S14 E07: David Rosenblatt, CEO of 1stdibs

[MUSIC] You're listening to the luxury item, the podcast on the business of luxury, and the people and companies that are shaping the future of the luxury industry. Here's your host, Scott Kerr. [MUSIC] It wasn't too long ago that the idea of buying luxury goods online felt like a Jetsons-esque fantasy. Now we've grown so accustomed to the new reality that it barely raises an eyebrow to hear that people are buying luxury watches, cars, and $69 million NFTs through digital channels. This is simply what we do now. One company that's been ahead of the curve is First Dibs. Founded in 2001 by entrepreneur Michael Bruno, as a way to bring the Paris flea markets to a global audience, it now operates an online marketplace for luxury design products worldwide. Its marketplace connects wealthy customers with sellers and makers of vintage antique and contemporary furniture, and home decor, jewelry, watches, art, and fashion products. First Dibs went public with an IPO in 2021 that raised $123 million. Today it generates roughly $400 million in sales. My guest on the luxury item is David Rosenblatt, CEO of First Dibs, a position he has held since 2011. Prior to First Dibs, David was CEO of DoubleClick until he sold the company to Google in 2008 for $3.2 billion. Following the acquisition, he stayed on as Google's president of Global Display Advertising through 2009. David served on the board of Twitter from 2010 through its sale to Elon Musk in 2022, and is currently on the boards of IAC and FarFetch. David continues to make his mark on First Dibs, and his future forward vision has helped bring First Dibs to the forefront of luxury's online conversation. Welcome to the luxury item, David. Thank you Scott. Appreciate it. Yeah, thank you so much for joining me. First Dibs is almost 25 years old, but many people might not be familiar with the online marketplace. Perhaps they've stumbled across an online ad for it. A great place to start would be to tell my listeners the backstory of First Dibs. As I mentioned during the show's intro, the original business model for First Dibs was to provide vintage and antique offerings of the Paris flea market online, essentially taking an exclusive experience oriented business to the wide open internet. So could you talk about First Dibs founder Michael Bruno and where he originally saw the business opportunity here? Sure, absolutely. In fact, this year is exactly our 25th anniversary, which puts in a very small group of digital companies. Yeah, so Michael is a fantastic entrepreneur who also happens to have an unerring eye for a great design and 25 years ago, happened to be walking through the Paris flea market, which for those of you who don't know is the design district in Paris. And he found himself surrounded by the best dealers in the world of the best design. And he asked himself this simple question, why isn't this online? Most of the buyers, then as now are American interior designers. And so it seemed to be a natural fit for the internet. So he he found a partner, a man named Lolo stayed with the company for a long time in Paris to help him build the initial website. And actually it was 9/11 really that provided the initial spark for the business because of course in the aftermath of 9/11 flights were not operating between Europe and the US. And so your designers weren't able to shop in the way that they had in the past. A New York Times article ran on this new website and the magic was made from that point on. First dibs was sort of firmly a part of the digital design landscape. And then after that, Michael moved himself, Michael is American, Michael moved himself and the business to New York from that day until about late 11 so roughly 10 years, the business grew organically by organically, I mean without digital marketing spend in a serious way. And then after that, I found out most of the formal functions, you know customer acquisition teams, large engineering teams, that kind of stuff that that most technology all technology companies really have. Nevertheless, it really earned itself into a really important position in the industry, it provided a service to buyers and to sellers that neither had. And so the overall behavior change and the seller behavior change and people gain comfort with the internet, you know, it to gain scale. By the end of 2011, Michael brought in one of the leading, if not the leading Silicon Valley investors called benchmark capital. And I came in with that investment and you know it's interesting actually I, you know, I not heard of the business. In fact, the first thing I did when I got the call on the company was, you know, I was in the middle of two projects with my interior designer and I called. And when I asked him if he had heard of the business and he said, you know, you heard of the business there, you know, you have your half of both of your houses were sourced on this. And so the light bulb went off and I kind of looked at the business, you know, there were many obvious things as I mentioned that the business lacked pretty much all of the attributes of contemporary consumer technology companies. But Michael ended up creating the actually the two hardest things, but most valuable to build in a business. One is a very strong brand that I thought could accommodate growth and other geographies categories and so on. And then secondly, a network effect. And you know, when one looks at almost all of the leading consumer tech companies, you know, the primary asset that they have is a very strong network effect. And so, you know, those two assets are very hard to find. And I kind of looked at this and I thought, OK, you know, I'm in. And since then, my focus has really hasn't changed actually in the intervening 14 years. It's been to convert what was a relatively actually not relatively, you know, you know, you know, in almost every sense. And a very small kind of, but highly useful utility to the design industry into a much larger luxury platform. And we've had, you know, three priorities that again, sort of in the main of not really change in the 14 over the last 14 years, one is expand the business and the categories beyond its original vintage and antique category. And then expand the geographies we operate in outside of the US. And then last and most important is or most significant was to change the business model from its original listings model into an e-commerce platform. So migrating craigslist into eBay or anything along those lines. And, you know, it's worked very well. So today, you know, from those modest beginnings, we have 1.8 million items on the platform from 7,000 sellers, all of whom are both vetted and professional sellers. We don't source from consumers half of those sellers are outside the US. We operate in four major categories, you know, furniture, jewelry, art and fashion. And, you know, we do roughly $400 million a year in gross sales. So why do they want to do business with first tips? They meaning our sellers. Yeah, the seller. Yeah, because we offer something that is otherwise almost impossible to achieve. I mean, they're small businesses that operate, who operate in a global business, right? So we specialize, we sell in luxury, one of a kind items for the right buyer. They want the right item irrespective of where that is. To put it in, in sort of geekier internet terms, you know, discovery is very difficult in this market. If you don't happen to live close to a design district in one of the major cities and, you know, in New York, LA, London, and so on, you know, you're out of luck, right? You have no access to that supply. And so, conversely, from the seller side, it's very difficult to reach those buyers. It's hard to acquire them online. It's hard to encounter them physically. It's expensive to market oneself. And both sides of this equation are highly fragmented. And so those really are the ingredients of what it takes to create a successful marketplace with a very strong network effect. And so, you said you, your customers are a mix of design pros, dealers of antique and contemporary design and wealthy collectors has that balance changed in the last five years. It has. So sort of in proportion to the change in the distribution of our category. So, you know, originally this business started as a marketplace for vintage and antique design. And so, you know, today, we have five million visitors each month. And about 30% of our demand is from interior designers. The balance, of course, is all from consumers geographically roughly half of our sellers are outside the US, mostly though not all in Europe. the demand side about 40% of our traffic. is from outside the US. We also skew female and we skew high net worth based on the last research we've done half of our buyers have a household net worth of over a million dollars. A little less professional and more consumer is the summary. And you took the helm of first tips in 2011. You previously worked in the digital space for a couple of decades with leadership positions at DoubleClick, Google, and Twitter. And it sounds like your experience with the luxury collectibles business really had to do with when you know your interior designer was redoing your house or your apartment. That's exactly right. So yeah, I think that this business has a customer as a buyer. And so when you joined was first dip still a platform where antique and vintage furniture dealers listed items for sale like a bulletin board and purchases were made offline. So sellers listed their items with their telephone number, their address, their brand name, and all of all their contact information. And then buyers would either pick up the phone or send an email and start a conversation with the seller. So how do you think digitalization of the luxury collectibles business changed things for buyers? Well, I mean, listen, we, for the first year we maintained the original business model. And we, you know, we did a lot of research, especially among our buyers and kind of took a look at the development of other marketplaces and so on. And we ended up concluding that, you know, really was, it was an e-commerce model would be required in order for us to meet the expectations of both buyers and sellers. So I think the the buyer side sort of of the equation is easier to understand, right? I mean, I think it's just sort of the expectation of a buyer when they go to almost any commercial website that they would have the ability to buy online. It sounds pretty obvious today, you know, it wasn't in this industry in that year. But, you know, people want to be in control of everything, right? They want to be in control of how they shop, of when they shop, of whether the seller knows their identity or not. They want to be in control of in this market of pricing to the extent that they can. They want to have a conversation with the seller. They want to be, you know, they all of those things are kind of core to the value that the internet offers. And so, you know, we felt I felt that it was very important that we we meet the customer on his or her own terms. And then similarly on the seller side, you know, I think that was less obvious to them, why switch to an e-commerce model made sense. But I think the sort of core of it is that, you know, the large platforms online, Facebook, Google, Pinterest, and so on, you know, control the large majority of traffic, right? And it's because all of us start our journeys, whether it's revert the purpose of research or discovery or inspiration or, you know, or or or purchasing itself at one of those platforms. And if if one is not present there, it's just going to be impossible to scale audiences, to the degree necessary to support the expectations, the legitimate expectations of sellers. And so, the only way to do that is to develop an ad model that, you know, that in concert with the any commerce experience. And it really it really is kind of as simple as that, you know, the execution of it is quite complex, right? Particularly in our case, if you think about any order, you know, the price can be negotiated, right? The seller can be in the US or outside of the US, shipping can be known in advance or can be determined separately later. And many other many other aspects of the order. So it's it's not at all like buying a razor or a book or something like that. And so it was difficult to build a platform that could support all that. But at the same time, that's the expectation of the consumer. And in order to reach that consumer, we had to develop an ad model that that required e-commerce as well. And, you know, it was extremely controversial among our sellers when we introduced it. You know, I think over time it's become more accepted. And then ultimately really it was COVID that kind of put the nail in the coffin of that debate, right? All of a sudden the offline channel was eliminated. And if we hadn't had e-commerce, we hadn't had a fully online model. I don't think we would have survived. And sales sorgged for first tips during the pandemic as your competitors physical stores shuttered. And while supply chains weren't disrupted as badly as other retailers, because half of its products vintage and antique furniture already existed and didn't require manufacturing. So it was a pretty advantageous scenario first dibs plus the pandemic accelerated e-commerce adoption. So since first dibs collects a ton of data about its customers, was there anything different about the profiles and shopping behaviors of customers during COVID versus pre-COVID? I mean, listen, you know, we all know, right? People were nesting in that time and they were online all the time, which was a perfect combination for us. I think, you know, the biggest impact of COVID is that it accelerated the trend that was already in motion of expanding our sort of appeal and awareness from those within the industry, from insiders to the general public, right? Because of the events that we all know, right? People people went online and you know, we were able, we had a very good kind of SEO search engine optimization and paid advertising programs. And so we were present where people were looking. And so we were able to grow the awareness of our marketplace among people who otherwise, you know, don't spend their lives thinking about about great design. And so everything grew, right? I mean, you know, the consumer business inside the US, outside the US grew, demand from designers grew because lots of those consumers hired interior designers as they bought homes and so on. And of course, you know, beyond us in general, all categories tied to home grew very quickly in that period. Did you see a bump in any particular category during that period? I mean, look, you know, percentage growth terms are grew the fastest in that year, 2020, 2021. But it really was a very fast rising tie that lifted all categories in that. And first dibs went public in the middle of 2021 while the world was emerging from COVID. You had the wealthiest 1% getting richer and the pandemic fueling a boom and buying and selling everything online. The company was already showing tremendous growth. It sounded like a perfect window of opportunity for first dibs to go public. So in your mind at the time, where do you see the road map for growth? So I'd say, you know, as I mentioned before, I mean, from over the last, you know, 13, 14 years, our strategy has changed in the particulars, but not in the main. I mean, sort of at the end of the day, you know, we are hired by professional sellers to scour the globe for qualified buyers. And conversely, we're hired by our buyers to source beautiful, usually very difficult to find design and then to make it easy to purchase to transact. That has been true from day one and the strategy really has not changed. At the time of the IPO, you know, we thought about our sort of investment portfolio in some degrees in the same way that individuals do or portfolio managers do or should, which is, you know, we wanted to allocate some percentage of our investment, which in our case really means for the most part, kind of engineering and marketing resources, inter-riskier, but potentially high return areas, right? Sort of our equivalent of sinking oil wells in West Texas in the 60s or 70s. So for that, for us, that was a few things, right? One was NFTs, if you remember those. Another was auctions, both for different reasons seem like promising, but uncertain growth areas. And so we launched those around the time of the IPO. When it ended up happening, of course, is that, you know, the market turned cold. And as it has, we have pulled back in those riskier, kind of less certain areas in favor of our bread and butter. So we are now today completely focused on, you know, the seemingly boring and unglomerious work increasing in particular our conversion rate, right? So again, I'm always conscious of exactly like too much like a sort of geeky internet person, but you know, the conversion rate is the percentage of people who visit the site who end up buying. It's that simple, right? It's like, can you convert foot traffic into actual span? And it's indicative of so many things that are important for our customers on both sides, right? If buyers, you know, are buyers finding what they want quickly and easily, you know, our sellers able to close orders with minimal friction, you know, to do that, we need to do everything well. We need to merchandise well. We need to simplify the checkout process, which in our case can be quite complicated, right? Just because there are so many different aspects to an individual order, we and our sellers together need to be in a position where we can provide great service 24/7, right? And so there are many, many dials in our business that we, that we're optimizing. Like I said, our business is not, it's not like selling razors, right? It's highly considered. It's a multi-step. And we need to be great at each part of that. So pulling back from NFTs and auctions and it sounds just focusing on conversion rates. Does that mean you're going to have more guardrails and how you grow? That you're not going to experiment like you did with NFTs and auctions and just focus on, you know, your bread and butter? Now we have, not at all. I mean, we have many experiments which are in place. But, you know, for the most part, those experiments are much smaller scale, smaller work. You know, the idea in today's market of launching a business that requires a high up-front investment with an uncertain return just isn't, doesn't work for where we are at the market and where our company is right now. But, you know, we sort of conversely, you know, we actually have more capital because we were able to go public in the flush year. We have more capital than most of our competitors. And so the strategy actually is to continue to invest countersickly to an extent that our competitors who for the most part are less well-capitalized than we are able to. And, you know, we, through that, we actually have been successful in taking market share. Now it's hard to get incredibly excited about taking market share when that doesn't translate into high absolute sales growth. But, you know, the baseline in our market is very low. I mean, just as an example, you know, for each of the last two years, that year was the worst year in the luxury real estate market since 1995. Now, in spite of that, last year we were able to achieve flat year-over-year growth and we exited the year with 9% growth in the fourth quarter. So that's relative to the market. Market we're in, that's quite strong. In absolute terms, it's not where any of us, you know, believe that we'll end up in the long run. But until we get to higher growth rate and higher profitability, you know, we're going to stay focused on the fundamentals. Once we get there, we'll mean a position to take bigger bets. So I just want to talk about First Dips community and some of the numbers. How much does an average user spend on the site? So the number that we think about a lot is the average order value. Yeah. Which is roughly $2,500. Now that understates it because we don't have a shopping cart. So if you have a shopping cart, you can support multiple orders, which drives up the AOV. So in our case, the average order value is actually equivalent to the ASP, the average selling price of an individual item. But even, you know, that with that difference in measurement, $2,500 by internet terms is very high. I mean, it's like Harrison Farfetch, which I had been on the board of which is, you know, luxury, or luxury fashion marketplace, you know, Farfetch's AOV was roughly $600. My understanding is the real real is also $600. You know, and in the last few months, we've sold two diamond jewelry pieces for over a million dollars each. So no one else, you know, I believe no one else is able to do that. And sort of one way we often sort of think about it and conceptualize it is, you know, if Amazon is the leader, is the king of the $50 order, you know, we believe that we have the opportunity to be the king of the $5,000 order, right? That's the way we think about sort of who we are in terms of pricing of our items. Well, I can't have this conversation without talking about tariffs. You know, many home retailers have already seen negative effects from the tariffs, our H. Williams, Sonoma and others. Also shares, nose dive shortly after the announcement of the tariffs, office furniture company Miller Knowle reportedly already announced the 4.5 percent list price increase effective June 2nd. It seems like vintage and antique pieces sourced within the US should remain unaffected. But bringing in new inventory from abroad, particularly from Europe and Asia, long staples of high end design will become significantly more expensive. How are the tariffs impacting first dibs business? How are you thinking about it right now? So in the first instance, we think about it in broader terms than just tariffs. The biggest and the end market that has the biggest impact on our company is the luxury real estate market, which is of course linked to an impacted by interest rates. The rise in interest rates over the last several years since we went public and the corresponding decrease in real estate activity has been a really big negative headwind to our business. So to the extent that the administration's current economic policies contribute to an environment or create an environment where it makes it very difficult for long-term interest rates to come down. That's not great for us. It's not great for anyone in the home industry. I'd say in terms of tariffs specifically, we're a little better position than retailers. So we're a marketplace rather than a retailer. Meaning you don't buy manufactured product and resell it. We onboard existing product from thousands of sellers all over the world and make it available for sale to buyers all over the world. So for every imported product, you know, on to which a tariff may be applied, we almost always have a domestic substitute. Whether that buyer is in the US or in the UK or the EU or so on. So it's a little bit more muted than it might be for a retailer that relies on manufactured product. Nevertheless, anything, as I said earlier, anything that suppresses liquidity, end-demand and buyer's ability to find products that they want and sell their ability to price competitively enough, such that they can sell it at scale. Anything that impacts that is a negative and tariffs impact that. So for a short time before the pandemic, first dibs had its first standalone brick and mortar store in New York City. It was a giant showroom that featured a large collection of vintage pieces from different periods. It closed about a year due to extensive renovation plans of the building owner. With the glorious return of brick and mortar in the post-pandemic world and luxury customers preferring in-store shopping experiences, do you see first dibs putting down roots in physical showrooms again? There's no doubt that physical retail is a big part of this industry. And, you know, our own retail expert and felt great. It was beautifully done. It got raid reviews. Sellers had a positive experience. Buyers loved it and so on. You know, however, in this era that we're in of fiscal austerity, we have to stay focused on the job that we are hired to do by our sellers and buyers. And that is to create a viable digital channel for them both. So, you know, is physical retail ultimately a supporting platter to that? And is there a role for us? And that, you know, absolutely. And I hope that in the future that it is something that we would begin to experiment again with. But it's only a supporting role. And right now, at least, I think we're better served by spending every penny that we have on what we do uniquely for our buyers and sellers. We're seeing more e-commerce players focusing on new paths for product discovery, AI-powered curation, content and search are helping customers discover brands and products more effectively in receiving personalized recommendations. What role does AI playing in your e-commerce strategies? Machine learning and AI will transform every part of our business as it will transform every part of the world and every part of all of our experiences everywhere, much in the way that the Internet itself did originally in the mid-1990s. So, in recognition of that, we built an AI engineering team in 2023. And we're focusing them right now on the parts of the business that we think of the biggest impact on our marketplace. So, you know, one is pricing, right? I mean, one of the challenges that our sellers and we have is that almost all of the items that we sell are one of a kind. So, there's no catalog one can look up to determine the pricing of an individual item. So, machine learning, it turns out, is very well equipped to make recommendations to sellers and to buyers of what pricing should be. That same value applies to shipping costs, right? Many of the items that we have are very difficult to quote in advance and yet, customers expect to see shipping costs quoted in advance. And so, machine learning, it turns out, is well suited to generate those in the absence of catalogs or libraries of data that one can easily look up. There are other applications as well that we're working on, you know, using them as customer service or using AI rather as a proxy for a customer service agent for personalization, right? Determining what is the product that you're most likely to be interested in when you show up at the site if you haven't told us already. So, I think in my long run, machine learning and AI will change every single part of our business, as it will change every single part of everyone's business. Well we're focusing our team on right now or those things that have the biggest opportunity and represent the biggest challenges to our customers. For the last several years, first dibs has released its Luxury e-commerce report. It captures data and analytics from first dibs entire platform delving into the changing taste and trends of its consumers across its top luxury verticals like art, furniture, lighting, jewelry and others. This last report, leveraging 2024 data revealed that mid-century modern furniture was hot. Top-selling artwork was from the Blue Chip artists like Dali and Picasso and Heritage Jewelry and Watch Brands ruled. So how do these trends connect to where the consumers heads are at in terms of where they should be investing? I mean, Blue Chip names always hold their value and I think especially in uncertain times similar to the ones that we're living through right now. Blue Chip products and Blue Chip brands are especially attractive, partly for economic reasons, but also partly for psychological reasons as well. They represent a safe harbor in a world where much of it is perceived as unsafe and risky and unpredictable. That said, what we sell is it's not that different from real estate in the sense that do you really want to live in a house or a neighborhood that you otherwise wouldn't want to live in simply because it's a better investment and represent safety? Of course not. So what's appealing about some of the trends that you described, especially mid-century modern furniture is that in those with those brands, in those categories, those two dimensions match up. They're both safe, they're appealing, they represent good investment of value and also they look great. Mid-century modern and again, great brands that have stood the test of time have done so because they're aesthetically pleasing and they evoke a very sophisticated aesthetic that work in all times. Are you finding that your collectors are using the luxury commas report as well as the trade? I think they do. Much as industry reports are used across the whole economy. I think people are always one understands where are they in the context of the broader landscape. They're very few resources in the design world that offer a service like that and I think ours stands out as one that does. So what changes do you anticipate coming up in the next three to five years at first dims? Are you thinking about that you can talk about? I think about new verticals, purchase formats or further development in non-US markets? Where's your head at right now in terms of growth? I think potentially all of the above. Everything that you mentioned, as I mentioned, as I said today, our core focus is on improving just the fundamentals of the buyer and the seller experience on first dims which expresses itself quantitatively and increasing the conversion rate. As we do that, we put ourselves in a better position to grow faster than the industry so that when the industry comes back and it will have a growth rate that will enable us to achieve the size and scale that I think both represents our potential but also importantly allows us to fulfill our buyer and seller promise. What does that mean specifically? Like I said, it's all of those things that you mentioned. It's expanding our customer base. I think more likely there's room for growth on the consumer side than on the trade side, on the interior designer side, if only because the consumer market is much bigger. In terms of geographies, it's a big world. Everybody likes to have a house that looks as good as possible and to wear jewelry that's as beautiful as possible and to have this compelling artwork on the walls as they can find. I think lastly, I think the question that all industry participants will need to consider is having recognized that scale is important and is a requirement for success and is actually a determinant of success. Is it more efficient to gain scale organically, meaning independently or through some sort of industry consolidation and will companies in this category come together? As they have in almost every other industry that has gone, especially once it have gone through down cycles like this. That's one of the things that I think we need to consider as we evaluate different strategies to get to scale. David, my final question is the luxury item question which I ask all my guests. If you were stranded on a deserted island and you can only have one single luxury item with you, what would that luxury item be? It can't be any form of air or water transportation to get you off that island or anything that requires mobile service so you can call somebody to get you off that island. It's just you on this lonely island. What would that one single luxury item you would like to have with you? No starlink, right? That falls into anything that requires mobile service. I think probably the thing I would end up doing, but you didn't tell me how big the island is, but assuming it's small, I'm thinking of the proverbial New Yorker cartoon, I think I probably would do a lot of sitting and since I'm going to do a lot of sitting, I think I would go for an Eames couch. I think I'd probably end up watching a lot of sunsets and I don't know. I don't think anything beats a good old-fashioned Eames couch for a comfortable sitting. David Rosenblatt, CEO of First Dibs, thank you so much for joining me on the luxury item. Thanks for having me, Scott. Appreciate it. That's it for this episode of the luxury item podcast. Thank you so much for listening. If you found this useful and entertaining, I would be really grateful if you can share it with a friend or colleague. I would love it if you subscribe so you never miss an episode. And while you're there, be sure to rate and review us on Apple podcasts. It really helps other listeners find us. The luxury item podcast is a production of Silver Tone Consulting. I'm your host, Scott Kerr. Until next time. [Music]