is — what now?

Without the financiers of preceding markets, the next generation of founders will be forced to employ smaller teams, mobilize a wholesale-first strategy earlier in their lifecycle, and be profitable on first order. Bootstrapped brands or those with minimal dilution, now with few options for friendly financing, will double down on strategies that maintain a razor-sharp focus on financial discipline and cash flow. Those waiting for the tide to turn will wait in vain and be washed out in the wave. Financial independence (aka positive cash flow) is now a prerequisite of doing business.

Large venture-backed brands that grew off the back of hiring large teams and yearlong payback periods will need to accept the reality that the window of blockbuster exits and being valued at software multiples has closed. As there is no longer acceptable excuse to turn a blind eye towards burn, leadership will need to be pragmatic take a decisive action to act fast and cut deep, else face an increasingly perilous road ahead to stay solvent.

The decade of using the current DTC playbook to chase venture-sized outcomes has come to a sudden and abrupt end and the changing of the guard will be swift and painful, albeit unsurprising to anyone involved on the inside.

We are at a crossroads in our industry — catastrophic as it may currently seem, this ultimately represents the inevitable shakeup and consequential opportunity that many of us have been waiting years for. This is not a cry for us to scale back our ambitions but instead, a call to action to put our heads down and get to work as everyone else panics and runs for the hills.

Those of us on small teams that have been patiently grinding away at the sidelines, earning loyal customers one by one, and developing truly differentiated products — now is when there’s money to be made and markets to be captured. Just as Uber, Stripe, and Airbnb rose from the ashes of the 2008 financial crisis, the winners here will share one of the greatest opportunities in recent history: to reinvent the enormous and antiquated industry of retail.

Where We Are Today

Key Advantages

This asset-light strategy has allowed us to use a horizontal product strategy to compete aggressively against our single-vertical peers, encouraging a higher repeat purchase rate and freeing us from depending on the performance of a hero product. In the current environment, if we had been reliant of the standard retail supply chain and purchased our inventory like a brand or retailer, we’d likely be dead in the water shortly.

Current Monetization Strategy

>90% of inventory is held on consignment from manufacturers
Italic marks up cost by ~2.5x, consumers buys inventory from online storefront
Take rate: 55% of each sale (50% per sale + 5% fulfillment fees)
Average order value: $150 - 175
Conversion rate: 0.5 - 1.75%
Average repeat purchase rate: 1.25 times / year (~$200-220 LTV)

The Challenge

The reality of our business model is that even though we pitch no brands (ergo no markups), we do indeed still have to mark our products up in order to make a profit upon which we split with our manufacturers.

This pricing model frequently comes into direct conflict with our underlying value proposition itself — our claim of “luxury without labels” may come across as disingenuous to those who are lured in by the strong pitch only to be disappointed by the prices we offer.

Is saving ~20-30% drastic enough to convince a lot of customers to switch away from competing DTCs that have built their entire brand and messaging around a single category?

Maybe. But I’m guessing that, in the majority of cases, the answer is a resounding no — and I believe the reasons are twofold:

By suggesting that Italic is offering quality goods straight from the factory and stripping away the brand — even if implicit — indicates that we’re competing on value and, therefore, price.
We have little-to-no buzz or hero products so why would someone switch to the Italic option if the difference is minor? I’ve had this same thought many times before when shopping on Amazon.

Supply-Side Complications

While our supply chain enables us to front-load inventory without incurring the capital risk, we still monetize on a standard transactional business model — that is, we make money when we sell items to customers and they don’t return them.

The flip side of this, however, is that our manufacturing partners who front the inventory cost only make money when we make money. While it’s true that we are thus aligned on sales, I can see issues in applying pressure to the supply-side to squeeze supplier margins in order for us to maximize profit (as we have already done with our 5% fee).

To ensure our long-term viability as a partner, we need to sell through their inventory to prove that we are indeed able to move their goods and earn them a return. While our supply chain is our greatest asset, it is no doubt more fragile than ever due to our reliance on manufacturers for supply and we’ve already seen gentle but clear fractures in their waning confidence.

Correcting Course

Alarming as all of this may sound, here’s the good news: we are not fucked.

We do _not_have unnecessary headcount, we are _not_stuck with multi-year retail leases, we are _not_spending big on marketing, and we do _not_have a lot of inventory on hand.

What we do have is a small, flexible team, a meaningful cash balance and healthy burn rate, and, most importantly, a sense of frugality and a can-do attitude that can best be attributed to having been through the shitter early on — in other words, because of our past mistakes, we have unwittingly been dealt a carte blanche to work with when most have a burning ship they need to salvage.

That said, in order to make the most of it, there’s no question in my mind that we’d be fighting a losing battle should we continue down the DTC rate race. Not only are we competing ineffectively on price and value, but we are also now living in a new world that no longer values our kind of business. I don’t expect this to change in the foreseeable future, at least not until our cash runs dry.

So, we are faced with this choice: unless we are suddenly able to be do massive volume (which I have yet to see any indication of us being able to in the foreseeable future), our current model will either force us to turn profitable immediately and become a lifestyle business or towards near certain death unless we take on dilution-heavy capital — neither of which is the positive outcome we want.

The Road Ahead

Nobody Cares What’s Under the Hood

Our core strength is our unique supply chain. While this has allowed us to quickly develop a horizontal product strategy and earn a higher repeat order rate than the norm, I still don’t believe we have leveraged this strength to its full potential due to our reliance on markups to generate a profit.

By examining our relationship with factories and their incentives, we see that they are essentially floating us inventory with the hope of accessing a meaningfully higher yield than that they would otherwise receive through their primary wholesale channel. While great in practice if all things go well, there are two issues that make the existing model problematic for both Italic and the manufacturer:

Italic takes a long time to sell through inventory

As a result, the illiquidity to the capital associated with the run may be less valuable to a manufacturer than the immediate cash on hand, even if there was a higher yield than outright wholesale. As an example, manufacturers have traditionally eschewed 5-15% of their receivables to factoring shops for faster access to capital due to the labor, materials, and equipment necessary for each run being heavily capital-intensive.

We are a brand that doesn’t want to be a brand

We look like a brand, talk like a brand, charge the prices of a brand, ship like a brand, and sell products like a brand — the only difference being we say that we aren’t a brand. Regardless of what’s under the hood and what we might tell ourselves, let’s be honest, nobody cares. As outlined previously, I believe this misalignment has directly hurt conversions and resulted in lower profile by being (incorrectly) deemed “yet another internet brand” by customers and the press.

If I could start all over, this is what I would wish for:

I want to break out from the DTC rat race with a radically different model
I want to offer beautiful, well-made products at truly at-cost prices.
I want to our manufacturers to be proud to be suppliers and to make a lot of money
I want to discover a new strategy that isn't reliant on product launches to earn customer loyalty.
I want to play to our strengths in technology, merchandising, and ops
I want our customers wanting to be actively involved our product development.
I want a model that doesn't require us to be beheld to unpredictable revenue spikes
I want us to be turning so much inventory that we have to be shipping containers every week.

The Membership

$60 for an annual membership to shop quality goods at truly at-cost prices. Italic doesn’t make any money on sales but only on the membership.

This would allow us to break out from the cookie-cutter mold of online brands that sell products directly to consumers and instead set a significantly more compelling and radical pricing strategy that undercuts all competitors in the market during a time when customers are seeking value above all else.

Our incentives become aligned with the customer, as we do not make money on product sales but instead on focusing on customer happiness and reducing churn. For members, they will make the membership back in the form of savings in the first purchase or two.

Suppliers are paid out the same amount per item as the existing Italic model (2-3x what they currently make per item) but since we would encourage members to purchase frequently to gain the full value from their membership, we hope that payouts and reorders increase significantly as a result.

Because of our existing horizontal product strategy that we can carry over from our current model, we are uniquely positioned to launch this whereas it would be impossible for any individual DTC to accomplish since they have to make money on transactions + markups.

Financial Impact

We stand to make just as much if not more money via memberships than on transactions if all else remains equal while providing more value to our members and more sales to our suppliers. By collecting the revenue upfront, our team would have a larger budget to acquire new members.

Current

AOV: $150-175
365-Day LTV: $200-225 (1.2 - 1.3X)
Gross margin: 55%
Fully-loaded contribution margin: ~40%
Breakeven on first order: $60-70
Breakeven on LTV: $80-90

Membership

ARR: $100
LTV: $200 (50% churn / year)
* Fully-loaded contribution margin: ~80%
Breakeven on first order: $80
Breakeven on LTV: $160

* Estimate based on existing economics

Building the Flywheel

The membership model will succeed when we achieve a flywheel effect: the more members we acquire, the more suppliers we can close and products we can offer which in turn helps us acquiring more members, and so on and so forth ad infinitum. As is the case with any marketplace, we will never have the perfect balance of supply and demand but we can do our best to try to balance out overcorrections (e.g. Q1 2019 we overcorrected for supply when the demand did not yet support it).

More Members →

Generates cashflow to develop new products and pay suppliers more

More Products →

Improve new member conversion and reduce existing members churn

More Members →

Generates cashflow to develop new products and pay suppliers more

More Products

Improve new member conversion and reduce existing members churn

Go-to-Market

I want to see less “taking the high road” — we must embrace hustle and play to win.

In order get the flywheel moving, we need to develop a clear strategy with well-articulated goals and to communicate this strategy throughout across our entire organization, employees and vendors alike. My proposed strategy and corresponding pillars can be summarized into four jobs to be done:

- Brand Awareness Strategy—****job to be done: introduce new members to the Italic, convince them it’s more than worth the price, and foster strong customer advocacy for and/or loyalty to the brand.

This includes finding high-ROI, creative bets to improve our brand awareness and perception:

Aggressive outreach to reporters on why Italic is both higher quality and cheaper than DTCs
Growing our acquisition of new ambassadors
Develop industry awareness as a leader of the next generation of post-DTC commerce
Organizing low-budget community events and trips
Planning and producing unique, differentiated shoots as efficiently as possible
Automating and scaling our in-house micro-influencer gifting program

- Customer Acquisition Strategy—****job to be done: define, monitor, and report on customer LTV and payback periods, acquire new members at a profit (preferably without spend).

This includes developing our organic channels, scaling existing paid media, and running lightweight tests on new mediums for customer acquisition:

Invest in SEO via a coordination between PR (backlinks) and on-site content
Develop a deep competency in SEM and Facebook and move to bring in-house or through agency while reducing attributable costs
Run data-driven experiments with new paid channels such as podcast, television, and OOH
Improve our referral program to include more incentives aside from credit

- Community Strategy— job to be done: onboard new members, retain existing members, turn loyal members into brand advocates, and involve members in the development of new products.

Productize our community into providing feedback or requests to aid merchandising
Incentivize participation in conversations and feeling included in product development
Design, implement, and rollout referral program
Create new member onboarding program and follow up with members
Monitor and be responsible for maintaining >50 NPS
Operate and run campaigns for our concierge-style shopping service

- Merchandising Strategy—****job to be done: source and launch compelling, new products that increase conversion rate on new customers and and prevent customer churn from existing.

This includes expanding our current product offering to include higher frequency, lower ticket SKUs and monitoring the impact on net new customer conversion and retention metrics:

Deepen our existing offerings to incentivize a higher perception of value
Expand our offerings that are recession-proof (basics, home wares, kitchen)
Increase our lower-priced items to encourage repeat purchase behavior
Create and send automated emails to customers to show tangible savings derived
Speak to members and listen to feedback to inform sourcing and development
Track and report on churn in tandem with the growth and analytics team

- Supplier Relations Strategy—****job to be done: prevent supplier churn by monitoring and communicating inventory turnover, increase payout velocity, and measure supplier satisfaction.

This includes restructuring our supplier-facing teams to be focused on account management and measured by supplier happiness and sell-through:

Streamline the process of introducing new products to reduce the total lead time to sale
Build the ability to offer more options for payouts with incentives to wait longer
Create more robust self-serve way for suppliers to generate reports or access sell-through
Monitor inventory on-hand and communicate upcoming campaigns or potential orders

Personnel Deficiencies

Thankfully, I don’t believe we will need to make any cuts to transition into this new model. In fact, we are missing two critical components that would enable us to take our best shot at a successful pivot:

Engineering

As running a membership program is significantly more complex than a typical storefront, I want to hire one scrappy FT software engineer to work on reporting, data piping, and the membership experience (preventing churn, managing subscription, referring friends, etc).

Creative

Whether achieved through a FT/PT creative director or tier-1 agency, we currently have no ability to set a vision for style guide, graphic design, art direction, or creative direction.

Our Culture

The New Normal

In order to ensure the success of this pivot, we are going to fundamentally shift the way we do business, and that starts with our cultural norms and values.

This does not suggest we are going to all of a sudden change our personality: during this period, we need to lean on each other and I ask each of you to find ways be supportive, helpful, and kind-hearted towards one another. As always, well-intentioned criticism and tension, in moderation, is healthy and welcome. Instead, what this means is we need to see the uncertainty at hand as an opportunity — we need unity to move as one and the agency to work autonomously as individual contributors.

As such, please read the following values and to wholly prepare for the new world we’re living in. It may be an uncomfortable transition but I am confident that if we make the appropriate changes and shift our collective priorities to wartime and survival, we will make it out the other side stronger than ever.

Our culture is competition

We get up in the morning to beat our competitors. They may be bigger, they may be older, they may be richer, they’ve shown the market demand — but, frankly, we know we can eat their lunch. We are not here to out-innovate them, we are here to ruthlessly out-execute them.

Our culture is iteration

Despite being one of the world’s largest industries, retail is notorious for being slow to get with the times, resulting from prioritizing maintenance of the status quo over innovation and progress.

Whether we are discussing an incremental improvement or a fundamental shift to the entire business, we embrace change and welcome challenges at all times. Just because a practice may be commonplace or accepted does not mean that it is the best way to do things, let alone most effective or efficient. A company that’s able to iterate is a company that stands a chance at surviving through generations.

In a little known story early on in the history of Zappos, Tony Hsieh was able to secure Net 90 payment terms when rest of the industry was 45 by calling all of them saying if they didn’t accept 90 then Zappos was going to go out of business. Why was he able to do this and nobody else? Because he didn’t know any better literally just asked.

Our culture is teamwork

We are not a family — we’re a team. For us to win, everyone (everyone!) needs to be performing at their highest level, working together with dignity, and holding each other accountable at all times. I can’t do my job well if you aren’t do your job well. There is no time for politics or pettiness when there’s work to be done.

Our culture is anti-establishment

An ambitious mission will inevitably rustle the feathers of incumbents. In an industry as large and archaic as retail, big players are incentivized to maintain the status quo.

We must never forget that our purpose is to uplift those in the supply chain who have been unfairly marginalized. If we succeed, brands and retailers will really, really dislike us. That will certainly be uncomfortable. But our manufacturers and customers will remember and cherish what we have done for them forever.