RealReal Inc (REAL) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to The RealReal's Fourth Quarter and Full Year 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Caitlin Howe, Head of Investor Relations. Please go ahead.

Thank you, operator. Joining me today to discuss our results for the period ended December 31, 2021, our Founder and CEO, Julie Wainwright; President, Rati Levesque; and Chief Financial Officer, Robert Julian. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, for which historical financial measures, we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a stockholder letter earlier today, both of which are available on our Investor Relations website.

I would now like to turn the call over to Julie Wainwright, Chief Executive Officer of The RealReal for introductory remarks, and then we will go directly into a question-and-answer session. Julie?

Thank you, Caitlin, and thank you to everyone for joining our earnings call today. We're pleased to announce solid financial results for the fourth quarter and full year 2021 with continued top line growth as well as significant operating expense leverage. We are encouraged by our ability to continue to grow the business at a high rate while also effectively managing operating costs.

Throughout 2021, we continued to expand our use of proprietary technology in our operations. Specifically in our authentication centers, we drove operational efficiency through innovative technologies, including our proprietary diamond measurement equipment and machine learning and AI algorithms. Additionally, we continue to increase -- to drive an increase in our average selling prices through refining our pricing algorithm. Through the expanded use of technology in our operations, we are improving unit economics, enabling scaling of our business and driving higher ASP.

As the impact of COVID recedes, our business is becoming more predictable again. Therefore, today, we return to providing forward-looking guidance for Q1 and full year 2022. Importantly, we are now in a position to report our expected timeline for attaining profitability. We project that The RealReal will be profitable on a full year adjusted EBITDA basis in 2024. This conclusion relies on 3 main assumptions: continued annual top line growth of at least 30%, operational excellence with improved variable cost productivity; and #3, controlling our fixed costs and leveraging our prior investments in technology and stores.

At our Investor Day in March, we look forward to providing more details regarding our path to profitability and our long-term financial targets that we refer to as Vision 2025. We have never been more excited about the long-term prospects of our business. The recent growth and heightened interest in luxury retail indicates increased consumer demand and momentum in this space. We believe The RealReal is uniquely positioned to capitalize on these trends.

And with that, we'll now open it up for our Q&A session.

Operator, we're ready for questions.

(Operator Instructions) Our first question comes from Lauren Schenk of Morgan Stanley.

I just had a few questions on the timeline to profitability. Is there an assumed GMV target within that 30% CAGR that you're looking towards? What's the assumed gross profit per order in that? Is it still $100 sort of the key threshold? Or does it need to be above that to get there? And then lastly, any -- what's the assumed sort of store opening cadence or total number of stores that you're projecting in that 2024 number?

This is Robert. I'll take the first part of the question, and then I'll also let Julie and Rati weigh in. So in terms of the specific GMV target for 2024, we're not disclosing that at this time. We haven't established a -- we have established internally, but we're not providing the GMV, the CAGR or the assumed top line growth rate is consistent with what Julie said, which is 30-plus percent. But we're not giving a specific GMV target at the moment. We will, at our Investor Day in March as part of our Vision 2025 plan, give specific targets for GMV, revenue and adjusted EBITDA as our long-term targets for 2025. But at the moment, we're not providing the specifics in 2024 other than we will be adjusted EBITDA positive in that year.

As far as gross profit per order, again, it's not a specific target, it's an important metric within our business and we continue to monitor and look at it and it has continued to grow. And I think we ended the year somewhere $92 or $93 of gross profit per order in 2021. And we do expect that to continue to grow. However, I wouldn't refer to it as the most important or -- I've heard other people talk about it as the holy grail to our profitability, from one of the many reasons is it totally ignores our cost base.

And so while we'll look at gross profit per order, I would encourage you to really look at some of the other key indicators or metrics or what is required for us to get to profitability. And again, Julie mentioned them earlier, it's our continued growth rate at 30-plus percent. It is, I would say, relatively modest productivity on our variable cost base, call it, low to single-digit productivity in our variable cost base and continuing to manage our fixed cost in a very responsible way, modest increases in our fixed costs going forward.

As far as new store openings, I'll make one comment, and I'll turn it over to Julie and Rati. We continue to open new stores. We've already opened one new store in 2022 in Brentwood, California. And we're always going to be opportunistic about looking for good locations in places where our store model works. So I'll pause there. That was a lot.

Yes. I agree with that on the store openings. And I would say that we have 9 stores that are opened now for less than a year. And the metrics continue to be healthy, 30% of our new consignors still continue to come from our retail locations. We continue to see a halo effect that happens regionally. They are driving new traffic as well, higher average selling price. So again, those metrics continue to be healthy, and we are always looking at new locations to see where our sellers and buyers are and what locations could make sense for us.

Our next question comes from Erinn Murphy of Piper Sandler.

Two questions for me. First, as we think about the inflationary environment and particularly the price increases that we're seeing in the handbag category, can you talk about the opportunity that you see for your business over time just from a gross profit per order perspective given the pricing umbrella in the primary market? And then the second question I have is around the sources of supply. It sounds like it's still pretty healthy. Can you talk about how that looks from stores versus in-home appointments? And is there still a need to utilize virtual appointments as we think about the new normal going forward?

Sure. Let's talk about the specific rationale in LVMH announced fairly hefty increases in their handbags. Well, that absolutely benefits resale and certainly benefits us and our consignors on 2 levels. One, allows us to raise the price of those bags but still offer a better value for the consumer. So the consignor wins, the consumer wins versus buying full retail, and it makes retail even more attractive. So that's all good. We have back here, what's the impact on the average order size. We have been for possible unit economics. Our at-average selling price on a unit basis has been increasing steadily for the last 2 years as has our average order size due to us going from about 1.93 to now over 2 units per order. And so what that says to us in general is we're getting a bigger share of wallet and people are embracing retail. What that will say for the forthcoming change in the price in the retail market, we wouldn't make that prediction.

All I can tell you is that a combination of our pricing algorithms that are getting more and more sophisticated with human oversight means that we'll be able to adjust prices quickly as we see consumer demands change. But overall, our AOV and average unit selling price has been going up. So with that, I'm going to turn it over to Rati to talk about supply.

Sure. So as far as sources of supply, like you said, is very healthy and it continues to be healthy in-home. Our concierge services, what we call it, continues to be the most valuable channel for us, followed by our retail locations. Virtual is also part of the mix, and we launched that during COVID 2 years ago when COVID first hit. And that also is very lucrative for us. It also helped to make our sales team more productive because now they're able to take more appointments per day. So again, it's the in-home and then retail as well as virtual helping with the productivity. But overall, we're feeling really good about the supply coming in, both in units and dollars.

Our next question comes from Anna Andreeva of Needham.

We had 2 questions. I wanted to follow up on the gross margin decline in the fourth quarter. And I think a mix shift to direct was a big part of that. And you mentioned Real will be limiting that owned inventory going forward. But curious how should we think about gross margins implied in 1Q and the full year guide? And then secondly, I just wanted to follow up on the processing delays, you called out in late December and early January. Did you quantify what that meant on sales and EBITDA? Just trying to gauge how much that's affecting 1Q?

Well, I'll take the last part and then I'll switch it over. So just to explain the dynamics of our marketplace because we have such a high repeat rate and such engagement with the site, it is dependent on us getting more and more products up on the site to satisfy that demand. So we actually went into January with both behind in hiring slightly, and then we had up to 40% call out in our op centers pretty significant. For perspective, January was growing at 40% versus a year ago prior to the call out. And then it dropped not because we didn't have people engage with the site because new products wasn't on the site. The only area, and we are now back to normal with our SLAs seen our commitment to get the units once we receive them up on the site. We're back to normal about the second week in February, except for fine jewelry and watches, which will return to normal very shortly. Most importantly, that didn't impact product coming in.

So we had a backlog of product coming in, which we're now working through. So it's always hard to prove the negative, but if you were growing 40% and now you have our guidance, you can see that at least the first 6 to 6.5 weeks of the quarter, we were depressed due to, call out due to Omicron and a knock-on effect. But that is, as I said, as we speak now, is mostly, mostly behind us. So now I'm going to turn it over to Rati to -- sorry, Robert, on the gross margin.

Anna, in reconciling the decline in gross margin in Q4 versus prior year, it's about a 550 basis point decline. And I would say it's primarily due to 2 different areas. One you've already mentioned, which was the mix impact of the increase in the direct business as a percent of our total revenue. And that did -- it was about 31.5% of our total revenue came from the direct business versus last year, it was just under 19%. And so on that mix impact alone was a negative impact of around 900 basis points.

And as you mentioned, in the future, we intend to deemphasize the part -- that part of our business where we are purchasing inventory. And we did that for very specific reasons during COVID and when we were challenged to get supply into being people's homes for these concierge-type appointments that Rati had mentioned. But it is our intention to deemphasize that aspect of our business and for direct revenue to decline as a percent of our total revenue in the future.

Now as I mentioned, the total decline was 550 basis points and mix was 900. So there was a positive offset, and that positive offset was really in site credits. As a percent of revenue, it's actually improved quite a bit year-over-year. And again, the site credits were utilized for very specific reasons. Last year that weren't just necessary this year. And so we saw about a 350 basis point improvement overall in our gross margin due to site credits becoming a much smaller percent of our total revenue. And so the net between those 2 is the 550 basis point decline in gross margin year-over-year that you see.

Our next question comes from Ike Boruchow of Wells Fargo.

Robert, 2 questions. One, should we continue to expect this inverse relationship between take rate and AOV persist at least into the first half of the year. Just kind of curious if the take rate should continue being -- on a downward trajectory, whether AOV kind of flips up? And then the second question is kind of to what Anna is asking about, understanding that the mix should come down, I think in 4Q, it was about 14% of NMV or I think you said 1/3 of revenue. Maybe just help us based on your guidance, where is that expected to land for this fiscal year? Maybe where should that be in terms of fiscal '24 and your target because it's just -- it's become much more inflated than it has in the past, I mean, at least I don't really understand where exactly you guys are planning that to shake out. So any help therapy would be great.

Sure. So Ike on your first question, certainly, there will be a continued inverse relationship between average selling price or higher value items and the take rate, we take a smaller percent of those items. And that's really determined competitively by the market in terms of what the take rate is by category. And when you see changes in take rate in our results, it is primarily due to changes in mix. And so it's just a question of, are we selling higher value items at lower take rates or lower value items at higher take rates. So I wouldn't necessarily associate that with good news or bad news necessarily.

Because on a gross profit basis or a gross profit per order basis, which we like to focus on in the past, these lower take rate, higher value items are very important to our business and our path to profitability. But primarily, the changes in take rate are mix, and it's not necessarily a good thing or a bad thing as they fluctuate up and down. It's just a reflection of the mix of the products that we're taking and we're selling.

There are some cases, actually, by the way, where we have increased our take rate on some items, items less than $100 and so on. And so there is small movements in our take rate on an item basis, where we have increased our take rate where it seemed appropriate or it made sense. So that's the take rate question. And did that answer your question before I move on to the...

Yes. I guess it was a long-winded way for me to say, should the take rate start to stabilize and maybe even improve from where it is. I understand the mix. I understand what's driving it. I guess I'm asking, is that mix dynamic likely to continue in the near term? Or could we start to see the inverse happen, if that makes sense.

I'd say that's fairly stable in my model. I see this fairly stable. It might fluctuate up and down a little bit, but more or less I see it as stable at the level it is.

Just to echo that, our average order value it has gone up and stayed up consistently now. And so we're -- we do believe we're getting a bigger share of wallet and that average order value is driven by more high-value, lower take rate items.

Great. Then the direct piece?

So on the direct piece, and we talked about Q4, and I gave a figure that direct was 31.5% of total revenue in Q4, which was a bit inflated. On a full year basis, direct revenue was about 20 -- a little over 26% of total revenue. And I am projecting and expecting that to decline in 2022 and to further decline as we get out to these 2025 Vision numbers. Now there is a part of direct business that will continue to grow. The part that's associated with auto policy returns in Get Paid Now.

So there will always be some percentage of our business that is direct, where we will own the inventory. But we will certainly deemphasize the part of our direct business where we are purchasing items to resell. Where that ends up over the long term, as I mentioned, it was 26% in 2021. I see it declining to 20% or less. And maybe in the long run, it could end up at 15% to 20% of our total revenue and then stabilize. But we should see an improvement. And of course, the improvement in our gross margins just due to mix alone, we are projecting and is part of our 2022 AOP forecast in what we're going to share as our Vision 2025 numbers.

Our next question comes from Marvin Fong of BTIG.

Most have been asked, so just one for me. The guidance on the adjusted EBITDA line implies pretty good improvement after the first quarter. Maybe you could just expand a little more on the cost efficiencies and the operating leverage you expect to realize, it looks like in the last 3 quarters of the year, but also maybe just comment on what might be some of the EBITDA pressures for the first quarter since it looked like a bit more than the Street was expecting?

So I'll start with -- it is not exactly perfectly balanced as you look at our full year guidance and what we are projecting for Q1. And it does suggest a little bit of bumpiness in Q1, which we saw on the supply -- not actually supply, actually on the throughput side where the Omicron sort of variant impacted our labor. And we sort of got a little bit behind on the SLAs and getting product through the system and ultimately up on the website. The good news is that, that has sort of corrected. And I think Rati could talk about, I think we're more or less back to the SLAs that we commit to in terms of that throughput. But it did start a little bit slow for us, and that's reflected in the Q1 results.

So said another way, the loss in EBITDA is also a reflection of a top line that we didn't expect to be at this level, we expected to continue the growth rate, and we saw that continuing. So once -- we're basically still leveraging slowing way down in hiring in the fixed cost area. And -- this is the first quarter where we didn't get variable leverage. But because of the Omicron, we had so many call-outs and then we hired temps, but that we expect that to pick up going forward to get back to normal.

Right. And sort of the pattern of adjusted EBITDA as you go through the year to our full year guidance is, we continue to project growth every quarter throughout the year, and we'll continue to see the productivity that we've generated in the past and so that will continue. And then frankly, the fixed cost leverage just gets more pronounced as you go through the year as we grow every quarter at this rate to the fourth quarter, which is always usually our highest GMV in revenue quarter. And we continue to maintain this fixed cost base, you'll see an acceleration of the leverage on the fixed cost and the improvement on productivity. And that's why each quarter, frankly, gets a little bit better as we go out through the end of the year and corresponds to our full year adjusted EBITDA forecast.

Our next question comes from Michael McGovern of Bank of America.

I have 2. First off, I just wanted to ask about underlying the 2022 EBITDA guidance, could you speak to some of the bigger investment areas for 2022? And what will you expect to be spending on? And then secondly, I wanted to ask about shipping expense in Q4. I think last quarter, you noted it was a pretty big headwind. So I just wanted to ask where that stood in Q4? And what are some of the initiatives to improve on that shipping expense over time?

Yes. This is Rati. I can start and let Robert and Julie chime in. As far as what are our big investments in 2022 to pull the lever on EBITDA, I mean it really is all the technology that Julie spoke about at the beginning. It's optimizing our pricing and automating pricing, is automation of coffee, automation of authentication and really just scaling a lot of our labor, especially in our facilities or authentication centers. And like Robert said, that will continue. We'll continue to see leverage on both the variable and fixed side because of those big investments. So we've mapped that all out. Over the next few years, we feel confident about it and that really is tied back to our technology and product road map as well.

As far as the shipping expenses go, we did see headwinds last year in shipping, and that was really driven out of COVID and surcharges that we were getting. We did do some things to mitigate that risk this year and late last year. Some of that was passing some of that inflation cost to our customers. Good news is we didn't see conversion drop in our cart. So we left that there. We also diversified through UPS Carrier SurePost, that some small packages that's also helping us. And then utilizing our vans in-house, our in-house network to mitigate some of that shipping charges for this year.

Yes. And Michael, just to add to what Rati said. If you look at Q4 shipping and expense compared to prior year, it was actually more or less a wash in terms of the impact on our total gross profit and gross margin. We did see increased shipping costs, but we saw an increase in shipping revenue that more or less offset it.

Our next question comes from Oliver Chen of Cowen.

The GMV momentum has been really solid. And you mentioned in your letter you'll be profitable on an adjusted EBITDA basis in 2024. What are your thoughts on profitability sooner and/or by quarter, just thinking about the momentum you're seeing? And also if you could add any comments or thoughts on variable and fixed cost leverage? Second question, it sounds like you're quite encouraged by supply. Would love your thoughts on regionally if you're happy in categories, how that's proceeding? In the past, New York and L.A. were quite sensitive markets. And then finally, just a modeling question. On UPTs versus ASPs, would you expect UPT growth to be double digit or outsized relative to ASPs going forward?

Oliver, this is Robert. I'll take the first one in the multipart question. In terms of our path to profitability in 2024, as the year, I feel highly confident that we will be able to achieve that. I'm not going to commit to a number sooner than that. And frankly, I'm not really going to box ourselves into a specific quarter. So I think we feel very comfortable and very confident in 2024. I'm not thinking about it as a sooner timeframe, and I'm not going to give a quarter, but we feel very confident in that. We are going to give more details, as I said at our Investor Day in terms of our path to profitability, what success looks like and what we're shooting for in terms of the major metrics in 2025, and I will give a much greater detailed explanation about our cost structure and our fixed and variable expenses at that time.

Yes. And I can take numbers. Your second part of your question was what do we see on the supply side regionally? And you're right, New York and L.A. have been larger markets for us. But I wouldn't say with our stores and our virtual offerings, we have diversified our regional mix a bit more than you've seen in the past. And then categories are pretty consistent as well as far as what's coming through value versus ready-to-wear fine jewelry and watches, that looks quite healthy, and that's another way for us to monitor the health of supply regionally. But New York and L.A. are back to normal and showing high growth. So that's been there for a while. But the important part is we have a couple more legs of the stool that are actually fairly significant. So that's really important.

And then your third question was units per transaction versus average selling price and what we'll see going forward in ASP. I mean we do see our average selling price increase like Julie mentioned as well as our units per transaction, and we believe that this is a new trend based on the supply coming in and based on our customer and gaining more share of that wallet like Julie mentioned. As far as marketing goes, you've gotten better and better optimizing and personalizing that experience and connecting the buyers and consignors to the right product. So we do believe this is a new trend here.

And it's gone up significantly if you go back to 2019, so we're now over 2 units per and we built that in going forward per transaction. And the AOV, I think we have a reasonable AOV assumption. We're still seeing a higher AOV this quarter-to-date, but I think our AOV assumption for the year is very reasonable based on past trends.

Yes, if it's a modeling question, Oliver, I don't think you have to build in extraordinary improvement in units per transaction beyond the 2 or -- where we've seen some improvement. And I don't think we're -- at least for me, I'm not modeling in extraordinary increases in average order value. I think both of those continue to trend up. But from a modeling point of view, it doesn't require sort of extraordinary increases in units per transaction or average selling price or average order value.

To get us to profitability, right.

In terms of modeling.

Right.

Our next question comes from Tom Nikic of Wedbush Securities.

I wanted to follow up on some of the questions earlier about the stores. I know you've mentioned that it's a highly effective source of supply. And I think you mentioned a high number of your new consignors are driven by the store channel. Is it safe to say that from a -- I guess, from an ROI perspective that the store initiatives, the higher ROI supply acquisition vehicle than maybe some of your traditional supply gains? Or are there any other like efficiencies from a store perspective that we should think about?

Well, yes, I'll take it at the beginning. No, the ROI is still highest at the in-home visit, and that's purely because we get more units per pickup. And then therefore, we get more value per pickup. So that's really important. Now we -- the store units are now second in terms of store drop-offs. The other just per perspective prior to us having the stores, we got in-home and our sources were in-home, people would send it to us in a box directly so they get a free shipping label. Our luxury consignment offices, which didn't have a retail-facing store and then vendor sort of in that order. So what we've seen is the in-home pickup still impact the units, per pickup continue to increase. Virtual is part of that. We don't get as many units per pickup if you slice that (inaudible) , but still very important for the consignor. And the strong second is retail.

So retail especially the neighborhood stores, which have a smaller footprint are really performing significantly well. The only -- and I would say the ROI on those are clear, but we want to give it more time because as Rati said, we still have 9 that haven't been open a year. And the stores that were opened prior to COVID like our SoHo store and our WeHo store in West Hollywood also back to normal and performing significantly well. But overall, the stores look like they will be accretive on all levels. But again, it's still early days, but it looks very, very good, and neighborhood stores have -- some of them got to profitability very, very quickly.

That's very helpful. And if I could squeeze one more in. So you've talked about expecting 30% plus top line growth to get you to the profitability target for 2024. How do we think about the investment in marketing that it's going to require to drive such a high level of top line growth? I think historically, the year-over-year increase in dollars has been in kind of between $5 million and $10 million range. Do you think you'll have to step on the gas pedal a little bit as far as marketing expense goes? Or -- how do we think about that?

So this is one of the beauties of our business. Our repeat rate for the customers is 84%, same customers and consigners. To show the growth, we've consistently, let's just put our 1 couple 18 months of whacking us in COVID aside. But we've been -- consistently been able to actually drive down our variable cost of marketing to acquire new customers without shorting out the new customer growth. We see that continuing, meaning said another way, the variable part of marketing will continue to get more efficient.

We had -- we ended the year with a really good [fact] number. I don't think we've put it in there in the piece. But we ended the year with a much lower back year than we had even before 2019. So marketing will get increasingly efficient over time. And the fixed cost part of marketing hasn't grown really at all. We don't expect we need to grow that. It really becomes a variable game, and it looks like it will continue.

Our next question comes from Michael Binetti of Credit Suisse.

You've answered a lot of our questions, but I want to ask one at a higher level. You previewed for us a little bit that you see the path to EBITDA breakeven at 2024. That's from the starting point this year of down $80 million to $100 million. We go back, walk back in time a little bit to the IPO, we were targeting breakeven in 2022. So we pushed it out about 2 years with a 2-year pandemic in the middle.

In 2020, you had about -- I think you had about negative $70 million of EBITDA. So the climb to breakeven is a little bit of a steeper climb from the down $80 million to $100 million this year. But you do have GMV headed to $2 billion this year, it's right about where you thought you'd need to be in the past to be EBITDA breakeven. I think you saw -- I think at the time you saw take rates at about 36%. And for a number of reasons, they're lower now, most of it, probably the mix of goods. But I think you said, Robert, you see stability here.

So can you help us just understand at least a few of the big swing factors that you see as you've dug in and done some of the work here that can lead to a bit of a steeper climb towards that EBITDA profitability map than what you did previously?

Sure. I can certainly tell you the inputs and assumptions in how we improve to a profitable year in 2024. I'm not going to be able to talk too much about the previous modeling and what was projected, and a lot has changed between now and then, including the pandemic and so on. But I would say that the path, the main elements of the path to where we are now to profitability in 2024 is some modest improvement in gross margin. And I think that, that is primarily due to mix as a percentage of direct revenue becomes a smaller percent of our total revenue, but we should get a few, 200, 300 basis points of improvement in gross margin during that time.

On the operating expense side, and I've taken a little bit of a different view of operating expense. And I know that in our SEC filings, we only break it into 3 categories: marketing and operations and technology and SG&A, I actually look at them in almost 20 different categories. And I put them in sort of 2 main buckets, what I would call supports OpEx, which is more or less fixed and think about HR and finance and IT and so on. And what I would call sort of sales and operations OpEx, which is primarily variable.

And I would say that the assumptions in how we get to where we're at now to profitability in 2024 is 3 things. It's the continued growth of 30-plus percent. It is relatively modest productivity in the variable part of our cost base, call it, low to mid-single-digit productivity there. And a real control of the fixed or support part of our OpEx that may grow at the rate of inflation or sort of, again, low to mid-single digits in terms of inflation on our fixed cost base. And if you project that through your model, like I project it through my model, I feel very confident that we get to profitability and we bridge that gap from where we're at now, minus 126, 127 into 2021 to something positive in 2024.

And Michael, I do, maybe it's a little dangerous to answer a question that wasn't asked, but I think it is important to understand between '20 and '21 and then a little bit more in '22, we really -- we did a couple of things that actually during COVID, to come out of COVID stronger and they were big investments, which are going to pay -- are already paying out. The single biggest investment was the retail moving to neighborhood stores and providing easier ways for the consignors to interact with us and consumers.

And that, as I said, neighborhood stores are a big win. And we already had a really positive one in the Madison Street store. And then once we saw the result of that store really didn't slow down much, even though New York was slow, the activity at that store was very high. And then we sort of slowly opened and we got opportunistic due to various key market rent opportunities. So that we made a big investment and the future investments will be much slower and not as great because we opened, I think, about 16 in about 18 months. So that, that won't happen at that pace again. That was the number 1 investment.

The other one we did, which if you look at from '19 to '20, at the end of 2021, we doubled our technology investment, and we really invested heavily in data science and data scientists who have actually accelerated our -- the operational -- our authentication operations and streamlined it and are actually allowing us to scale now and deliver these results. So those are the 2 big investments that we made, and we're seeing pay off on both of them. But going forward, those, as Robert said, it's more like, okay, we know what our base is now. Now we fine-tune on productivity, keep fixed costs fixed and keep growing the top line. So we exited COVID stronger than we went into it. My feeling is we probably -- we would have gotten to profitability as we stated when we went public. We might have dipped out again to reinvest in technology. So you might have seen us go in and out. But we feel like we're really set up now to continue go from strength to strength.

And Michael, can I add one other thing, too, and this may be just a question of semantics, but I want to be careful about the words that we use or attribute it to me. I didn't say that we would be breakeven in 2024. I said that we would be positive adjusted EBITDA. Now that's a little unfair because your next question is going to be, well, how profitable, and I'm not giving you that number. But our projection for 2024 is actually positive adjusted EBITDA, not breakeven.

Interesting. Can I follow that? I guess, maybe better for Julie due to the history here. But coming into 2020, I think it's easily forgotten because COVID hit right after you guys reported fourth quarter in 2019. But you guys were on a path to a very big year in 2020 before the pandemic hit. And there was a point in time where you said gross margins would be up 500 basis points, taking us to 69%. There was going to be all kinds of leverage through the model. Do you still see some of the elements that got you confident in that kind of potential in lines like the gross margin at that time?

Yes, I mean, remember, just I hate to revisit, I'll get PTSD. But when we are first in January and February, and even the first 10 days of March, we were up over 40% versus a year ago in 2020. And then very quickly, we were down 45% versus year ago with the shutdown. So we had an 85-point swing. So we went through a lot of gyrations and -- in order to keep -- again, if you just look at our business holistically, given historically, we've had a huge repeat number that drives the base and the predictability of the number.

In order to -- once things started opening up, in order to keep the business solid and keep the cohort somewhat okay, that was why we purchased inventories. We still had people engaged at the site, but our shelves were empty. So now taking all of that away, we're not in that situation, things are returning to normal. And -- but our normal is a higher units per transaction, a higher AOV now. And our supply acquisition channels have been diversified significantly. And our fixed costs, we don't need to continue to invest heavily both in technology or extraordinarily in technology or retail. Now we're going -- we're going to open things at a more normal pace when we open the store. So everything sort of moving in a really good direction. All the key indicators are there. And oddly enough, even though we went through a lot of turmoil in the middle, ended up in a better place.

Our next question comes from Ed Yruma of KeyBanc.

I guess, first, Julie, you mentioned this a couple of times how you were opportunistic with the store strategy related to real estate. I guess just with the world improving, are you seeing -- kind of help us understand the duration of the leases? Do the economics change like with these short-term kind of pop-ups? And then as a follow-up, Robert, I know you'll probably give us more at Analyst Day. But just given your background, are there any easy wins that you see in a post-COVID environment on getting a lid on some of those variable costs?

On the store strategy, we didn't do pop-ups Ed, we signed leases. So -- and in case retail stores are sort of still depressed there. So as an opportunity comes up in a neighborhood that makes sense for us, for instance, we just opened Brentwood about a couple of weeks ago in California. That store is our first store this year, and we're always looking for that. So they're short-term leases, meaning they're less than 10 years, but they're not pop-ups. So those look pretty good. I mean we feel really good about it. Do you want to answer?

Sure. So on the cost basis, Ed, and you're right, I come from a background that was heavily influenced by lean manufacturing and Six Sigma and continuous improvement. And I would say on the variable part of our cost base, we've actually seen good productivity. And we will continue to work on that. And there's really no easy wins in that. That's just a continual focus in what's built into our model is what I would call modest productivity gains.

As I mentioned before, low to mid-single digits, which is typical in any environment where you're running factories or warehouses or distribution centers. Probably the -- I don't know if it's the easy or wins or low-hanging fruit is really controlling the fixed cost. I think that's an area where we have made investments and they were good investments, and they made sense. But the real leverage that comes in our business and our path to profitability is more related to that, which, by the way, is a larger port. Again, we'll give more information on that. But that part of our operating expense is about 2/3 of all of our operating expenses, what I would refer to is the support functions. And that's the area as we continue to grow 30-plus percent on the top line, and we only grow that support or fixed cost at the rate of inflation or a little more than that, that's where the leverage is. That's the big win.

Our next question comes from Susan Anderson of B. Riley.

I'm curious just on the take rate, how you're thinking about that as we look over the next couple of years. Are you seeing any competitive pressures there at all?

Yes, I'll answer that and let Rati chime in then. The cool thing about our business is we span across multiple categories. So -- and because we do all the work, we have a little bit of -- we do have a take rate premium. But we've seen the ability to take our take rate in our favor which we did last year on nonbranded fine jewelry and products under $100. We don't see pressure to bring the take rates down. But for perspective, on certain watches, our take rate is 15%, and it always has been. So having a blended part and a blended inventory mix allows us to actually compete in categories we want to be in but not degrade our overall take rate. And then when it does change, it's changing because of what people put on the cart, not on what we're actually doing it on input, it's more the sell-through.

Yes, I'll just add one thing to that. I mean we have almost 26 million luxury shoppers. And what we always look at is, are we paying a premium to our sellers. Are we pricing the highest. And so that's where we focus as far as less on take rate and commission structure. But at the end of the day, will the seller earn more with us. And we're always doing a competitive analysis there to make sure that is consistently the case.

Great. And then just a follow-up. I'm just curious, it seems like there's been some pretty big industry tailwinds and luxury items such as handbags and watches which are seeing pretty big resell value for like certain brands and styles. So I'm just curious your thoughts around the sustainability of that. Do you think we're kind of in a higher growth mode for those items right now that maybe could come back a little bit?

We -- actually handbags have been strong all through COVID and they continue to be strong. And name brand fine jewelry is the same, also unbranded fine jewelry. So we expect to see continued growth in that area. And I do think we'll see some people shifting out of the primary retail market to resell as the price differential continues as the luxury brands raise their prices.

And I think that is our last question. So thank you for that. So I'll just go on with the closing remarks. So thank you all for joining us.

We want to thank our entire team at The RealReal for their hard work and dedication throughout 2021. And it's going to be a fun 2022. We're excited to continue our path of growth and progress towards profitability as we move through 2022. Importantly, we have now had 25 million members who are joining us on our mission to extend the life of luxury and make fashion more sustainable. So a big thank you to all of you, and we'll be talking in the small group. So thanks. This concludes our call.

Thank you. This concludes today's conference call, and thank you for participating, and you may now disconnect.