Shawn, Keith, Mary, thank you so much for being here with us today.
Great to be with you all.
Thank you.
Thanks.
So maybe just to start off, last year was a solid year for your company as you continue to gain share in the face of a challenging macro backdrop. Maybe for some of the people in the audience who are newer to your story, let's start by talking about sort of key tenets of your value proposition that enables you to sort of continue to gain market share.
Yeah, so as founder and CEO, I'll give the briefest background on Lovesac. This is a company that started in my parents' basement as a giant not-beanbag company that was my side hustle in college. We opened a store in 2001 and kind of exploded locally and quickly discovered that the couch in the corner of those stores to make these $1,000 foam-filled not-beanbags look pretty was always on people's minds. So years later, we invented a solution for that called Sactionals, which is a couch you could have with you the rest of your life. You can grow it and change it, rearrange it, change the fabrics, all these things, and that led us to the design principle that underpins everything we do today and I think makes us the most competitive kind of disruptor in the home furnishing space, if you will. And that's called Designed for Life.
And obviously, that's what is the underpinning for our logo. And what this means is products that can be with you the rest of your life because they were built to last a lifetime, like our couches are, and they were designed to evolve with you as your life changes. And so the best embodiment of that are these Sactionals sofas that now you can arrange and rearrange and grow and change. We've added everything from StealthTech, a home audio solution that can also charge your phone by putting your phone on the arm of the couch and visibly provide Dolby 5.1 digital surround sound. You can expand that to 7.1, 9.1, 9.4, daisy chain subwoofers, all hidden inside the couch. And all of these attributes make this the most, I think, competitive player in the sectionals category.
That's what's driven the bulk of our growth for a number of years as we continue to layer on additions to this platform through this Designed for Life evolutionary approach. You know, the pieces that you bought many years ago can be augmented by our new solutions and additions. Most recently, the Recliner, which is a quarter of the sectionals category, you know, is Sactionals that could recline. We were locked out of that for many years, not having one, and we just launched that a few weeks ago, and it's been doing fantastic, and we're really excited about that. It's just an example of how you can add and augment to this platform.
So this Designed for Life ethos now will lead us into other realms, which I'm sure we'll get into, as we've recently announced the expansion to more furniture and home categories in the future for Lovesac.
Great. That's a great overview. So in December, you sort of highlighted some softness with conversion, especially as it relates to larger setups. To the extent you can comment, what have you seen sort of with that segment of consumers? And maybe more broadly, what are some things that you can do to sort of improve conversion when a customer is ready to transact but maybe is a little bit hesitant to complete the transaction?
Yeah, I'll let.
Yeah, I think, do you want to start?
Sure, I'll take this one. Our business is really unique in that it's a process of education and experience that the customer goes through very often before they purchase. They come in and they go through a demo and they see how it works, that you can piece together these really high-quality pieces into anything you can imagine, any shape, any design, any configuration. Folks come into one of our physical touch points. We have about 300 of them, and they go through this experience and they get what we call a quote, which is an omnichannel digital summary of what they designed with our associates. They can access that anywhere. We have very good visibility into that kind of relationship we have with consumers because of this quoting process. We, in the Black Friday holiday period, had very solid growth in that quote pipeline.
It was a low double-digit growth year over year, so very encouraging. We did experience some lower conversion than we were used to and than we were expecting of that quote pipeline, and that's what you're asking about. So there are a number of factors that could have contributed to this, and we are getting after all of those, so the reasons for that, like lower conversion than maybe we expected, can be a few things. It can be the short holiday period between Thanksgiving and Christmas, and why that might sound weird to you, but I'll give you an explanation of why that can matter. We ship in one to two weeks. Everything you order comes in one to two weeks, so for us, December is a relatively quiet month because if you order in the beginning of December, you might get your new Sactional right before Christmas.
So we have a big holiday period sales in November. And because of that compressed timeline, that delivery of your new Sactional is getting very close to the holiday. So that could have been part of it. Another part of it could have been heavy promotional intensity in this category. We saw year-over-year increases in the promotional intensity of many of the alternative offerings that you might consider. And we are managing a brand for the long term for all the reasons Shawn just discussed. And so we do use promotions. We use them intelligently, but we did not go to that next step, that very high 40% or more level of promotional discounting because that's a slippery slope. We're seeing great conversion, generally speaking, at that 30% kind of headline discount. We've seen that even in recent weeks. And so we held the line on that.
And I think these are probably some of the characteristics that played the biggest role. One other thing was we introduced a bunch of new products, such as the Recliner, and those were not on discount for the holiday season. So the core engagement with the customer, the excitement of the customer, the double-digit growth in the quote pipeline was there. Those are some examples of what could have led to less conversion of that quote pipeline. It was a very brief period, a couple of weeks at the beginning of our quarter, and we are aggressively going after converting that quote pipeline going forward.
And Keith, I think yesterday we talked about how there are a few things you can do to improve sort of this near-term engagement. Can you maybe just address that for our audience?
Yeah, now let me take that. So I think back to what Keith said, because the customer is very engaged with us, because we have their data, we have their email address, our teams have built a relationship with them. So we are able to drive personalized offers to them. Our teams can engage with them either through the phone, text. We've also been investing for the last couple of years building out our CRM capabilities. So we can go one-to-one in our relationships. And I think where we really saw great conversion across many of the configuration sizes, but to Keith's point, we really saw it on the bigger size of the configurations that people are buying into. And invariably, they're the ones that are buying all the innovation.
They love the Recliner and all the other things, but those weren't on promotion because we wanted to understand what that sell-through rate would be at MSRP because we're going to be selling this product, Shawn, for many years, and if we don't learn how that performs, then we don't know strategically how to be able to build that out for that growth. So the teams we have one-on-one relationships, the customers with our teams in the showrooms, and they get after things in just a matter of hours, so we're very grateful for their agility and their drive to be able to get that closure through.
Great. So let's talk about your sort of pace of product innovation, which has been accelerating here. So maybe just talk about how sort of that underpins the company's sort of value proposition and brand.
Yeah, so Lovesac has done very well for a very long time. I think we're on like a six-year CAGR of 30% growth, and for the last decade, it's been nothing but up, and what we're experiencing now, kind of flattening out in this particular environment in the home category, is unique, but it's kind of well-timed for us, and what I mean by that is Sactionals has become, I think, the best-selling couch in the United States of America, or at least the best-selling Sactional, particularly premium Sactional in the United States of America. Most of our competitors that we sell against, whether it be firms like Arhaus, Resto, Crate & Barrel, Pottery Barn, go down the list, that are selling, let's call it similarly priced solutions, have 20, 30, or 40 lines of furniture in this realm; we have one.
And it's dominated now with 7% market share in that particular category because of its unique attributes. So it continues to grow as we continue to layer on the innovation as we've discussed, but it, again, gives us a model to attack other categories. So we've announced three new category introductions over the next three years, this year included in that. And the first category we're going after, as we announced on our Investor Day, is sofas, which is probably a surprising thing to say from a company that already seems to dominate in sofas, but we don't. We sell almost no armchairs, sofas, or loveseats.
The reason for that is that Sactionals, while they can be configured that way, don't make a lot of sense in smaller configurations from a price standpoint because of their kind of being kind of overloaded with features and from just a size and style standpoint. That's a weakness for Lovesac because it's a big style opportunity for us to go after. We've invented a product called the EverCouch, which will launch this year, mid-year this year. It's a very stylistic solution for sofas, loveseats, and armchairs that we think can have similar, we would hope, obviously, to have similar results to what Sactionals has done in large-format Sactionals.
And it will have many, many years of proliferation and growth as it is also designed for life, not meant to be added to and grown physically, but meant to be able to be changed stylistically, shapeshift, obviously covers, washable, all the things that Sactionals are to an extent. And if you think the obvious place to go is, oh, this must be cannibalistic for Sactionals, again, we sell almost no Sactionals in these small formats today. So you could think of Sactionals like a luxury SUV. And we've built for a decade, disciplined, the best-selling luxury SUV on the market, and that's all we sell. Well, isn't it neat that we can finally launch a luxury sedan and meet a whole new customer where that opportunity exists? And so we're very excited about that.
It rides on all of the goodwill we built through our $500 million investment in advertising and marketing, traditional media, digital media for the last decade because we're a brand kind of known for couches that ironically doesn't sell a lot of couches, so it's right down the middle for us. We can't believe we have this opportunity at this kind of stage in our development. Meanwhile, we've been cooking for years in our product development lab other designed-for-life solutions in other realms of your home that we believe have bigger potential than Sactionals do, and Sactionals is not small, and so we're really excited about giving further knowledge to those endeavors. Down the road, we haven't announced what we're doing exactly, but over the next two years beyond, two new product platforms in two new realms of the home is what's coming from Lovesac.
Yeah, that makes sense. Shawn, you sort of touched on this a little bit, but over the past couple of quarters, you had really several sort of ancillary add-on sort of launches. Just maybe talk about how sort of these product launches are impacting your repeat orders and AOV and sort of how critical are these sort of smaller innovations to help you grow?
Yeah, it'll never end. Our whole value proposition is about a core product that can be grown and augmented kind of forever. And so with Sactionals, we've proven that with a few dozen product launches over this last decade, the chunkiest of which would have been StealthTech that you can add onto your existing Sactionals you might have bought years ago and the Recliner that we just launched a few weeks ago. And so that model is the same model we will use as we attack other realms of the home and whatnot. So these are significant. 40% of our business is repeat, but bear in mind, we only sell at the moment these premium Sactionals and giant beanbags. And so to have that much of our business be driven by repeat is pretty remarkable. That's on a transaction basis, not a dollar basis.
We're seeing that the biggest driver of our business today is not our TV ads, it's not our digital ads, even though we're spending upwards of 12% on marketing overall, which is significant. Our biggest driver of this brand today is word of mouth. It's taken us a long time to build into that, but that's a fact. We know this through our research. All of that goodwill underpins both our new product launches on the platforms that we have, which will not cease, as well as these new platforms that we're just getting into starting this year with the EverCouch.
Just one other point on that. So Shawn mentioned 40% of transactions being repeat, but it's in the teens in terms of percentage of revenue. So over the course of the last 18 months, we've been experimenting with and building the infrastructure to support an intentional move to drive repeat in our business. And you as customers or as investors would have seen this start to play out earlier this year. We launched a new product on the Sacs platform called the PillowSac Accent Chair Frame. What was really interesting about this was people who've bought PillowSacs from us 15, 20 years ago. They now have a new way to experience their PillowSac in their house. And it was sort of that, let's go learn across our entire fleet of showrooms how to sell this product to existing folks.
We then followed it up with the AnyTable, which is our first entry into case goods. That launched a couple of months after PillowSac Accent Chair. There's another effort to learn how to drive repeat effectively to our existing customers. And now we have Recliner, which is the biggest and chunkiest and meatiest of those new exciting products on our platforms. On the Sactionals platform, we're getting even better at selling repeat.
By the way, we're seeing 50% of those sales of Recliner.
Coming from repeat.
Coming from repeat, which is pretty wild for a product that just launched a few weeks ago.
So this is very intentional on our part to learn and train that muscle to drive repeat. We have an omnichannel CRM tool that launched this year as well. All of this is designed to put us in a position to launch the EverCouch and then two new rooms in your house, and we're ready to go. We know how to drive repeat. We have those muscles ready to go. So this is a really exciting moment in time for us to really lean in and drive this business, not only to generate new customer love, but to sell more products to those who already love us.
I think one of the things, Keith, we talked about for those that didn't get to see it, we had our first Investor Day December the 17th, just a month ago. There's great material out there as you look at kind of our long-term plan and trajectory. A big KPI for us is around lifetime value. Shawn talks about Designed for Life platforms. We can be in your life as long as you'll have us. When we look at the lifetime value of a customer in year one, the average purchase is around about $5,000. When we then go out to year five of those cohorts, it actually has increased the lifetime value by 174% because they're learning to live with our platform. They're adding on all this incredible innovation that Shawn and Keith talked about.
So for us, we're just starting to scale up that lifetime value with the tools and the innovation. And with a million households that we've already penetrated, we can already go back to them because it's all reverse compatible, as well as continue to attract new customers. So a big part of our focus on the lifetime value. Yep. That makes sense. Just going back to these two launches that you talked about over the next couple of years, I know historically you've been very tight-lipped about any upcoming product launches, but is there anything high level that you can share with the audience so that investors can understand the opportunity that these launches bring?
No, but we will remain tight-lipped, and look, we've said publicly, our territory ultimately is from the mailbox to the backyard fence. You're looking at a company that has massive ambitions. We're not joking around. We're not here to kind of grow this thing and see the stock price get somewhere. We're here to build a brand that is here for decades. We think that because of this Designed for Life ethos that is so satisfying to customers who, look, they might have bought our Sactionals in a mall five years ago because it was the only thing that would fit down their staircase or turn the corner or whatever. For whatever reason they bought it, we love having them in the family.
But how satisfying is it when not only many years later, it's still valid and dog-resistant, kid-resistant, life-resistant, it's moved with me three times, been reconfigured, et cetera, but we keep putting out products that make them feel smarter for having bought that thing originally? That is a brand that can resonate with people in a way that no other brand on earth can do because everything else you buy begins dying the day you bring it home or put it in your pocket. And then you're convinced to buy the same thing a little better a few years later. This has the underpinnings to be a real brand. And real brands in this category don't exist. They're retailers or they're labels. And they're merchandising their way through the earth, searching for trends and ways to. We're not doing that.
We are inventing new solutions that do it better and that resonate in this way, and so the opportunity to strategically build a company to that end is the only thing we're focused on. We're only focused on the long term, and in the midterm, we're delivering profitable results, cash-generative. We've been buying our stock back and whatnot because we believe that much in our ability to continue to operate under the duress of probably the worst home category in the last decade or two.
Look, that's a subtle point. I just want to make sure it lands here, which is, as exciting as this growth opportunity is for us, we believe we have a uniquely powerful secular growth story that is self-funding and puts us in an excess capital position. We are profitable, cash flow positive, net cash on the balance sheet, and a product portfolio, a product pipeline, I should say, that's going to outlast our careers. Yeah, and we're here for a long time. That's really cool. I think it goes to show that the investments that have been made in the foundations of this company over the last five years are now really starting to bear fruit. You see that in this rapid acceleration and the pace of product innovation.
Yeah, but to not completely ignore your question, look, we have had great success going after big, chunky products that are meaningful to your life. We're letting our competitors sell candlesticks and votives and lamps and decorative accessories and garbage cans for your bathrooms. And that's awesome. And they're great businesses. I don't disparage them. I'm just saying that we'll go after big, meaningful things that mean something to you and develop this whole platform approach where eventually, by the way, they'll all be tied together. And we've explained this in our Investor Day through StealthTech. And it will be a whole home technology solution that will be invisible and useful and meaningful to the way that people live their lives today with technology. And that's something that only Lovesac is doing. And that's not a hobby.
We are already a serious competitor in the home audio space based on the quantity of home theater solutions that we sell that are invisible to you, embedded in your sofa through the fabric, et cetera, et cetera. No other firm on earth is doing this. And it will all be connected. Okay? So we are on a very long march toward a vision that is completely differentiated from our competitors while avoiding all of those inventory implications that come from all of that stuff that I just kind of threw out there because even our Recliner, by the way, if you understand Sactionals, you can arrange them deep ways if you're tall, long ways if you want it wider, et cetera. One SKU introduction in the Recliner does both. And it's modular forever that way.
And that was a feat of engineering that was not easy to do. And that's the reason we moved quite slowly. But thankfully, we've been cooking on these new realms that we're not telling you about today specifically for many years already. And that's the reason they're teed up to launch in year two and year three for us. So it's an exciting time at Lovesac.
Great. I think we have just a couple of minutes left here. But switching gears here, I think you were targeting to have 400-plus showrooms over time. Just given the strength of your brand, can you talk about sort of the ROI of you opening new showrooms and how does that compare to sort of a more traditional sort of advertising spend?
Yeah, I mean, it's really about capital allocation and being really sharp with our investments. And so I'll let Keith share some of the specifics, but.
We're a true omnichannel retailer. Hopefully, that's coming across. The way we think about these new categories as opportunities for us is sort of from a market share approach and a return framework. We say, all right, here's the new category, the new room, the new realm that we're going to go after. What do we think is the market share potential for us? Then we say, what's the most efficient way to get it? We have a lot of flexibility because of the omnichannel mindset. The start is Lovesac.com. It's very efficient. It's the central beating heart of our relationship between the brand and the consumer. The second step is to test and learn about measured physical expansion, meaning our showrooms, which is the workhorse vehicle for us for demonstrations right now.
The third step is to use partners selectively and intelligently to generate awareness, to generate profitable financial results, or hopefully both. So this would be examples of this would be Costco. So right now, this year, we'll do 600 pop-up shops in Costco with the Sactionals and Sacs products. The balance between the digital, the physical, and the partnership approach will change depending on each of these platforms. But that's the way we're going to approach this, which is unburdened by the normal rules or linear relationships between physical expansion and sales. That's not what we are. Our showrooms, this is a really important point. While they do sell, 100% they sell, and the financials are strong, their number one job is to give a demonstration, to let you touch it, see it, feel it, experience it, learn to love it so then you can close wherever you want.
You can close online. You can close right there with our associates. But that's a really important difference in how we think about growing this company.
That was great. With that, we're out of time.
Right off.
Very nice to see you all.
Thank you.