Now when we look historically, the reason I kind of brought up in the earnings script kind of this transition away from unlimited plans is because the unlimited plan business actually had pretty equivalent to lower in-stock rates than we had in the first half of this year. But it wasn’t something that was negatively impacting customer experience. Now why? If you’re in a program where you can swap an unlimited times per month, and you’re an early term customer, you come in, you might not see the inventory you want today, but you feel like, well, I can swap again tomorrow, I could swap the next day. I can swap the day after that. So you’re less precious about each individual shipments that you’re making. In-stock is something that is essentially a new metric that we started to study in 2022.
We knew the importance of in-stock and therefore, we made plans at the end of 2022 to increase our depth coming in the second half of this year by 1.7x. But it’s critical to a fixed swap program. So we have now done an enormous amount of data analysis on essentially the relationship between churn and in-stock rates, we have a plan to significantly reduce churn by in-stock rate alone. And I want to mention that buying inventory and deeper depths. So switching from a breadth strategy to a depth strategy is not the only lever that we are deploying. There’s a lot of levers that we’re deploying to increase the in-stock rate. So other things that we’re doing right now, we’re consolidating styles into single warehouses. So there’s more units of those styles and single warehouses.
What inventory we merchandise on the site to what customer makes a huge difference to in stock rate. So there’s a lot that we’re doing that is boosting up this in-stock rate and really, Q2 was tremendous learnings for us on the criticality of this metric, especially for those first 90 days subs.
Operator: Thank you. Next question today is coming from Lauren Schenk from Morgan Stanley. Your line is now live.
NathanFeather: Hi, good morning, everyone. This is Nathan Feather on for Lauren. So first off, just thinking about increasing depth in the platform, to what extent does that impact your ability to shift away from wholesale there, either faster or slower?
Jennifer Hyman: Sorry, I didn’t hear the second half of the question, Nathan?
NathanFeather: Yes, just increasing depth in the platform and your ability to shift away from wholesale or whether those are connected?
Jennifer Hyman: I mean increasing depth is something that is fantastic for us from an inventory acquisition standpoint, whether it’s via wholesale via consignment or the exclusive design. So when you buy things in higher depth, you get higher discounts, whether you’re manufacturing those items, whether you’re buying them from a brand whether you’re getting them on consignment because there’s essentially, it’s easier for the designer to produce those items. So a depth strategy actually is we more financially beneficial for us than a breadth strategy. So we see no difficulties in getting there. The challenge is, of course, that our inventory is one that we monetize over multiple years. So making a change over 1/2 is only one tranche of inventory, which is why we’re saying that more impact is going to be felt in 2024 when more of our tranches of inventory have really transitioned over to a higher depth strategy.
And I also want to note that we’re not changing the total dollar amount spend on inventory. We’re just spending those dollars differently. So we’re buying fewer styles at higher depth.
NathanFeather: Okay. Great. That’s helpful. And then for the changes in marketing, is that just a temporary pullback until in-stock rates improve? Or should we expect lower marketing over the medium term? And just how to think about those updates to the long-term strategy on the marketing side? Thanks.
SidThacker: Yes. At this moment, the only decisions we expect to make are the decisions we’ve announced for the back half of fiscal ’23. We have not made specific plans or not sharing specific plans on fiscal ’24. But I think I’ll point you back to the underlying philosophy of what we’re trying to do. And hopefully, that will provide some context in terms of how we think about growth and promotions and marketing in ’24. I mean I think the one thing that I’ll add to this is we haven’t really seen any changes in terms of the effectiveness of our marketing or the efficiency of our marketing. We believe our marketing is strong. We have high LTV to CAC. I mean there is no issue in terms of marketing itself, but there are two ways to grow our business. One is we can certainly acquire more customers and bring them in. The other way is we can improve the experience of our customers and actually affect retention more positively, and we want to test and see how that works out.
Operator: Thank you. Next question is coming from Edward Yruma from Piper Sandler. Your line is now live.
Edward Yruma: Hi, guys. Thanks for taking the questions today. I guess, first, just given the materiality of the shortfall, just maybe get a little more comfortable on why exactly you think it was inventory depth that was the primary culprit and why this isn’t just a macro issue? And then maybe more of a follow-up on Ross’ question. So like – and maybe this is not a great analog, but when someone churns off because of inventory availability, like what do you have to do to get them to turn back on again or kind of what’s your experience been there? And kind of when would we expect you to run that play as those inventory levels normalize? Thank you.
