Ladies and gentlemen, thank you for standing by, and welcome to the Real You Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the conference over to your host, Head of Investor Relations, Mr. Paul Bieber.
Please go ahead.
Thank you, Chris. Good afternoon, and welcome to The RealReal's earnings call for the quarter ended December 30 1, 2020. I'm Paul Bieber, Head of Investor Relations at The RealReal. Joining me today to discuss our results are Founder and CEO, Julie Wainwright and Chief Financial Officer, Matt Gottske. Hopefully, you've had a chance to read our press release and stockholder letter that we distributed earlier today, both of which are also available on our Investor Relations website.
Before we begin, I'd like to remind you that we will make forward looking statements during the course of this call. These forward looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially. You can find more information about these risks, uncertainties and other factors that could affect our operating results in our most recent periodic report on Form 10 ks, subsequent quarterly reports on Form 10 Q and in our earnings release from earlier today. In addition, our presentation will include certain non GAAP financial measures for which we have provided reconciliations to the most comparable GAAP measures in our earnings press release. With that, I'll hand the call over to Julie for introductory remarks, and then we'll go straight to Q and A.
Julie?
Thanks, Paul, and good afternoon, and thank you all for joining us today to discuss our Q4 2020 results. Obviously, 2020 was a very challenging year, but we were resilient and found ways to innovate. We are seeing encouraging signs of recovery with December GMV back to growth and quarter to date trends even stronger. Overall, we are well positioned to emerge a stronger company. We are tremendously thankful to our employees for their dedication during these unprecedented times.
We'd especially like to recognize the teams on the front lines in our authentication centers and retail locations. Thank you for your tireless work and commitment. We believe that as we come out of COVID, the tailwinds that have driven the outperformance of many of the e commerce companies will slow. In contrast, we could see an increasing tailwind as major markets return to normal, which could drive acceleration in our business. This growth would help us realize efficiencies in our operations, leverage across our cost structure as we march toward profitability.
Last year, we embarked on several strategic initiatives that will position us to capitalize on the large opportunity ahead. The most significant initiatives include neighborhood stores, we plan to operate to open approximately 10 of these by the end of Q2. Given our early results, we're optimistic this strategy will allow us to further engage with our most valuable customers and significantly unlock supply more efficiently than marketing efforts alone. Our vendor program is number 2. This has improved our ability to source high value supply and we continue we will continue to invest in people, processes and technology to support its growth.
Q4 the Q4 vendor channel GMV increased 80% year on year, our 3rd consecutive quarter of acceleration. Lastly, our Arizona authentication center. We accelerated the timeline for opening our new facility to the summer of 2021 to support our next phase of growth. It will help us improve shipping times while reducing shipping expenses and fixed costs per order as we scale. When we provided our last update in December, November supply and new buyer growth were trending and our GMV was gradually recovering.
This recovery continued over the balance of Q4 with December GMV growth accelerating to 6 percent year on year. Our GMV trends have continued to strengthen so far in Q1 of 2021. Quarter to date through February 19, GMV growth was 14% year on year against a non COVID period. Consequently, we anticipate full quarter GMV will increase between 17% to 20% year on year as we began to lap COVID impacts. We are optimistic about our recovery in 2021.
However, the reality is the pandemic is not yet behind us, which makes it difficult for us to provide a longer term GMV outlook at this time. The thought I want to leave you with is that we're excited about 2020 that as we exited 2020, we were back to growth and we're excited about continuing our growth and supply momentum increasing in 2021, and this is underscored by widespread vaccine distribution, which is apparently around the corner. Hopefully, you've had a chance to read our stockholder letter, which contains a lot more details on our Q4 and early 2021 performance. So with that, operator, let's open the line for questions.
Your first question comes from Oliver Chen from Cowen. Your line is open.
Hi, Julie and Matt. Thank you. Regarding supply, what do you see ahead for the New York LA markets? You did a really great job with growing supply in the other markets and also you're managing a lot of innovation in the B2B vendor program. But what should be on our mind for Q1 and beyond with supply gathering and how the different regional pieces may mix?
I'll take this one. Right now, we're not going to make a prediction by region. But overall, we expect our supply continue to grow. And that really is it was already double digits for going into this quarter and supply growth and that will be aided by our new retail neighborhood stores and vendor. So we feel as if we've reached a turning point on our supply coming in.
We're very excited about the fact that we're now in the 3rd month of growth.
Okay. And you had encouraging commentary on women's apparel returning to growth. Would love your thoughts on what that means and if that may or may not be volatile and how the customer is behaving and the really encouraging growth on new buyers. What's the data saying for new buyer retention and new buyer behavior on the platform?
So a lot of questions in there as normal. Number 1, apparel is returned to growth. We expect it to continue to actually grow given lockdowns are easing. So we expect that to continue to grow and it's exciting. It's the first time women's apparel has grown for us since we had the lockdowns.
As we stated previously, we are a) well, our average unit selling price has really been driven by our high handbag sales in fine jewelry and watches. So right now, our AOBs are up, our ASPs are up, overall the ASPs are up. And it appears that our new buyers are behaving like our old new buyers did pre COVID, but they're spending a little bit more money. In terms of their repeat rate back to the site, they look pretty similar at this point.
Yes, that's helpful. Last one, neighborhood stores sounds really innovative and you have good reads from the newest ones. Why was now the right time for that in this dynamic environment we're facing where physical retail is really having to change quickly?
There are so many reasons why we know this is the right way to go. Number 1, we have one test case in Madison, which has done phenomenally well, even with the ability to have limited capacity in the store during the COVID time. Number 2, the rents in the neighborhoods have dropped precipitously and the willingness of landlords to do shorter term leases also critical to our decision making. And number 3, as you know, we are always looking to remove from the process for the consignors. In a study we did about 6 months ago, this was a way that they also wanted
to participate more neighborhood
drop offs. So the combination, open 10 as fast as possible this year with short term leases with an eye to measuring both demand and supply. They are primarily for supply. And then we'll decide if we're going to open more. But right now, there are favorable terms for driving those smaller neighborhood stores to faster profitability than they were before COVID.
Thank you very much. Best regards.
Thank you.
Your next question comes from Eric Sheridan of UBS. Your line is open.
Thank you so much for taking the question. Maybe I could touch upon some of the initiatives you have with the brands harkening back to some of the announcements that you made last year. Obviously, one of the big goals you've talked about as a company is sustainability and going after some of the broader goals the industry is trying to also accomplish around making sure luxury continues along this path in forward years and the role you play. Can you talk a little bit as we update turning out of 'twenty into 2021 about the relationships with the brands and then more importantly how it feeds into some of the sustainability narratives you talked about at the company? Thank you.
Sure.
I mean, as you know, we have Stella McCartney that's a long term partner, then the first one to join in and actually has been always echoing the importance of the circular economy and its role in a more sustainable supply chain and fashion world. And Burberry is still with us. Gucci, we're still in discussions with Gucci's railroad was different than any other prior relationship because not only did they encourage people to participate in the circular economy via consigning, they also encourage them to buy. So we are Stella and Berber are continuing, we're in conversations with Gucci and there will be more partnerships announced later in the year and it will be along the lines of reinforcing sustainability. So, slowly but surely, we're about ready to celebrate our 10 year birthday this year, slowly but surely, the message is coming through.
And the time is right for this. I also think there industry. And I don't think that's lost in the brands that we are working with The RealReal and other people that do resale make sense in order to hit have them hit their own sustainability numbers.
Thanks so much.
Your next question comes from Michael Binetti of Credit Suisse. Your line is open.
Hey, guys. Thanks for all the detail in the shareholder letter today and thanks for taking all our questions. I guess, can you speak to the Q1 GMV guidance? I don't mean to be short term, but 17% to 20% GMV growth with 14% in the quarter to date. And then obviously, March gets about 45 points easier just based on the monthly reporting you provided.
So I'm wondering if there's something in the flow of supply that would cause the multi year system or is it just an abundance of caution on your part until we were around the bend here? I'll start there and then I have a follow-up.
Yes. So like everything with GMV, it always starts with supply. Supply has been doing well, been building progressively. We're happy with how that's trending. And you're right, but if you track the progress, December was our 1st month of getting back to positive growth at plus 6, quarter to date 14 which of course implies over the balance of the quarter that there's some acceleration.
Listen, we're still in the middle of COVID, so there is an abundance of caution here. This is the first time we've been comfortable enough to put anything resembling guidance on paper. So I think coming out of the gate, this is a positive step forward in terms of we have some visibility, but more importantly increasing confidence in the trajectory of our recovery. So we're happy with it. Of course, we're going to look to overshoot.
Great. Okay. Thanks for that. And then I guess,
can you you mentioned in the shareholder letter some of the image recognition software as something that can help you on the inbound supply? I'd love to hear some thinking on that. We've seen some interesting stuff on that from competitors in this space. And then Matt, if you wouldn't mind just walking me through, I just thought at the back of the shareholder letter you commented that gross profit per order in Q1, I think, would be flat year over year, and I think that was down a bit in Q4. So maybe just what was driving that in Q4 and what's different in the mix in the Q1, please?
I'll take the first part and then Matt can take the back part. We've made tremendous progress in automating our op centers by it wasn't just image recognition, but image recognition played a part on it. It's really machine learning and computer vision along with some image recognition. So now in copywriting, price automation, photo editing, in particular, we're up to about almost 80% in all of those of automation, which means that the people we employ are doing more QC work and QA work. So we continue to accelerate there.
We also have unlike most of the people in this business, we also have a huge fine jewelry and watch component. So we've been able to further our automation of measuring the depth of diamonds within the setting without having humans recalculate it twice in the old way, which we still do for all other types of stones because we would never remove the stone from maturity. So our automation continues fairly regularly and a little ahead of schedule in our op centers, which is actually to be honest, that is where we've been focusing, but that technology can be applied across multiple channels later on. I would just say we're really pleased with the progress and these are the key things we needed to feel comfortable to support our growth and decrease our unit economics and our op centers.
Yes. And I'll take the second one on just overview on gross profit drivers. So you're right, we are comfortable to guide to flat gross profit per order in the Q1. Dynamics underneath there, 1, as always, growth drives leverage all throughout the P and L, so that's helpful. We have been seeing to Julie's earlier comments improvements in our average order value driven by good contributions from high value categories.
We're also seeing nice year over year improvements in our shipping expenses. So all adding up to the good things kind of offsetting the little bit of work we have left to do recovery on AOB and take rate, which continues to be correlated with those high value products. Going back to Q4, a little bit of that as well. So AOV first was down 6% year over year, almost exclusively due to units per transaction yet to climb back to historical norms. In addition, we had a few other things going on.
Take rate was down 50 basis points year over year due to the strong performance from high ASP categories, handbags and jewelry in particular, as well as more consignors earning higher take rates. That means a higher contribution from our existing repeat consignors. 2nd, we did see elevated levels of buyer incentives in Q4. We use buyer incentives as a tactic to garner both new and buyers and consignors. And it has had an immediate impact and it's really just kind of a shift out of traditional marketing to be to more immediate impact.
So we use it as a way to we expect to see that decrease over time. And then finally, the we expect to see that decrease over time. And then finally, there was a $2,200,000 one time adjustment in Q4 that's described in detail in the stockholder letter. Okay. Thanks a lot, Matt.
Your next question comes from Erinn Murphy of Piper Sandler. Your line is open.
Great. Thanks. Good afternoon and nice to see the recovering growth. Julie, I guess my question for you is on the 30% new consignors that are coming from stores, I think that was just for the month of December. Can you share a little bit more about what you're learning about this new consignor versus maybe other new cohorts in the past?
And then a follow-up for Matt on the new DC in Arizona. Can you just talk about how new or how shipping times, excuse me, will look when you're up and running there? And then your plans for the Brisbane DC once that, once Arizona is up? Thank you.
Hi. So, well, first of all, we are excited about our new rather preliminary outside the Madison store, but the consignors who actually consign at a retail location tend to consign 1.5 times more in value than consignors that consign to other venues for us. They also tend to have a higher NPS score. So early days on that for the retail stores, but we're pretty excited about the early results. The interesting thing, right now, these results are based on a limited capacity constraints that we have in our stores due to COVID.
So when you look at given all the constraints that are put on our business, including for example, in Palo Alto, we could only have 4 people in the store at one time beyond the sales team. It shows that there's a pent up demand for a frictionless consignment in a neighborhood. So we're excited about our early results look very promising.
Yes. Just a little bit more detail on Arizona. So this is purely about us focusing on the next phase of growth. This is our largest facility in our portfolio and should set us up for a few if not several years worth of growth. In terms of shipping, right now it's not like in the early days it's not going to be much of a difference because we do have some capacity in both coasts to sort of load balance.
But as we continue to grow, we would max out our capacity here in Brisbane and then have to start shipping things larger distances. So it's really as we start to grow, it allows us to keep optimizing our shipping distances, costs and managing service levels to customers and consignors by the way in terms of products coming in. So we're really excited about this to give us the capacity to grow over the next several years and by a wide margin is our lowest cost location. So that's going to drive a lot of expense leverage as we scale on a fixed cost per order basis.
Got it. And if I could just add a follow-up, Matt, for you on the shipping contracts that you negotiated at the end of 2019. I know on this call last year, you talked about originally planning 500 basis points of gross margin improvement and then obviously COVID hit. So curious, as you look forward into this year, GMV is clearly accelerating. How do you think about kind of the gross margin opportunity once we now that we're seeing that top line inflect from specifically the shipping contract renegotiating?
Yes. So the shipping contract itself is doing what it's supposed to do. So as we get growth back, we're going to get all of the leverage that we anticipated out of shipping. Gross margin itself is a bit of a tricky number for us because we have this mix of direct and consignment revenues with inherently different gross margin profiles. So that's sort of the unknown.
We actually think that the direct revenue mix will increase somewhat as we lean into the vendor opportunity, including selectively purchasing inventory upfront, which we have seen is yielding higher prices and better margin profiles for us. So to the extent that we continue to see that happening, we're going to keep doing that. So that's going to keep mixing direct up. So hence, we just keep trying to encourage people to focus back on gross profit per order as the metric to track how we're progressing in our overall productivity and path to profitability. And we see the opportunity to get from that roughly $80 level that we were at most recently to about $100 nearly $100 in the next 12 to 18 months.
Great. Thank you so much.
Your next question comes from Edward Yruma of KeyBanc Capital Markets. Your line is open.
Hey, good evening, guys. Thanks for taking the questions. I guess first, trying to understand a little bit on the supply side promotions you've been running. It seems like some of your competitors are kind of driving take rate down in an And then second, with Arizona plus neighborhood stores, is there something we should think about from like a near to medium term expense build perspective? And then just kind of one final question.
On the vendor relationships, I guess any sense as to whether that is negative to the relationships that you've been so successful at building with the brands? Thank you.
All right. I'm going to this is Julie. I'm going to take some and turn it over to Matt. So let's just talk about the last one first. The vendor relationships, some of the vendor relationships we've been building with the brands are the same brands that are working with another capacity.
So actually to me they work hand in glove and our vendors are a little more diverse than just the luxury brands that deal in fashion because we do have other categories with fine jewelry and art and home that we also source from. And those have been especially the art and home vendors have been very good for us during COVID times, but we do have a variety of vendors that are in the fashion world. But some of the vendors that we work with strategically are also vendors that we work with, on our vendor side of the business for Overstock or, other types of products, sometimes they're running tests. So that is that's what's going on with the vendor. Do you want to take the other?
Yes. Yes. That's a 3
part question.
That's our memory. So I think the second question is around just basically around store financials and what does that mean for the P and L and the balance sheet over the near term. The good news with these stores is that because they're small footprint with short term leases and favorable environment for getting lease terms for retail right now as you might imagine. These things aren't particularly expensive. So we think I don't want to be overly precise here because we don't really have much data, but we're hopeful that these things can become sources of profit in the plus or minus a year from opening them.
And they really don't take much capital to open. We get them open in 4 to 6 weeks after we sign a lease spend $200,000 $300,000 in capital, right. So rolling out 10 of these is a handful of $1,000,000 of capital this year. And once we kind of get to the back end of this year, we start to get closer to tipping point where it becomes neutral to the P and L. In the short term, it's a bit of a drag, but really not that much.
And then, I think the other question is around just the take rate environment and pressure we're seeing. We're not. No, we're not seeing it.
So look, what we've seen in the press with the take rate is that it's sneakers and watches. And our watches take rate has always been competitive within that space and the watch the watch resale market has always been competitive. So that really hasn't put any damper on it. Our sneakers, it's not a big component of our mix. We're still getting amazingly high quality sneakers and without changing our take rates.
So this is the beauty of being a multi category, multi brand business, where if someone decides to bring the take rate down to 0 for sneakers, really doesn't impact us. Our take rate shift and our P and L is mostly due to us selling more high value things because during COVID in particular, it was handbags and fine jewelry and then watches in that order and then men's. And so those first three already have what we would consider a really good competitive take rate that didn't change. Now we're adding apparel this quarter. Apparel is coming back to life and selling, so that will change the gross margin again in terms of percentage more on the positive side.
Great. Thanks for answering all the questions, guys.
Your next question comes from Justin Post of Bank of America. Your line is open.
Justin, I can't hear you.
Sorry about that. Thanks for taking my questions. 2. I guess the first, can you maybe, Julie, compare the vendor program economics to the core sourced inventory? Any big differences we should be aware of?
And then the second one is for Matt. Maybe you could help us just I know you did incentives in Q4, buyer incentives, extra marketing, which makes sense. Help us think about how to frame an EBITDA outlook for the Q1? Thank you.
So vendor economics overall are good, but it is a supply that in fact it's a net accretive to the business. However, it's not we still have to be very careful on the supply. And our goal is not to become overstock.com, where it's in fact you would end up dropping prices on quite a few. So our approach to vendor is, we wanted to increase our diversity of supply vendors that really sort of one that is there for the taking. We can have a good gross margin on it with a high price, but that doesn't mean it's a free for all in the way we take in our products.
So and we also do have to invest in that platform, meaning getting a skewed depth on our platform to really optimize that along with invest in the team. But it is the unit economics are good on vendor. The core stores, again, too early to call. They look pretty amazing. They have an added benefit of both getting supply for us and we do sell things there and we tend to sell things at a much higher AOV, which is accretive to the average overall AOV, which makes sense.
If you think about it, high value things sell faster in person than perhaps they do online. So, in person than perhaps they do online. So and they also have a marketing benefit. So those transcend just supply acquisition and we've got a lot of analysis to do on those as we get out of COVID to see how high is up with them. But even in COVID times, they look good for us.
Yes. One quick thing to add on vendor economics. It's important to keep in mind that vendor and buying upfront or taking inventory are not synonymous. The majority of our vendor business comes in on regular consignment terms just like everybody else. It's more about how it flexes our supply in the direction we want it.
So we can be more strategic about adding high value supply. There is of course some direct inventory purchases there, but there is on the consignment side as well. So those are really 2 separate vectors. The focus of the vendor channels to bring an incremental high value supply and enrich our gross profit per order metric overall. On the other question around bottom line expectations for Q1, so obviously, we're in too much of a period of uncertainty for me to be comfortable to be declarative about that.
But we've done what we could and provided the transparency that we think is appropriate in terms of GMV, seeing GMV acceleration, gross profit per order being roughly flat and directional guidance on our operating expenses, namely marketing, which excludes the buyer incentives, being down modestly quarter over quarter, our ops and tech up substantially quarter over quarter as we start realizing expenses in Arizona. We open a bunch of these core stores. We're investing in technology to support all of the above. So that one's going to be a decent amount. And then SG and A, as we said, kind of just up very, very modestly.
So add it all together, growth, the extent to which we grow is going to be the real determinant of where the ultimate bottom line sort of shakes out, but there's still a fair amount of range that that could be. Great. Thank you. I didn't mention I didn't buy incentives, I guess, the answer to that is essentially embedded in the guidance of gross profit per order being flat year over year, meaning we already see that that's going to start trending down hand in hand with our supply recovering, now back to positive available inventory on a year over year basis. We hit that in January.
So as we continue to grow supply, it just lessens our dependence on using those types of incentives. So we are seeing that.
Got it. Thank you. Thanks, Matt. Thanks, Julie.
Sure. Your next question comes from Mark Altschuler of Baird. Your line is open.
Good afternoon. Thanks for taking my question.
I was hoping you could give
us an update on the trends you're seeing with the virtual appointments. How are some of your larger white glove clients adapting to this now that we're all getting a bit more used to the virtual interactions? And also curious how the sales team productivity is trending with the move to virtual?
So, we look at multiple channels. And when you look at the ones that have some sales involvement, we've got we still have a little bit of in home. We've got virtual. We have shipped direct where people put it in a box and ship it directly to us and now we have stores. And I would say virtual is closer to the stores than the previous white glove.
And we're starting to go back into people's home upon request. So for example, if we go into your home, we tend to pick up maybe 50% more items than if we actually do a virtual appointment. So the productivity is almost breakeven and early days. Having said that, we think once we get out of COVID that virtual will get more productive because we'll get our it's just going to be a mix between white glove and virtual, the pain and where people are. So the efficiencies have been almost it's a wash, but it's still a good tool.
It's a great tool for us to have during COVID times.
Know what the mix is going to look like, but we're going to let our consignors lead us and whatever they feel is the least amount of friction for them, we're going to do it. So in home definitely has a role. Virtual does have a role, but how it ultimately shakes out remains to be seen.
Thank you. And then, Matt, just a quick follow-up on some of the vendor related commentary. Inventory, it looks like it was up pretty significantly year over year. Could you maybe just give us a bit more color on what's going on there, the drivers and any implications as we look ahead?
Yes. Our inventory is sort of a law of small numbers here. So it's like up in a percentage basis pretty substantially year over year. I think it was 70 something percent increase. But that's still only in the few tens of 1,000,000.
The majority of that increase relates to a couple of large vendor transactions that we executed in the 4th quarter. And so far, we really like what we're seeing in terms of average selling price, the product margin that we're realizing and how quickly things are selling. So slight small term use of cash for what we think is going to be additive to gross profit per quarter and ultimately flushing through the P and L as we go forward.
Yes. Thanks for all the detail.
Your next question comes from Ike Warshaw of Wells Fargo. Your line is open.
Hey, everyone. Let me add my congrats on the year, the acceleration in the business. Matt, two questions for you. Just first quick one on vendor direct. I think last quarter you had said it was going to be around 10% of the business and it could get to 15% to 20% over the next 18 months.
Is that kind of the way we should think about the upcoming fiscal year in terms of penetration? Okay.
So let me disaggregate this again. So vendor, the channel we call vendor, which is business sellers combined on a consignment basis, on a direct inventory purchase basis, in aggregate, yes, I think we'd still say that tracking to 15% to 20% of total GMV is the right zone for that, sort of progressively as we go through the year. The opportunity there is still quite substantial. There's still a lot of inbound interest and we'll continue to see very strong growth there. Got
it. And then second question, Matt, just bigger picture. So on profitability, adjusted EBITDA, positive outlook, I totally understand it's not clear right now. But I guess the higher level question I wanted to ask you would be, I believe pre COVID that the Street was kind of expecting you to hit that mark around a little over $2,000,000,000 of GMV. I guess just the high level question I'd have for you is, has the model evolved over the past 12 months so much so that that revenue or GMV number would change, meaning maybe you would need more GMV because of incremental cost in the business or greater mix of lower margin revenue or maybe it's come down because of better efficiencies in the model.
Just I'm just
at a high level, I know you don't want to
get into the details, but just holistically, how would you kind of think about that?
You're right. I do want to get into the details on something that's out that far. So obviously, the further we go out, the fuzzier things become. But sitting here, I'm not going to update anything that we may have talked about in the past. But fundamentally, there's a lot of good that's come during COVID.
And the thing that I think I'm most encouraged by is having a more diverse set of supply channels that allows us to be more predictable in how we grow the business going forward and coming out of COVID, as well as the progress we've made in other areas. So at the very highest level sitting here and looking out that far into the future, I really don't see anything that's a fundamental setback in terms of when ultimately we're going to hit that point of breakeven. Now in between now and there, of course, a lot of things can happen. If we really love what we're seeing from the neighborhood stores, we say, hey, we're going to do a lot more of those. They'll continue to be a short term drag, but we'll balance that as we always have done and making sure we're getting the right amount of investment.
We're focusing on profitable growth going forward.
Very helpful. Thanks a lot.
Your next question comes from Simeon Siegel of BMO Capital Markets. Your line is open.
Thanks. Good afternoon, everyone. Matt, sorry if I missed it. Could you elaborate on what drove the buyer incentive contra rev items this quarter and that $2,200,000 reconciliation adjustment? And then just any help, just given the moving pieces, any help on how you're thinking about returns and cancellations for Q1 and then whatever comfort you have into this year?
Thank you.
Okay. Another 3 parter. I think I got a returns
adjustment and buyer incentives. Buyer incentives, just think of them as sort of like a couponing that are specific to individual buyers or consignors. And we've used we've historically used that as a tactic to drive GMV and supply, new buyer growth, new consignor growth. It tends to run about a point 5%, maybe 2 percentage points of GMV. In the Q4 that got up closer to about 3%.
As we were we're encouraged with the trends we're seeing, we really wanted to drive it. It's more of an immediate call to action than broad based marketing. So we're seeing good results from it. So on a short term basis, we pivoted some of our marketing investments into buyer incentives. Don't expect that to be the case on a sustained basis, because supply is really what is the governor of how much we need to lean into that or not.
So it's a really short term tactical thing. Returns and cancels continuing to be favorable versus where they were, but roughly flat on a quarter over quarter basis is how I'd be modeling it. We are going to see a reversion to the mean over time as we sort of come through COVID and product mix really starts to kind of come back to where it was. So it's almost sort of a U shaped recovery, I guess, or just kind of reverting to the I mean there. And then the adjustment.
So as part of our audit in 2020, we discovered and corrected an immaterial error that had been accumulating little by little over time. The error itself related to a subset of consignor payments that were made manually outside of our normal payment processes. And some of these manual payments were incorrectly recorded in our financial statements. We have corrected the reconciliation process, so that's good news going forward. And we're going to flush the adjustment back to the period that it belongs in when we present our quarterly results with the filing of our 10 ks.
So again, immaterial one time adjustment and really no meaningful impact on our go forward financial results. And for clarity and hopefully helpfulness, in the stockholder letter, we presented Q4 both with and without this, so it doesn't sort of muddy the picture on a year over year basis.
Great. Thanks a lot. Best of luck for the year ahead.
Thank you.
Your next question comes from Aaron Kessler of Raymond James. Your line is open.
Great. Thanks guys. Maybe just a couple of follow-up questions. Maybe just on the operations on tech, I realize that in kind of the first half, it sounds like that's going to be increasing at a healthy amount. Should we start to expect some leverage in that line as we go into the second half of twenty twenty one and then into twenty twenty two, obviously assuming kind of GMV ramps throughout the year as well?
And then just maybe just on the vendor impact on take rates, can you just give us a sense for that? I assume that you're managing more to a gross profit per order, but just maybe just the impact on take rates as well would be helpful. Thank you.
Okay. Let me check vendor impact on take rates, somebody remind me the first question. Ops and Tech leverage. Ops and Tech leverage, all right. Thank you.
Cool. Vendor impact on take rate, overall, it should be pretty modest, because the again, what I can't predict is the mix between consignments and direct purchasing. Let's just move that out of the equation for now. On a like for like basis, all things equal, it's virtually identical to an individual consignor. The main difference is the mix of products that are coming into that channel.
It tends to be and on purpose it is skewed more toward higher value products. And those inherently structurally in our commission structure have lower take rates. But overall, it's not going to really have a significant impact. Net net positive in terms of gross profit per order, whatever we give up and take rate is more than offset by higher AOBs and ultimately gross profit. In terms of ops and tech, I don't want to get too precise because I don't know.
So the investments that we're making in the short term core stores, we kind of laid out what that looks like overall. Technology is we'll continue to invest alongside the growth in the business and to power a lot of these strategic initiatives, the vendor program, retail, Arizona, etcetera. And on a short term basis, yes, that's an increase. When it delivers leverage, that's tougher to say. So it's really what does our growth profile look like as we come out of COVID.
The OpEx part is obviously more controllable. But to this extent that we kind of start lapping COVID, we see very strong growth rates and fundamentally the business is sort of in a steadier state of recovery. I would expect to see progressive operating leverage each quarter as we get through the year.
Got it. Great. That's helpful. Thanks, guys.
Your next question comes from Susan Anderson of B. Riley. Your line is open.
Hi, good evening. Thanks for taking my question. I guess a quick follow-up on the neighborhood stores. I'm just curious if there's any insight you could give into how much it costs to open them and then also the timeframe to profitability and then if you're looking at specific cities or regions where you're planning on opening them? Thanks.
Do you want to go ahead. Sure.
I'll start. We talked a little bit about this earlier on. We'll have about 10 of them open by the end of Q2. They range in footprint from a little over 2,000 square feet to a little bit more than 4,000. Brooklyn is on the higher end of that spectrum, though a little bit larger in the 4,000 neighborhood.
But generally speaking, we're looking at 2,500 square feet, 2, 3 year lease terms, about $300,000 call it in CapEx to get it open. It takes us 6 weeks to open. And then we're hopeful, we don't know because like our oldest ones are just a few months old. But we're hopeful that the on a 4 wall basis, these things can look like approximating breakeven in about a 12 month basis. So in the short term, a drag, right?
But like then as we start then we let it go and they continue to perform, then this time next year, they should be actually a source some leverage.
Right, they should be. And we did model it based on continuing cap restrictions in the store with number of people based on some COVID restrictions. The location was the other thing you're talking about. Again, this is going to be no surprise. Think of neighborhoods outside key urban areas.
So for example, we opened Palo Alto, we opened Brooklyn. We may open another one in New York City. Right now, we only have 2 and New York is a big place and people don't like to leave their neighborhood. So you start thinking of Connecticut as sort of a natural place, other places in California, we opened Newport Beach. And yet we have a store in West Hollywood.
So it's sort of a you can almost figure it out yourself by assuming here's the big cities in the U. S. And here's a radius where there's huge pockets of people that most likely aren't going to travel that far to either buy consignment or drop off consignment, but would prefer a neighborhood store.
Great. That's helpful. That makes sense. And then I guess just a follow-up on the trends that you're seeing by product category into February. Are you expecting, I guess, apparel to continue to increase and maybe, I guess, shift back to pre COVID levels?
Or should we think about Q1 being similar to Q4 in terms of the penetration of jewelry and handbags?
So already it's shifting. So I don't we don't know obviously what's going to happen, but everything besides kids and beauty is growing at a nice clip. So every category is growing without diminishing the jewelry and handbags and men's and watches. So we're actually having nice growth across everything. The nice bulk of our business is in women's apparel.
So it was good once that returns to growth and it is comping a non COVID month right now and on non COVID 2 months, it looks it gives us a lot of hope.
Yes, that's definitely very positive. Okay, great. Thanks so much. Good luck next quarter.
Thank you.
And operator, I think we can take one more.
Your next question comes from Marion Song of BTIG. Your line is open.
Great. Thank you. Thanks for fitting me in here at the end. Just on the neighborhood stores, a follow-up question on that one. It's been looks already tremendously successful.
I think if we go back to some of the statements you've made in the past, Matt, that maybe you get to like 10 or 12 stores or so. So is the Q2 going to kind of round out your store opening plan for that? Or do you see what the success you've been enjoying that maybe you could increase the number of stores ultimately? And then I think you'd also said in the past, these would be primarily drop off points and not points of where there'd be a lot of retail activity. Just curious if you're what you're seeing is maybe making you rethink that.
And then just one last question on international, something we really haven't talked about a lot because of COVID and which you've had to do strategically to stabilize the business. Just curious if you think international is something that you can make some progress in FY 2021? Thanks.
Okay, Matt.
Okay. 3 parter 4 parter. So I think I do. So it's your neighborhood stores. I think that the question around roughly 10 stores, I hope that's not where we stop, right?
So if the stores that we open look like the ones that we've opened recently in Palo Alto and Brooklyn and Newport Beach and those 3 continue to perform like they have or better frankly as capacity restrictions get loosened. We're going to probably want to open up a fair number more of them because they look like they can be substantially more efficient at acquiring and unlocking supply than our marketing investments alone, far more targeted, far more personalized, local. It's what consignors want to do. So I would not be shocked. I would actually be quite pleased if 2 quarters from now we're talking about a more aggressive rollout of these stores.
That would be a fundamentally healthy thing for our business. In terms of our view on how the mix of supply versus demand, still I think we look at them as from an incrementality perspective, they're most powerful on the supply side. They acquire new consignors very efficiently and bring a lot of incremental supply to us. On the demand side, you can argue like they're helpful. Yes, they make us it makes it easier to sell high value products.
The return rates are exceptionally low. Buyers will love it. I mean, our NPS in the store is quite high. People who interact with our stores are far more active on both supply and demand than people who only do interact with us online. So very healthy.
I think it's a good question because I think we're finding that there is a lot of interest in people shopping in the stores and there's like across the board see very good sales, not just supply.
Well, wait, but they are smaller footprint. So if you just look at the sheer number of SKUs we have in the store and their smallest footprint by design, which means they get their lighter they're just the cost efficiency support smaller footprint versus flagship. But they have about a third of the SKUs or less of what a flagship store would have. So by its nature, it's up to the merchandising team. They've done a really good job of fine tuning that mix to maximize the dollars even in sales per square foot based on the local neighborhood.
So that's which means they are we've never said you can't buy anything. It's just the size alone dictates a certain level of success because they will just by their size restraints have less SKUs.
You want to take on international?
International, we have international in our cost carriers. I do not expect to see any impact from it this year, but I would assume that planning will begin for a launch next year, sometime this year.
Planning this year for launch next year.
Right. So said another way, do not expect to see incremental expenses or incremental GMV associated with international this year.
Great. Thank you so much.
Okay.
So back to me. I want to thank you for your attention. I want to encourage you all to get vaccinations when your time comes up And just leave you on the note, we're excited to be back to growth and we're looking forward to our next call for our Q1 results. Thank you very much. Everyone else has left the call.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.