This startup makes money from other people’s closets

(L-R) Material Wrld co-founders Rie Yano and Jie Zheng. Photo credit: Glamour.

This article is part of Tech in Asia’s partnership with Disrupting Japan where we publish the revised transcripts from the show’s podcast interviews with Japanese entrepreneurs. This is heavily revised from the original transcripts. For the full interview, go here.

Online marketplaces are usually designed to be low-risk, low-capital organizations that focus on building a platform where buyers and sellers do as much of the work as possible. Rie Yano, the founder of online marketplace Material Wrld, however, ended up taking a very different approach.

Could you explain what your company is and how it works?

Material Wrld is based in New York. We are a service that helps women refresh their closets. [We] focus on the reuse of designer fashion pieces with quality that lasts long. So we connect secondhand clothing by using this trade-in service where a woman can easily mail in their fashion pieces that they’re no longer wearing to us and instantly get an offer to go and shop [for new clothes]. The collected fashion pieces are then resold to our customers.

How did you and your co-founder come together to start this company?

I had another startup when I was in business school that I launched with a few other HBS (Harvard Business School) friends. And when I graduated, I decided to shut that down and stay in the US. The original purpose of me going to business school was to really learn what was out there, outside of Japan. And when I decided to stay, I actually wanted to join a US startup, but realized that no one would sponsor my visa. So I had to quickly figure out what to do.

I decided to join Coach in their digital marketing department as a producer, and the decision that I made there was based on a few things. I definitely wanted to be in the internet space and I wanted to prepare for my next startup. I had a few different industries that I thought I would be interested in, including fashion. So that led to me taking that job at Coach. Jie, my co-founder, has a background in operations and logistics and also took a job in fashion in New York at Ralph Lauren and J. Crew. The two of us were the minorities at HBS. What Harvard grad goes into fashion, right?

I think 80 percent of our classmates are either management consultants or investment bankers. And the reason that we got along from day one was that we were the minorities in school.

What did you want to do when you went to business school?

Business was not something that I was interested in growing up. But I went to business school because I was in New York with Mitsubishi and I realized how much I took for granted. Life was easy because of the Mitsubishi name, and living in New York, you meet so many talented people who come in from all over the world and they’re all hungry to succeed or create something.

I realized that I’m living in a small bubble that’s so protected. And yet if I was kicked out, what would I do? What could I do? I really think that that moment—when I was in New York when I was 24—was when I realized that I needed to get out of here. I need to actually go out there and survive on my own. I didn’t know what else to do but go and get an MBA, so that was my choice.

When customers send you their clothes, you take that inventory. Do you consider this to be a risk? 

Inventory for us is very different from fashion inventory of typical ecommerce businesses in that we are the ones setting the price point for what we buy and determining what we buy. We do that based on our historical data. It’s real-time data on what items and categories are reselling for in the current market.

We actually have enough data internally from our own resale historics to have confidence in how much we can sell that merchandise for. We also do some comparison analysis for brands and for categories that we may not have accepted enough of in the past. For that, we would look at other resale websites such as Ebay. We then basically take that data to determine the price that we auto-populate when we’re pricing each of the merchandise that comes through our way.

Was holding used inventory part of your strategy from day one?

It was not our strategy from day one. We started our service as a peer-to-peer marketplace, and we focused on designer fashions. But what we realized as a challenge when we launched as a peer-to-peer marketplace is that the majority of merchandise that our customers were posting were not designer fashions—they were the H&M, the Zara.

What we learned from the year and a half that we ran the marketplace was that a lot of younger women—aged 18 to early 20—are okay with taking photos of their goods, putting a price on it, interacting with a potential buyer, and having their own closet revealed publicly on the internet. While a lot of the customers who do have designer fashions in their closet felt like they would prefer to use a service that would take care of that.

From the seller’s side, we realized that our service was not convenient enough—not hassle-free enough—to target the right audience. And then on the buyer’s side, what we realized was that when you make it a marketplace, the biggest issue is fake goods with designer fashions. So everyone wants some third-party service with authority to come and authenticate those goods so they can purchase it with the confidence that it’s true.

Do you have plans to enter other markets?

What were some of the big changes your company had to go through?

Young Japanese are moving to the US to start companies. Is that because of a lack of opportunities in Japan?

If I gave you a magic wand and I said you could change one thing about Japan, what would you change?