Material Wrld has found a way to innovate in online fashion commerce, and that’s no easy task. It’s a crowded market, with tight margins. Rie Yano and her team, however, have found success by going against common wisdom. While their competitors were focused on building platforms and reducing the amount of work required by their staff, Material Wrld went the other way. They began to take on inventory risk and doing some of the most labor intensive parts of the process in house.

This is the kind of move that looks foolish on the spreadsheets, but it turned out to be instrumental in enabling Material Wrld to maintain quality, develop lasting relationships with their customers and ultimately control their own brand.

It’s an amazing, and somewhat surprising story, and it’s best if you hear it directly from Rie herself.

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Show Notes for Startups

  • Why people feel guilty throwing out clothes
  • How a credit card provides a physical anchor for an online brand
  • Why traditional recycle shops need to change
  • The need for cross-brand data in fashion commerce
  • How Material Wrld handles inventory risk, and why?
  • What kinds of pieces are easiest to sell online.
  • Why doing things that don’t scale pays off when building a brand

 

Links from the Founder

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Transcript from Japan

Disrupting Japan, episode 58.

Welcome to Disrupting Japan – straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero and thanks for listening.

It’s hard to innovate in online commerce today. It seems like everything has been tried before and now we’re just looking at variations on a theme. At first glance, Material Wrld seems like just another online fashion marketplace but that first glance is deceiving. There is something very interesting going on here, but before I tell you what that is, I want you to meet someone.

Online marketplaces are usually designed to be low-risk, low-capital organizations that focus on marketing building a technology platform with the buyers and sellers doing as much of the work as possible. Rie Yano, the founder of Material Wrld, however, ended up taking a very different approach. By taking on inventory risk and shifting non-scalable labor requirements onto her own team, they were able to build and scale a unique fashion commerce brand, where so many before have failed. Her reasoning may surprise you a bit, but you know, she tells the story much better than I can, so let’s get right to the interview.

Tim: So, I’m sitting here with Rie Yano of Material Wrld and thanks for sitting down with me.

Rie: Thank you, Tim, for inviting me.

Tim: Great to have you here. So, Material Wrld is a fashion trade-in service and, well, rather than have me explain it, why don’t you explain a bit about what material world is and how it works.

Rie: Sure thing. Material Wrld is based in New York. We are a service that helps women easily refresh their closets. Often times, we find ourselves waking up, looking into a closet and feeling a sense of guilt or frustration in that what’s in your closet may not be what you want to wear or how you feel that day. We created Material Wrld so that you can constantly evolve your wardrobe. One day you might be feeling like you want to be a powerful woman. Another day, you might feel like you want to dress with some beautiful, emotional colors. Making sure that our service can enable that idea or feeling that you have by making the refresh very simple.

Tim: So, usually that’s done by just buying more clothes but Material Wrld has a little bit of a different approach. What are the mechanics? How does it work?

Rie: Sure. Everyone thinks about shopping for new clothing when they think about trying to become different or refreshing. Where we’re quite different is really focus on the reuse of designer fashion pieces with quality that lasts long. We know that even if one piece of fashion may not be good for you anymore, if it’s a high quality, then there is definitely going to be someone else that is going to be excited to have that in their wardrobe. So we connect second-hand 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 new. In the meantime, the collected fashion pieces are then re-sold to our customers so that we can then excite them with these new pieces of merchandise.

Tim: So what seems to be different about Material Wrld is you don’t simply give them store credit or send them a check. You have a very interesting system with sort of a pre-paid card, and you’re connected with several of the department stores where they can use that. Do most of your customers choose to use those credits to buy new clothing or do they choose to buy clothing that other customers have traded in?

Rie: It’s actually both. We actually started by offering gift cards to retailers in exchange and we only launched this reloadable, pre-paid debit card last fall, in 2015. And we did so because we wanted to create this card—essentially it sits in your wallet once you register with Material Wrld and it becomes so instant and easy. You don’t even have to think about the chore and the pain of trying to clean up your closet and get rid of things. All you need to do is mail things in, do nothing else, and we’ll take care of everything for you. All you need to do is check your debit card because we’re going to continue to reload it with money real time, that can then be used with our retail partners. We think of it as like a fashion currency so you can’t use it at Starbucks. You can’t go and use it to fill up your gas. It’s really focused on continuously evolving your closet.

Tim: I also love the idea of the card because it provides an anchor for your brand into your customer’s everyday experience. They’ve got this in their wallets, they’ve got some money on it, they’re constantly reminded to go spend that money, at your partners, or to send you more clothes.

Rie: That’s right. So it’s really connecting the two experiences. When you think about it, shopping for new things is like this fun sport. It’s exciting; the day you shop something, you’re excited to show people, you want to wear it to work. But then the feeling of getting rid of things is horrible. It’s painful, it’s like a chore, it takes time, and whether you’re going to donate it, sell it, throw it away—it’s not easy. It’s not. So we thought is how can we make that getting rid of fashion part something that is rewarding, and exciting, and easy, so that you can feel great about it. And you can only feel great about it if you also feel that it’s doing you good. So the easiest thing to do is to throw it away.

Tim: Right. And that’s that sense of guilt.

Rie: Oh, absolutely because you’re going and buying new things and wasting precious pieces that could be worn for many more years. The sense of guilt, when you’re just throwing it away because it’s the most convenient thing to do, is quite awful. But if you know that someone else is going to take care of it and make sure it’s going to find a new home.

Tim: It will be loved somewhere else.

Rie: Exactly. That’s an exciting feeling that you don’t have to do the work but you have chosen a service that will allow that to happen so you can really focus on the fun part of going and deciding what else is exciting for your wardrobe.

Tim: Do you find that your customers are using this service as part of their seasonal buying routine? Do you see the spike of returns from the same people every fall and every summer?

Rie: That’s an interesting question because when we started this service, we thought it would be maybe end of season, following the trends in the retail cycle. Our repeat customers actually use this every 2 months.

Tim: Every 2 months?

Rie: Every 2 months, on average. What that means is, on average, our customers are mailing us about 10 pieces of clothing each time. So every 2 months, that cycle is happening.

Tim: Huh. So that’s not seasonal.

Rie: It isn’t.

Tim: Is that just the time it takes someone to get used to or get bored with a particular piece of clothing?

Rie: For us, what we recommend—and it’s actually what I do myself—is if you have something new in your closet, it’s time to let go of something else. It’s really not about waiting until that end-of-year moment when you really have to do your big cleanout in the house. It’s a constant refresh to just make sure you have a current closet that continues to speak to how you want to dress.

Tim: Okay. And after 2 months, I guess that’s the time it takes before you realize that, no, this really isn’t for me.

Rie: That’s right.

Tim: Time to let it go.

Rie: That’s right. And a lot of things trigger that feeling. Sometimes it’s obvious things like you’re moving apartments, or you got promoted, you got married, you had kids. There’s a lot of transition moments. It makes sense that you want to refresh your wardrobe for those transitions. There are other reasons. When we talk with our customers of why anyone would want to continue to evolve their closet, it doesn’t come with any kind of specific trigger. It really is a bit more emotional and that’s why, for us, we realize that letting go of pieces of clothing, even if you haven’t worn it for a year, is a very emotional experience for our customers.

Tim: Okay. Actually, tell me about your customers because fashion in general, and even sort of the luxury consignment space, it’s fiercely competitive. So are focusing on a particular niche within that industry? Who uses Material Wrld?

Rie: We have a service that targets women who love shopping designer fashions. Quality fashion pieces—you can think of it as any type of brand such as Theory, Vins, Tory Burch, all the way up to the European brands such as Chanel, Hermes. And our buying team, our merchandising team, determines every month what new brands to add and what brands to remove from our service offering. And the way we really define those is really thinking about what are the brands that we believe have long-lasting value and demand from our customers.

Tim: Well, you handle a tremendous number of brands, right?

Rie: Yes. We handle 260 brands.

Tim: That’s quite a few.

Rie: Yes. So we don’t accept fast-fashion. We don’t accept brands that we know will end up tearing apart after a season, so in doing so, we are encouraging—and also, naturally gathering customers who love to shop for quality.

Tim: So what channels have been most effective for you in getting the word out in this crowded market?

Rie: Yeah. Few have been very effective. One is through social media, so Facebook has been a very big channel for us to get the word out, especially for our customers who are trading in with us. Naturally, our trade-in customers tend to be a little bit older. It is between 25-55, but more of our customers are in their 30s, 40s, and 50s. They’re really shopping new merchandise all the time and using our service to kind of trade in. Now, we also have a younger audience on the shopping side. They love the fact that they can buy a very expensive, high quality designer piece for 40, $50, pre-owned, through our site. So there’s this access that was never there before and we have this amazing price point for our customers so that naturally then kind of gears towards a younger audience of women, anywhere from college undergrads and all the way up.

Tim: So are you using different social media channels to reach the sellers and the buyers?

Rie: We just started. We just started our Snap Chat account in August and that is really focusing on the shopping community because we do know that most of our sellers are not on Snap Chat. But most of our buyers are.

Tim: Right. Well, with the visual nature of your business, I would imagine Pinterest and Instagram would be huge channels for you as well.

Rie: Yes. I think we use the channels for different purposes. Facebook has been very effective in acquisition of customers and really promoting our trade-in service. Instagram is really for us a branding tool. We’re not really looking for what are the conversion rates of customers coming through Instagram. It really is more about a channel where we can tell a story around what Material Wrld is. To go back to your point, fashion resale has been around for decades. It’s nothing new. EBay has been around in the US and in Japan there’s a bunch of resellers who have been in the country as a brick-and-mortar business ever since World War II. We think that we’re quite different from the typical fashion resale businesses in that we’re offering a full service that is continuing to support the customer’s life cycle. And any merchandise that goes through our service, whether it was bought through us new, or bought through us used, or traded in with us, continues to basically come back to our service, come back to our platform. So in doing so, we have created a service that is not really about fashion resale. It’s really more about how can we help our customers kind of continue to number one: be informed about what is the best timing to sell and what are the best things to sell, right? But also being able to inform them on what new to buy and in doing so, giving them recommendations from the retailers and the brands that are constantly promoting new products. That really helps us differentiate our service offering from any of the typical resale fashion businesses.

Tim: The way I see it, you are in some ways a very traditional industry but I think your business model is very, very different from the ways traditional companies are operating in that industry. So let’s dig down on the business model for a minute because I think it’s fascinating. For example, the pre-paid card that we were discussing a minute ago—now that’s obviously a huge advantage to your partners because people are going to spend more than whatever the balance is on the card. So are you making money on a commission that your customers spend at these stores? Are the stores paying you a membership fee to be part of the program? Or some combination of both of those?

Rie: Yes. So this is all very new for us and no one else has such a product out on the market. We’re the only players who have this pre-paid, reloadable debit card and we work with Discover as our network partner and we also have a bank and a program manager to really manage this news service offer to the customers. We load their debit card with their earnings. We then introduce all of the retailers that we work with and the products that we can recommend that are sold through these retailers on our website. And when our customers then go to shop with us, we actually have an affiliate relationship with the retailers and thus have a commission that we earn from retailers every time we drive our customers to shop with them online. Now, that is only the online portion. Our vision, with the debit card we created, is omni-channel. So you can actually shop online with it but you can go into any physical Barneys, Saks, Neiman Marcus, and use it in-store. And we continue to track all of that data around the customers so essentially we’ve built a product that allows us to basically market to the retailers the data that we have around the customers: what is in their closet, what are they trading in with us, and where are they shopping, when are they shopping. That data set is then going to help us receive marketing promotional revenue from retailers and brands who want to target our customer base. So that’s kind of secondary from the affiliate side.

Tim: No, but that makes a lot of sense because it’s not simply basic demographic information, which all the brands already have. But you would know if someone is normally shopping at Neiman Marcus, what are these people’s second most popular store? What are these pivot points when people switch brands, which is, I’m sure, unbelievably valuable to these companies.

Rie: Yeah. You find a lot of brands and ecommerce companies always talking about personalization being the next thing. If you’re a brand, you only have the data of how your customer is reacting with the brand, whether it’s online or in-store. If you’re a retailer, you also only have the data for what merchandise you sell. Because we’re really rooted on optimal service that helps the customer first—we’re not manufacturers, we are not retailers—we are a service provider. In that way, we have access to literally every aspect of the customers’ closet, which then, we want to make sure we’re not going to be selling that data. It’s more about how do we make that data more relevant for the customer. Then bring the right retailers and brands to market the customer, and thus have that revenue generation from there.

Tim: I really love the whole physical nature of the card because so much of fashion retail, especially high end, takes place in person. It doesn’t happen over the internet. And a lot of the brands have collections they just refuse to sell over the internet. The physical card kind of ties all that together.

Rie: Exactly. It’s almost like a fashion black card.

Tim: Right. And it’s black, as a matter of fact.

Rie: That’s right.

Tim: Okay. So when customers send you their clothes, this is not consignment based. You actually take that inventory. So do you consider that inventory risk and holding this risk to be a concern? How do you mitigate that?

Rie: Well, for us, it’s quite unique. Inventory for us is very different from fashion inventory of typical ecommerce businesses in that we are the one 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.

Tim: So you’re actually going out and screen-scraping eBay and secondary markets?

Rie: No. We actually have enough data internally from our own resale historics to have confidence in how much we can sell that merchandise for. We do 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 website such as eBay, but prices do defer quite a bit depending on what channel they’re sold on. For example, the same Chanel bag could be sold for a much higher price point in a physical consignment store versus online.

Tim: That makes sense.

Rie: Right. So there’s differences depending on brand and categories, which then, we 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. And we’ve created a system where 100% of our merchandise sells through within 2 months.

Tim: That’s pretty good!

Rie: So it’s a very fast cycle and it allows us to continue to grow quickly without worrying too much about inventory space.

Tim: It sounds like a lot of your decision on whether to accept an item or not depends on how fast you think you can move that item.

Rie: That’s right. How fast or how high.

Tim: So are there particular things that sell well and sell poorly? For example, are shoes easier to sell than skirts?

Rie: Absolutely. So handbags are great in the resale market because as you can imagine, they are built to last for years and years—leather material.

Tim: And no sizes.

Rie: That’s right. There is no sizing issue and the trend in the handbag category doesn’t move as quickly as soft apparel. For example, every new season there is a new look, there’s a new color that’s trending, that determines the price point within soft apparel. So it fluctuates much more and there’s a bit of a drastic difference depending on what brand or what style is popular that month, versus with investment pieces such as handbags and shoes. Women tend to carry it for a longer period of time and they take care of it as well. So even when they resell the handbag 5 years later, they can retain the value much more so than soft apparel, which goes through a very fast liquidation cycle.

Tim: So that makes sense from inside looking out. But it seems like you’d have a bit of a mismatch problem where most of the supply would be people who are getting rid of last year’s fashions and they’re holding onto their handbags for 5 or 6 years.

Rie: That’s right. Well, that’s where our service adds a lot of value because our sweet spot is clothing. Often, a lot of fashion resale does focus on only accepting things they know they can sell, which are Louis Vuitton, Chanel handbags, reused.

Tim: Okay.

Rie: A lot of players really focus on those categories but for us, our sweet spot is actually contemporary fashion. So knowing that every customer has a pair of Theory pants, or a jacket from Tory Burch, these are actually what makes up around 80% of our trade-in goods.

Tim: Huh. So there are certain items that just everyone needs to have in their wardrobe somewhere?

Rie: Yes.

Tim: Now, getting back to the idea of that inventory risk, where it seems like most online consignment companies have problems is in liquidity. Having a supply in demand, being both sellers and buyers at the same time, did you make the decisions to hold the inventory to get around that or was inventory part of your strategy from day one?

Rie: It was not our strategy from day one. We started our service as a peer-to-peer marketplace in fact 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.

Tim: So you couldn’t control your brand?

Rie: That’s right. And the customer base was very different. What we learned from the year-and-a-half that we ran the marketplace was that a lot of younger women, age 18 to early 20’s, or you might call them millennials these days, are okay with taking photos of their goods, putting a price on it, interacting with a potential buyer, 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.

Tim: Is that because the sellers tend to skew a bit older in the demographics, do you think?

Rie: I think so. I think that marketplaces are great for, number one, for buyers who are looking for great value, and sellers who are willing to take a lot of time in order to maximize their earnings. So if you think about eBay, you have to do everything yourself as a seller. In fact, if the buyer doesn’t like it, you might have to deal with returns. It’s definitely a painful process but you can maximize your sales because eBay takes around a 10% commission. Versus if you go to other consignment store or retails sights, if you choose a service that will do everything for you, you’re not going to get as much on the earning side.

Tim: But I guess it makes sense because on the buyer’s side, the people you’re targeting, their primary concern is probably not squeezing every dollar out of the sale. It’s making some money off of it, it’s avoiding that guilt of throwing it away. So you just fill that niche for them.

Rie: Yes. 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.

Tim: So taking on inventory, controlling your own inventory, was the only way to control your own brand in this case.

Rie: That’s right.

Tim: That makes perfect sense. Now, you’re based in New York City and operating all over the U.S. Do you have plans on entering other markets?

Rie: Not in the short-term.

Tim: Okay. It seems that this model would work everywhere. But do you think there are unique aspects of foreign markets that would make certain aspects of the business difficult or certain parts easier?

Rie: Absolutely. There are three things that we look at. Number one is supply. When you look at countries such as Japan, it is actually one of the top 3 countries of where you can find the most amount of pre-owned designer handbags. So you will find that a lot of players from all over the world actually procure supply from the Japanese market.

Tim: What’s the third one? The U.S., Japan—

Rie: France.

Tim: France, oh, of course.

Rie: So when we look at countries we want to make sure, “Where is the supply in the world coming from?” and the second is “Where is the buyer?” Where is the appetite to purchase pre-owned high quality merchandise? And when you think about that, it tends to skew towards developed countries where consumers are pretty familiar with brands and they like the fact that they can purchase a high quality brand for great value.

Tim: It seems like you’re making a great case for being in Japan.

Rie: Well, the third is all about financial regulations. We have our own debit card that we launched so we essentially have a payment service and what we’ve learned from entering this space is that it is a very highly regulated industry where being in the U.S., we have to think about what are state-specific restrictions before we launch any kind of product offering that’s related to our debit card.

Tim: So suddenly, you’re running a Fintech company?

Rie: Yes. That is the case. And when it becomes Fintech, it is very challenging to think about cross-country transactions.

Tim: Okay. That makes a lot of sense.

Rie: So we definitely want to be able to really finesse our current debit card product offering in the U.S. and understand if it even makes sense to continue doing a debit card. Or is it about going into being a wallet? Or is there any alternative to a Bitcoin, where you don’t have to just use it in the U.S. market but you can actually shop at retailers in Tokyo and Paris. Now, what kind of product offering will allow us to offer that kind of liquidity to our customers? We haven’t found the answer yet but it’s very exciting because there’s so much going on in this space.

Tim: Excellent. Now your investors—are they all Japanese now?

Rie: No, they are a mix of New York and Tokyo investors.

Tim: Let’s back up a little bit. So Material Wrld launched in 2012 with your co-founder Jie Zheng. Now you were friends from Harvard business school, right? But you didn’t launch this business right out of school. Did you just stay friends for a long time? Were you brainstorming ideas for a couple of years? How did you come together to start this company?

Rie: I had another start-up when I was in business school, that I launched with a few other HBS friends. And when I graduated, I decided to shut that down and stay in the U.S. The original purpose of me going to business school was to really kind of learn what was out there, outside of Japan. And when I decided to stay, I actually wanted to join a U.S. start-up and realized that no one would sponsor my visa. So I had to quickly figure out what can I 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 start-up.

Tim: Okay, so you wanted to learn?

Rie: Yes. And 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 and 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?

Tim: You’re supposed to go into one of the big consulting firms.

Rie: That’s right. I know. I think 80% 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.

Tim: So you both wanted to start your own thing?

Rie: Yes. That’s right. And we both came from a very different background from a traditional MBA student. I was in PR as a spokesperson for Mitsubishi and she was in operations in Chicago.

Tim: Okay. Now, earlier, you mentioned that taking on inventory—that wasn’t mart of your original model. So what were some of the big changes that you had to go through from the original model to now you’ve settled on something that seems to be working?

Rie: Yeah, we as a culture have just been all about change. Let’s put it that way. So I can’t even start to describe all the things we did wrong and all the things we changed through the past 4 years but I’m thinking about what were some of the key ones. I think that the biggest change happened when two-and-a-half years ago, when our marketplace was not working, and we felt that it was not working because we didn’t have enough users. We tried every avenue of—

Tim: Two-sided marketplace. It’s really tough.

Rie: Supply and demand. We were like, “Wait a minute, where is the supply and where is the demand?” We started testing this website on the side and essentially we used one of those free landing pages that you can get from websites. We didn’t have anyone really. It was just Jie, myself, and our current CTO who was working for us as a freelancer. We were like, “Okay, let’s get creative. We know that these women are too busy. There are items sold on our site that they’re complaining to us that they don’t have time to ship it.” So we’re like, “Okay, let’s figure out if we can see how to create the most easy, do-it-yourself website and see how the world would respond to this.” We essentially created this landing page, pulled some images from the web and said, “Sell us your stuff. We’ll give you gift cards.” And we started it by driving 30 dollars worth of Facebook ads to this landing page every single day. And within a month, we had trade-in bags coming in left and right from all over the U.S. Because it was such a scrappy execution—literally, we had a Google Doc where the customer would sign up, we input the address, I was writing their address and creating their trade-in—

Tim: Well there’s something else that is very important and profound with that decision. You are doing something that all of your investors would tell you not to do, that probably in business school they would tell you not to do. You were taking on inventory risk. You were taking on the non-scalable part of putting things in boxes and doing all the part that all of the so called smart, lean start-ups are trying to outsource. And that ended up being the core strength of your business.

Rie: That’s right. We thought, “This won’t work out and inventory is not going to be good,” and within a month, we just had a small two-table seat at a co-working office, so there was no space for inventory, there was no space to take photos, we were bombarded with trade receipts coming in left and right, and that was the moment we were just like, “Oh my God. We’re onto something. This is what the world calls product market fit.” We’d been trying so many different product iterations on our website and we never felt this. Here it is. It is simple as that.

Tim: Excellent.

Rie: So that really is the beginning of our trade-in service and all we did was we bought some gift cards from one of the retailers, direct. It wasn’t like we were getting a discount. We didn’t have a partnership. We just bought it.

Tim: Just to see if the idea would work.

Rie: Yeah. Then we sent it to our customers and the customers were so excited to go and shop.

Tim: Let me ask you kind of a personal question. Before, you were saying that you came from a very different background than the other students at business school. And I read on your website that you moved around like 20 times—

Rie: 25.

Tim: 25 times. Was your dad a diplomat? Was he on the run from the law? Why was he moving around so much?

Rie: He was part of the whole automobile industry transition in the 80’s. So he works for an automobile company and they just continued to send him to different places.

Tim: So he was being transferred around to all of these different production centers around the world, so you went to school all over the place. Do you think that’s part of why, unlike so many of your colleagues in business school, you had this kind of independent streak and this desire to start your own company?

Rie: You know, that’s a great question. I don’t know if that was the reason because I never thought I would start a business. I never had that mind-set coming out of college, working on Mitsubishi.

Tim: What did you want to do when you went into business school?

Rie: I wanted to do like a social enterprise. So it had nothing to do with starting your own business. And business overall was not something that I was interested in growing up, surprisingly. But I went to business school because I was in New York with Mitsubishi and I realized how much I took for granted. The fact that life is 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. And 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 just had this moment when I realized that I need 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.

Tim: But after you go the MBA and you started your own company, that’s a huge step. Were your parents supportive? I’m sure they were very surprised you didn’t go—or maybe they weren’t. Were they surprised you didn’t go into management consulting or banking?

Rie: Oh no. They were definitely not surprised.

Tim: They saw this coming?

Rie: They saw it coming. They actually have given up on me at this point. They feel like I will do whatever I want and they will support me if it makes me happy and I’m not disturbing anyone else.

Tim: Oh, that’s great!

Rie: I think because I’m the wild one in the family, because when I left Mitsubishi, I decided to go hang out in Buenos Aires for 3 months because I loved to dance tango. And at that point my parents thought, “She’s crazy.” They were worried that I might not even end up going to business school because I might end up falling love with someone in Buenos Aires and becoming a tango dancer. Literally, they actually thought that would happen.

Tim: So founding a company is actually a move in the right direction?

Rie: That’s right. It’s crazy enough.

Tim: So you started a company in the United States because that’s where you were when opportunity presented itself. A lot of young Japanese now are moving to the U.S. to start companies. Do you think that’s because of a lack of opportunities to start companies here in Japan or do you think it’s an image? What kind of founders do you think would benefit from going to the U.S. to start a company, rather than starting one here?

Rie: Well, I think Japan is a great place to start a company. There is just so much opportunity here. Not as much competition as in the U.S., but if you’re going to take the risk and create something from scratch, why not do it in the most impactful way? For me, if I was going to do this fashion business, I had to do it in New York. It’s a very personal reason. It wasn’t really about just market size and opportunity. In fact, it would probably be easier for me to do this business in Japan.

Tim: But the potential upside is much greater in New York. You’re in the middle of—

Rie: Exactly. And part of it is also the experience. So for me, I grew up in so many places in the world where if I’m going to build a company and build a team, I’m going to build it in a city where there is amazing talent from all over the world, and it’s super diverse. For me, I felt like if I started a company in Japan, it feels kind of like same old. It wouldn’t have had the same excitement for me to think about building an organization in Japan. But to do it in the most competitive city in the world.

Tim: So New York is much bigger challenges but much bigger rewards?

Rie: That’s right. If you have that kind of mentality, then you should absolutely do something elsewhere. Yes, people will tell you that it will be easier to run a business back home. But I honestly disagree with anyone who tells you to stay somewhere because the more you learn, the more opportunities you find, and the more business opportunities you find. You also build this perspective that only you may have because you happen to have different perspective from living in different places. I am all for encouraging anyone to just do it anywhere in the world. People are going to Mars soon, with commercial flights. Why restrict ourselves to the island we were born in?

Tim: Listen, you do a lot of business in New York and Japan, and we finally got a chance to sit down together while you’re traveling through Tokyo, and before we wrap up I want to ask you what I call my magic wand question. Which is, if I gave you a magic wand and I said you could change one thing about Japan—anything at all—to make it better for start-ups in Japan, what would you change?

Rie: Well, I don’t know if this is a good answer but I think the one thing I would want changed is the mentality of what diversity means in Japan. Start-ups—everyone follows the same track of what is considered a success or what to do to become happy. There is this social pressure to follow this track that’s already set by society.

Tim: So what is that track?

Rie: For example, work at a big company, get married, buy a house, travel once a year. There’s just—as a woman probably a zillion more things are required or expected of you—cook for your husband, morning and dinner, take care of your kids.

Tim: So just these set social rules?

Rie: Exactly. And I just feel like we live in such a diversified world now where there are different ways to structure your life and your career, whether you want to work at a start-up, or you want to work at a big company, whether you want to not get married, or not have children. I think just being able to accept diversity will help a lot more people feel comfortable being different and taking that leap to be different.

Tim: Well I think you’re really onto something there because it’s not a society that really fosters entrepreneurship. And new ways of thinking economically, by definition, almost has to foster new ways of thinking socially, politically. You can’t isolate innovation to like, “Okay, it’s useful economically but not socially.” So you’d use the magic wand to let Japanese people be a little more open to exploring diversity in social opinion, in social roles.

Rie: That’s right. Yeah.

Tim: Excellent. Well, listen, Rie, thanks so much for sitting down with me. It’s been a blast.

Rie: Thank you, Tim.

And we’re back.

What I found to be the most interesting part of Material Wrld’s business model was the physical debit card. Not online credits, not an account balance, not loyalty points, but a physical piece of plastic that their members see each and every time they open their wallets and are reminded that they’re part of the brand. That little piece of plastic is what let’s Material Wrld get insights to both the online and offline buying behavior of their customers and actually track fashion purchases across brands, while having a good idea of what’s in their customer’s closets. It’s incredibly valuable insights and they are the only ones who have it.

I was also impressed with Rie’s willingness to do the hard things, the things that don’t scale. Their decision to take on inventory risk, to take on the labor of photographing and marketing their items, is what set them apart from most peer-to-peer marketplaces. But it was also the only way they could control their quality, the customer experience, and ultimately the brand itself. We’ll be hearing a lot from Rie and Material Wrld in the near future.

If you’ve ever bought or sold high fashion online, Rie and I would love to hear from you. So come by DisruptingJapan.com/show057 and let’s talk about it. When you drop by, you’ll find all the links and sites that Rie and talked about and much, much more in the resources section of the post. And if you like what we’re doing here at Disrupting Japan, share it with your friends. If you hate it, share it with your enemies. But most of all, thanks for listening and thank you for letting people interested in Japanese start-ups know about the show. I’m Tim Romero and thanks for listening to Disrupting Japan.