Good day ladies and gentleman and welcome to The RealReal Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program, Mr. Paul Bieber, Head of Investor Relations. Please go ahead sir.

Thank you. Good afternoon and welcome to The RealReal’s earnings call for the quarter ended June 30, 2019. I'm Paul Bieber, Head of Investor Relations at The RealReal. Joining me today to discuss The RealReal’s results are Founder and CEO, Julie Wainwright; and Chief Financial Officer, Matt Gustke. Julie will provide an update on our business including progress on a few key initiatives and then Matt will review our Q2 financial results and financial outlook. This conference call will be available by webcast on our investor relations website at investor.therealreal.com. I’d like to take this opportunity to remind you that during this call we'll be making forward-looking statements including statements relating to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our financial perspectives for our initial public offering filed with the SEC on June 27, 2019 and the risk factors included in our From 10-Q that will be filed on or before August 14, 2019. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them except as required by applicable law. Our discussions today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and supplemental materials, which is furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website. I would now like to turn the call over to The RealReal's founder and CEO, Julie Wainwright. Julie?

Hey, thanks, Paul. Good afternoon and thank you for joining us on our first earnings call as a public company. For those new to The RealReal, we are excited to introduce you to our business. For everyone on the call, we are thrilled to share our progress with you and provide you with details on our second quarter financial performance. Before we proceed, I'd like to take this opportunity to thank our consigners, our buyers and our employees for help making The RealReal into the world’s largest online marketplace for consigned luxury goods. I'd also like to thank our new public market investors as well as our private investors who are their trust and capital in that. We are very pleased with our IPO progress and investors’ enthusiasm with our market. While our IPO was a major milestone, we believe we are in the very early stages of capitalizing on a massive TAM, which I will discuss in more detail shortly. First, some quick Q2 financial highlights. We generated GMV of $228.5 million, a 40% year-on-year increase, and revenue of $71 million, a 51% year-on-year increase. We are particularly happy about this growth given that we achieved it while driving significant marketing leverage. Matt will provide more color on our quarterly financial performance later in this call. Since many of you are new to our story, I'd like to start with a brief overview of what makes us unique and then talk about a few key initiatives in the second quarter. The RealReal’s mission is to empower consigners and buyers to extend the life cycle of luxury goods in a way that honors the luxury brands. We are truly revolutionizing luxury resale by unlocking supply, instilling trust and continuously investing in our technology platform. Our marketplace provides access to authenticated…

Thanks Julie. And good afternoon everyone. I'd like to echo Julie's comments that we're excited to discuss our results in our first public quarter and to share our outlook for the business. As Julie mentioned, we generated revenue of $71 million in Q2, 51% year-on-year increase. In GMV of $228.5 million a 40% year-on-year increase. Before we discuss the details of the P&L, I'd like to start by reiterating how we manage the business financially and from there translate that into our results and outlook. First, we're very proud of our leadership position in authenticated luxury consignment. And as our growth and customer satisfaction have demonstrated, we are addressing a massive opportunity. We are still in the very early stages of capitalizing on this opportunity and are confidence that there is much more growth in front of us than behind us. Our primary focus remains on unlocking supply through our unique supply acquisition model that removes practically all of the friction for consigners, as well as delivering a superior proposition for buyers. We will continue to invest aggressively in growth through marketing investments, growing our sales team, adding expert authenticators, and expanding our operations capacity. Secondly, as we have always done, we will balance these investments with improving unit economics and operating leverage. We benefit from scale to leverage fixed cost and to drive unit level efficiencies, so our investments in growth are consistent with driving toward profitability. Additionally, we will continue to optimize our spending to drive leverage across all parts of the business. Third, we will focus on increasing gross profit per order through our average order value, take rate and cost of sales, as these increases amplify the leverage of our operating expenses. So let's discuss the results for Q2 after which I'll provide an outlook for…

Certainly. [Operator Instructions] Our first question comes from the line of Michael Binetti from Credit Suisse. Your question, please. Michael, you might have your phone on mute. Michael, we’re still not hearing you. Would you like to move on to the next question here?

Yes, please. We can come back to Michael.

Great. Our next question comes from the line of Justin Post from Bank of America Merrill Lynch. Your question, please.

Great, thank you. I guess, one for Julie and one for Matt. And congrats for getting through the IPO process. Julie, just I guess, first on supply. I’m wondering how the sell through rates were in the quarter, how you feel about those. And then secondly, what are the key initiatives? I know supply is so important in the second half. Maybe you give us an update on a luxury manager head count and other key initiatives you have in the second half. And then Matt on your guidance, appreciate the GMV guidance. Any other things we should be aware of that could affect the revenues besides take rates, such as the mix to direct revenue or returns or any other nuances to revenue in the second half. Thank you.

Thanks so much, Justin. Hi, it’s Julie, obviously. So first of all, I don’t – I’m going to be careful about what we give about and what we don’t give about. But our sell through rates were healthy, as you know, we do control the pricing of the product and we can vary the rates based on trends we see in the marketplace. So maybe we can vary the price. So we had a healthy sell through rate and nothing extraordinary or different than what we’ve seen in the past since Q2. And then in terms of what we’re doing for supply going forward, I think it’s worth noting that at least in LA and New York. Our supply is all – it has a component, not a significant component, but a component coming from the retail stores. And we did open a small footprint store at Madison, that’s also contributing hopefully to our supply mix. But our supply initiatives are as they’ve been in the past, we get most of our product and regarding of our products from white glove in-home visits followed by them, people who send them the products from inside sales. Now we’re going to have to put stores as a supply, an aggregate aside third source. And then lastly, we do work with some vendors and that’s a pretty small lesson, 5% of our total business for ad hoc product and opportunistic – opportunities from that channel. So we actually are really in great shape going into the second half of the year. Certainly, hiring LMs is important to us. We tend to hire ahead of the curve and bring them up to speed, I’m not going to give you the exact number, but we’re on track. We feel really good about the second half. One other reminder for those who maybe are new to our numbers, 80% of our supply historically has come from repeat consigners. Again, we haven’t seen any change in the second quarter to indicate that that won’t happen going forward in the second half of the year. So we’re pretty excited about our prospects for the balance of the year.

Okay. And I’ll take the second question. So, first of all, thanks for the question. So we guide the GMV, because we believe it to be the single best measure of the health and scale of our marketplace. Within that, of course, are some other trends that you have to use to derive to get to revenue. Take rate chiefly among them. We’ve talked about our expectations there. Other items that can affect revenue to your point include our return rate and the proportion of our sales that are from the direct business. Our return rate, we’ve seen essentially stable year-over-year with a modest decrease in Q2. Typically, we see a slight year-over-year decrease in the third quarter of the year, given the product mix of products and pretty much stabilization in the fourth quarter. So that’s how we think about that piece. And then direct revenue, as you might recall, was higher as a percentage of the total and Q1 then it was in Q2, reflecting the buildup of inventory from our holiday return period. So I would to expect to see direct sales as a percent of total sales decreased modestly in the third quarter, quarter-over-quarter, and then a bit more so of a decrease in the fourth quarter as that inventory is basically run through and our seasonal trends quarter-over-quarter are strongest.

Great. Thanks, Julie. Thanks, Matt.

Thank you.

Thank you. Our next question comes from the line of Michael Binetti from Credit Suisse. Your question, please.

Hey guys, congrats on a great start here. Sorry, we had a little technical difficulty there before. Let me ask you Matt on the AOV in the quarter, we got muted out for a minute. You may have said it, I apologize if you did, but I think it was down a little bit year-over-year. But I think if I feel my way through the metrics you guys give. That was a pretty big spike in the buyers in the quarter. And I think that – I think new buyers typically come in at a little bit of a lower AOV. Was that an explaining factor on AOV in the quarter? And does that play into the comments you made for how we think about the back half of the year on AOV?

Potentially. Let me just go through that. So AOV was flat year-over-year in the quarter at $453. That reflected average item price decreases across essentially all categories. We trace back to some pretty earlier than expected, but as many on the call now relatively aggressive promotional activity in the retail environment. That happened earlier this year than it has in past years and had a depressive effect on resell prices through the quarter. That was offset by an increase in the number of items per order. To your point, when we see prices go down. We tend to see an inverse correlation in new customer growth. So new customer growth tends to be strongest in periods, where prices are lowest. Beyond that, I think we saw in the quarter and quarter-to-date in the third quarter, very strong trends surrounding and post the IPO, in terms of leading indicator metrics for both supply and demand, whether it’s traffic growth, our membership growth or new consigners, new buyers, very encouraged by the trends we saw in the quarter and subsequent to it.

Okay. One other, just small modeling question a little more on maybe on the direct gross margin why that was up so much in the quarter, I know you gave us some thoughts on how to think about it for the rest of the year. I'm curious if there was any fundamental change that you saw in the quarter that might've caused what looked like an unusual number, but maybe on a more fund basis this would be a jump ball between Matt and Julie, but there was some very rapid improvement in the pricing automation line that you called out. Julie, could you walk us through maybe some of the initiatives there and then where we'll see that manifest itself? Is that on the P&L is that number keeps moving up?

Sure. Somewhat like that, I think just one component of what we do. It is the one that we actually have we can get top line leverage for and consistency, so when we automate pricing, we tend to have slightly higher prices and it's better for the consigner and it's better for us obviously. So pricing, we think by the end of the year are going to be over 60% of products being auto-priced, but we have other initiatives underway, and I think I have mentioned some of those. So let's reiterate some of them. We have automatic copywriting, we have automatic – while we're working on some things in the gemology area, but there are things that we're working on to further, it's actually the copywriting and receiving process to streamline it. Over time, this will appear in the operations part of the P&L, this year the impact will be a little hard to really understand the true impact because it's being layered-on-layer and but I would say next year you'll start seeing a nice impact. We're also testing and have had really good results with automating retouching. The retouching component, which is about $1 or $10, I have just break it out specifically for you, if we send it out, we most of it sent off shore that we can eventually get to 80% of it automated, but we're running some really good tests now, quite a bit of it's been automated. We get two benefits from that. Certainly a long-term lower cost in our operations units, but it also speeds up time to get on the site, sending products off-site for retouching, which is mostly color balancing and cropping can add-up to three days of incremental time. So we're going to get two benefits as we roll that out. But again, we're in early stages as you can appreciate. We test everything before we roll it out in a larger way to make sure that both the sell-through rate isn't unchanged or enhanced and customer services also calls-go-down, not up. So we make slow but steady changes and we're very judicious before we roll it out in a mass way.

Yes, just to add to that briefly. So those improvements as well as several process improvements within operations allowed us to demonstrate leverage in the ops and check-lines, despite significant investments in technology, in our warehouse infrastructure and so forth. So that's going to be kind of representative of how we think about it generally going forward, balancing investment with leverage overall. And to your question about direct margins, there's no particularly special story about what happened in the second quarter, it's a bit random. The number is relatively in the grand context of things it’s about $10 million in actual sales. I think what happened essentially in the second quarter like with the rest of the business we had lower price points being sold. And the lower price points correlate with a higher take rates so to speak. In the case of direct sales, let say a product margin equivalent. So it's just a bit of randomness within the business. We think over time that should stabilize in the high-teens, you could see a breakout quarter, that's in the mid-20. You can see one that's kind of in the mid-teens, but generally speaking it's going to bounce around. But we think direct sales as a percent of the total business should be steady to decreasing over time. It's not something that we are certainly actively trying to increase.

Okay. Thanks again for all the detail. Very, very, very helpful guys and congrats again.

Thanks.

Thank you. Our next question comes from the line of Edward Yruma from KeyBanc Capital Markets, your question please.

Hey, good afternoon guys and congrats on the IPO and a great first quarter out of the gate. I guess first, I know you spoke a little bit about promotion. I know though that a lot of your categories and products are probably not impacted by promos. Could you maybe ice a little bit more where you saw the biggest impact, where you are making pricing adjustments. And then second, as it relates to marketing expense obviously nice leverage there. As we think about the medium-term, how should we think about marketing expense leverage and what other options you have to take that cost-down? Thank you.

So I'm going to start and then this is obviously Julie and then Matt will kick in. So we've the promotional impact of discounting mostly from department stores is not new to us, they did start earlier this year, but as Matt indicated, we've already seen recovery fairly fast and where it impacts us the most is in the apparel category and specifically women's apparel category. Some products do not actually have a big impact and those tend to be fine jewelry and watches and some of the street wear. So we've seen this before. It was earlier, I know other people have indicated they thought it was deeper. We actually felt it was earlier but not deeper. And as we said, we did recover and it is something we balance all the time. We’ve balanced the tension between full-price discounting things and resell. So we're in pretty good shape going forward. I would say if department stores get desperate in September, October, we might have some of that tension that again, that'll be offset by high seasonality. So this is one of the beauties in our diverse product line. This is one of the beauties of having product diversity, because we don't see it on fine jewelry, watches of men’s, and streetwear, and even women's handbags. So we feel pretty good about where we're going and we're doing really well so far in Q3 again.

Okay. Yes, so I think that pretty much covers the promotional question. So I will speak a little bit about marketing leverage. So one of the beauties of marketplaces in general is that once they get to a certain level of scale, you can sort of count on a network effects to support growth. We certainly have that in abundance amplified by what we call the flywheel effect of buyers becoming consigners, and specifically consigners becoming buyers in the equation of a buyer acquisition costs and that continues to the proportion of our consignors who becoming buyers has been consistent, that conversion has been consistent. The same time, our ongoing media mixed buyers toward television continues to generate very healthy returns for us, not only in terms of generating high numbers of new customer growth, but doing so at a very low cost relative to our other paid channels. And with very productive users who happened to also align with the existing demographics of our buyer base. So growth in the right areas at the right cost and we see quite a lot of runway ahead of us there. On top of that nearly half of our new buyers in any given period are actually converting out of our – the member base that we have accumulated prior to that period. So right now actually our membership base is growing. I won’t say exponentially, but it’s growing very quickly. There could be some degree around of an IPO halo effect around the business. But that base builds that will just kind of create a pool for us to convert for many quarters to come. So those affects together we’d expect to see continuing driving marketing leverage. That said, we are going to be offer two things, one expect quarter-to-quarter variability in our marketing spend just based on the timing of when we choose to spend more heavily and less heavily based on the ROIs that we anticipate. And we may be opportunistic and elects to invest more aggressively to accelerate or to just underscore about supply and demand growth. So I think you can anticipate embedded in our guidance is no real significant change in terms of leaning in the near term, but rather continuing to see rather healthy growths of rates of year-over-year marketing leverage.

Great. Thanks so much guys.

Thank you. Our next question comes from the line of Scott Devitt from Stifel. Your question please.

Hey, thanks. One for Julie, one for Matt. First Julie, you talked a bit about the promotional activity in the quarter and the impact on the business and interestingly the business still grew very nicely despite that in terms of lower prices being offset by more items per order and more buyers. And so just taking a step back kind of understanding that promotional activity department store closures and things like that are going to be an ongoing industry dynamic going into the future. And just how you think about that in terms of the way it impacts the business, if at all of the positive, negative or total non event? And then secondly for Matt, square footage, I think you’re up to roughly 1 million square feet now. If you could talk a little bit about capacity utilization, where you think you’re optimized and when you’ll think you’ll need the next facility in the future. Thanks.

Okay. Let’s go back to promotional activity. So again, I want to underscore that this is not a new phenomenon for us, because there’s two factors going on with our business. We want to get the absolute highest price for the consignor but also for us. But we also want to sell through items. Some items are more vulnerable to a tension between department store discounting. And those tend to be actually contemporary and mid-tier luxury brands, which are the ones that get discounted most heavily during this time. And so there is a tension between what price we can charge versus the discounted new price. That’s something that we’re always pushing up and testing the limits. Actually that we saw a promotional effect and it did happen earlier. The truth is we’re actually discounting less on quarter on quarter than we have in previous times. And that’s because we’ve gotten more sophisticated in the way we do it. Again, this is where diversity of product serves us. So going forward, we feel like we’ve got enough flexibility in our business model and discipline around our pricing and the way we actually view pricing versus sell through to do an accurate prediction of what’s going to happen. Now certainly extraordinary things can happen. But we have been there before. I think 2013 and 2014 we are particularly bad and we maneuvered and we’ve gotten more sophisticated and our product lines gotten more diverse since then. So we felt pretty confident about our ability to write out the storms that are in front of us, especially when it comes to and again, it’s primarily department card discounting of women’s apparel.

Yes. There is nothing to add to that. So I’ll take the other question around just our general capacity within our e-commerce centers. So as you correctly noted, we added about a 0.5 million square feet in May that doubled our capacity. So if you think about it differently, means that first $500,000 got us to about $700 million of GMV, which is what we achieved in 2018. So you should expect that the next DC will give us about that much growth capacity. So we overly precise about that, but think about it plus or minus two years of growth, after which we’ll need probably another one of about the same size.

Okay. Thank you.

And just to add one other thing on that. And of course we’ll have to bring it down before we need it. Otherwise, it makes very unhappy employees. So and it usually takes us four months to six months to ready a warehouse to make it condition ready so we can conduct business.

Thank you.

Thank you. Our next question comes from the line of Aaron Kessler from Raymond James. Your question please.

Thanks and congrats on the quarter. A couple of questions. First, if you can just talk to me about customer demographics and how you see that evolving and also maybe to some traction with some of the – maybe some of the newer verticals including men’s, home and other, and then maybe for matches on the services revenue. How would you think about that going forward and kind of what the trends in First Look subscribers? Thank you.

So on the demographics, we are – this year we had a changeover point where millennials and younger became the single largest group of buyers and consignors that’s still getting stronger. I mean, part of that’s just the millennials are also getting older and they’re getting at richer, so the consignors base shifting along with the buyer base. So and part of it’s our media mix. So that trend is continuing and I would expect it to continue, and also we did change our media mix and television along. Well any television along with OTT is really helped. So the other thing you should know is that by increasing our – well, so, let me back up. Our base is also gotten more male, and that's gone up slowly but that's also driven by more male consignors and we certainly have seen that growth pretty substantially this year, it's our fastest growing, it’s still fairly small as a percent of our total ad category, but it is the fastest growing. So when you – this is no surprise you have the more male consignors. You have the more people consigning men's streetwear in particular or men's clothing. The more men you're going to get on your site and we've seen that rise fairly steadily. We're pretty excited about that. But I think it's really key to say that we do still appeal to a really broad demo. I just want to reiterate this there is an idea that as some of you’ve heard people say or everyone's rich. In fact, 50% of our buyer and consignor base have an income under $50,000. So we're attracting a younger, more vibrant group and certainly 50% are above it. So we still have a broad demo. I don't know if that answered, but sorry – Paul Bieber just said it was a 100K, sorry it’s 50% above 100 and 50% are below 100.

Got it. That’s great.

And did you ask about new categories? New categories...

Yes, I think, yes, new categories I think you commented about man and then just on the services revenue.

Well men’s is, I mean just a fastest growing. We are not giving out the exact breakdown. We did it in the S1 but it is actually continues to grow across a little slower but in terms of the overall mix, it's getting more important for us. Home & Art is fairly steady, so it's growing the rate of the business but not beyond that and certainly men's is growing faster.

And for those of you who are less familiar, so our men’s business is a relatively small proportion of the total single digit percent of our GMV growing significantly faster than the overall business. Certainly the trend towards streetwear and sneakers has helped our business quite a bit as well as the roll out of our retail stores particularly our store in Los Angeles that has helped actually dramatically change the growth rate of our male consignor and buyer base in the overall category. And I think you also had a question about other revenue, I’m afraid there’s not much more to get into there. The lion's share of the other portion of revenue is shipping. Shipping fees that we charge to buyers, I mean that’s going to be relatively consistent per order going forward. First look for those of you who don't know, there is a program that we have that allows buyers – primarily the primary benefit is earlier access to products that are newly launched to the site; 24 hours before they're available to the general public. It's a very small source of revenue, but an important benefit to our customers who very much crave what is newest and hottest. And it’s a non-trivial amount of our business is sold of the items that are re-posted to the site within the first 24 hours.

Great. Thank you.

Thank you. Our next question comes from the line of Eric Sherman from UBS. Your question please.

Thanks for taking my question. Maybe two follow-ups on the store strategy broadly, now that you're getting some real experience with what these stores do to both drive the Flywheel and more specifically drive supply. How do you think about investing against the store strategy going faster, moving along and already and we all serve a steady pace you’ve talked about in the past? How might – what you see in that strategy play out over the next six to 12 months change or more maybe some of the investment strategy you think. And as you see more of these stores top-up are there secondary benefits where from a branding perspective and a marketing perspective, there could be incremental layers of efficiency in the model because the store gives you a more physical presence and drives more awareness and drives more supply into the store and therefore maybe you have to – you don't have to run as fast on the treadmill on the marketing side to drive the same level of Flywheel effects. So we’d love to go a little bit deeper on – on both of those topics? Thanks everyone.

Sure. I’m going to start and then I’ll kick it over to Matt. We actually don't have any change right now and our plan – our goal is to roll out two maybe three stories a year, but most likely two stories per year. And we're waiting for the right location, the right build out cost, the right rent so we can actually roll them out efficiently. We do not need the stores for growth, but they are a good brand reinforcer and they've proven to be also a good source of GMV as we’ve said before. We only have one store that's been around for now, I mean LA is just about ready to lap itself and it just did and then the SoHo store has been open 18 months. So it would – it really wouldn't be judicious of us to continue to rollout multiple stores. I will call out that we're still testing a little bit. The store in Madison is a much smaller footprint store and we want to understand that impact. So we can put that in our mix for potential either the second store in a market or smaller markets, but you can't expect a store to rollout in the first quarter of next year. And again, we're going to do it. We're going to take it slowly. We're in no hurry here and we're just starting to understand the impact of awareness. The other thing I want to call out, you talked about marketing efficiencies. We're getting great marketing efficiencies independent of the stores, and so we wouldn't need the stores to achieve our economic model on a increasingly marketing efficient business.

Yes. Just to add to that on the pace of investment in stores. To Julie's point our stores are so new as a portfolio that they – we just really need more time just to get more experience, more data and watch the cohorts of cosigners and buyers who will through the store. As well as the halo effect in the markets in which the stores operate. Before we were to do anything different, so certainly not next year. What we deviate from the plan of approximately two new stores? If the existing stores and those new ones continue to perform like they do or even improve their performance, we'd reevaluate at some point down the road. But with do so only in the context of our overall drive toward profitability. We wouldn't use a retail store expansion to deviate material from that. Second – on the question on marketing, yes, you're absolutely right, the stores are great drivers of awareness and support our overall marketing efficiency. So over time that – it absolutely does take some pressure off continue increases and efficiencies in our overall marketing investment. So you can’t think of it as sort of a portfolio of assets that is driving awareness and ultimately acquisition and retention of the base of consignors and buyers.

Great. Thanks so much.

We have time for one more question.

Certainly. Our final question then comes from the line of Oliver Chen from Cowen and Company. Your question please.

Thank you very much. Regarding take rate, what are your thoughts on the dynamics there in terms of the long-term benefits, whether that'd be mixed or like for like? And also I would love your thoughts on agility that you have and the levers that you can pull, if the environment and competitors discount more than you expected. What happens like in terms of your response and what you can do within your control?

Go ahead.

So I'll start on take rate. So the time for dissertation on our take rate philosophy, but in general the core of our commission structure to consignors is a tiered structure, whereby the more that a consignors sells the higher rate that they earn. And that's a very important driver of consignor retention and loyalty within our ecosystem. On top of that, we've layered a number of exceptions on both the high end and low end, if simplistically. So a lot of certain higher priced products like watches and handbags and sneakers will get a commission incentive, so we'll take a lower take rate on that, but the prices are so much higher that, the actual net to us in terms of revenue and gross profit on that transaction is still very healthy. We've subsidized that and offset that more than offset that with increases in take rate on the low end of the spectrum. So currently we have a 60% take rate on items under $145. So that's how we think about the blend and we're always thinking about the best ways to optimize both sides and the totality of the system so that we can balance supply in making sure that we're getting the appropriate mix of products across categories and price points. And we'll continue to do that over time. And at the moment, we are competitive across every category and every price point. So we're able to do that, and that being multi-category, it has a lot of benefits, one of which is the ability to react to competitive environment on things like pricing and take rates in the context of our broader strategy. And then on the question of agility in what can we do? Well the good news is our costs are not fixed on products. So the beauty of a marketplace model is that we're going to get the same percentage of the transaction in our revenue regardless of the price. So we have to some extent a partial hedge against that environment, but to the extent that we see as sustained heavy promotional environment, I don't know that it can get, frankly, much more sustained and significant than what we've seen over the past year. So I think we've been through that and what we've learned to Julie's point is being diverse across categories is our best weapon. The depth of promotional activity tends to be really focused on women's apparel, which is our single largest sub category, but pretty much everything else has a lot of insulation around pricing, whether that's handbags or jewelry or watches or men's products. So the more that we diversify our product mix the less susceptible we are to those pressures.

And then one – well, one last thing on the – how much going on with take rates on the category-by-category level. Look, people – the easiest way for any competitor to get into a market is to offer a greater, give the consignors more money, issue then becomes, can you sell through that item or will you end up paying them out. So their cost structure is going to be inverted, which again, especially if you're focused on a single category, our frat breadth across categories does give us incredible flexibility and our incentives for a container to stick with, thus we need the more you make, the more you get to stay at that level. The next year also helps keeps consignors repeat rates as high as they are.

Thank you. That's very helpful. Just a quick follow-up on the unit, the per unit dynamics. Does that interplay with fulfillment and handling cost in terms of how that fluctuates? And just needing to touch more items through your system or not so much?

If I'm following your question, it's around the number of items in an order increasing and does that have an impact on other costs?

Yes, because sometimes in companies like – as the number of units increases and the AURs go down, there is more logistical costs than you previously expected in handling.

So first of all, kudos to you for getting one extra question and we said it's the last one. And secondly, yes, there is obviously a cost, however, we have so many – so much work on our operations by process optimization and then automation in key areas. It is actually – we're able to balance that at this time and we feel really good about us showing more leverage in that area than deleveraging in that area.

Thank you.

All right, guys. I think that's it, do I get to make my closing? Thank you very much, to offer joining us on this call, we're excited about our results in Q2 are looking forward to talking to you again to report Q3 results. The other thing I want to thank of course are the employees which work very hard at the RealReal, and our consignors and buyers. So with that, I think we're closing up the call.

Thank you. And Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.