Last year, Alexander Wang sent a model down the runway at New York Fashion Week in a leather biker jacket that cost $2,995. A startup called Italic found the same factory that Wang used and created a similar jacket—including the placement of studs, zippers, and a belted waist—that was distinct enough that it wasn’t considered cribbing the design. Italic’s price? $280.
Italic sells luxury goods at cost. It’s a radical business model designed to take on the many direct-to-consumer brands that launched over the last decade with the goal of selling quality luxury goods without the middleman markup. Unlike these other brands, Italic doesn’t make money from the sale of individual products but from its $100 annual membership fee. It’s a tricky business model at a time of intense economic uncertainty, when customers may not be willing to spend money up front to be able to buy goods in the future.
Consumer spending in the United States has been on the decline since the coronavirus hit, particularly at retailers with large brick-and-mortar footprints that were forced to shutter for months. Many direct-to-consumer brands were also hit hard, including Away, Warby Parker, Everlane, and Casper, which have all resorted to layoffs and furloughs to stay afloat. But some categories, like loungewear and home goods, have managed to thrive during this time. Italic produces both, which is partly why founder Jeremy Cai believes it was a good time to launch the new model.
“It’s a risky approach for sure,” says Cai. “We tested the membership model early in the pandemic and many people seemed to respond to the economic uncertainty by thinking about the value of the products they were purchasing.”
Cai launched Italic in late 2018 with $13 million in VC funding. He spent the years leading up to that meeting with hundreds of factories around the world, eventually placing orders at ones used by Celine, Prada, Loro Piana, Max Mara, and All-Clad. The company debuted without a membership model and fit neatly into the world of DTC brands, with a website that offered a small selection of luxury goods like sunglasses and handbags, sold at a small markup. But Cai’s goal was always to move toward selling products at cost with an annual fee. “Frankly, it was clear at the time that consumers weren’t comfortable with the idea of a membership fee,” he says. “We needed to introduce ourselves to the market first, so people could understand our business proposition and quality.”
It launched the new approach in beta earlier this year, offering two prices: a lower one for members and a higher one for the general public. Last week, it shifted entirely to memberships. Cai says the company is currently focused on growing the membership base, so it’s not yet profitable. (He declined to disclose how many members Italic currently has.) At the same time, he’s focused on keeping costs low and only has a dozen members on his team. And crucially, Cai says the company isn’t spending a lot of money on paid marketing; most existing customers have come largely through word of mouth or email campaigns. This is different from many other DTC brands that have sunk millions into Facebook and Instagram ads in order to acquire customers, often making it impossible to become profitable.
In some ways, Italic’s business model is the logical extension of the DTC movement. When the first brands—like Warby Parker and Everlane—hit the market about a decade ago, they were largely focused on value for money. Everlane, for instance, is famous for price transparency. Next to every item on its website, it shows how much the brand paid for materials, labor, transportation, and import duties, which allows you to see exactly how much it marks up a product. Everlane just dropped a line of linen tops that cost $20.97 to make, but customers pay $48.
Over time, however, value stopped being the main selling point for many DTC brands, although their markups continued to be smaller than those of luxury brands. Instead, they focused on sustainability and ethics, developed distinct aesthetics, and invested heavily in branding. All of this has helped brands cultivate relationships with customers, to a degree, but it has also created new problems. Cai points out that in recent months, many DTC brands, including Away and Everlane, have faced pushback from employees and customers for failing to live up to the lofty values and sense of community they preached. Cai wants to focus on fair prices—and he thinks that customers do as well. “Our goal was to return to the original promise of direct-to-consumer movement,” says Cai. “And that was democratizing luxury by getting rid of inflated prices.”
Of course, aesthetics and branding are important for many consumers. Alexander Wang has found a market for his leather jacket because some people want to buy objects that have been carefully designed by visionary designers. Others are interested in the status that comes with wearing a designer label. So the fact that Italic focuses on value may be an obstacle for some. But Cai believes there are some people who are more interested in craftsmanship and durable materials. “We wanted to see if we could bring the Costco model to the internet,” says Cai.
Italic’s online store has more in common with a marketplace like Amazon than the sleek streamlined shopping experience you get from, say, M.Gemi or Cuyana. And in terms of product design, Cai says Italic focuses on creating classic items, rather than fashion forward ones. In the world of DTC bedding, for example, Parachute has a relaxed California look, Brooklinen is known for its urban styling, while Boll and Branch focuses on ethically sourced sheets. Each sells a set of sheets for upwards of $200. Italic, meanwhile, sells a set for $80, manufactured at the same factory that makes sheets for Frette and the Four Seasons. They only come in only two colors, white and gray, with no designs or flourishes.
Cai says they have to be careful to make sure they aren’t copying other brands’ designs. There’s an internal team that audits items before they go to market to make sure they aren’t infringing on copyrights. But this issue could be a tricky one to navigate, since the company is premised on selling items that are very close to those made by other luxury brands, but without the designer labels.
So far, Cai says members range from college students and new grads to grandparents who shop at Costco and immediately see Italic’s appeal. But Cai admits there’s a long way to go to get consumers to sign on to this way of shopping. “It’s still early days for us,” he says. “But we think that many consumers aren’t interested in products covered in designer brands. They want luxury without labels.”