Jennifer Hyman: So one of the things that was really important when we analyze what happened in Q2 was that we saw very different outcomes amongst early term subscribers and amongst subscribers who had been with us post 90 days. So the impact of in-stock rate was fundamentally different. As I mentioned, we continue to see strong retention amongst those more loyal customers. We saw that the in-stock rate decline really affected the churn rates of the early term subs and that those churn rates had increased year-over-year. So had it been a full macro issue, all customer cohorts would the experiencing decline. Had it been a macro issue. We’ve been experiencing more – we to be experiencing top line issues, which is not the issue that we are facing. Our issue that we isolated in Q2 was really about early term churn. Do you want to answer the second half for this question.
SidThacker: Sorry, what was it? Can you just repeat your second question, please?
Edward Yruma: Yes. Just trying to understand. So I think there was a moment in time where like reserve had low inventory may when everyone was doing special events and you saw a high churn because there wasn’t availability there wasn’t enough inventory depth. I guess when you think about the forward situation, kind of what do you have to do? Like what does it take to reactivate somebody that churned off because of lower inventory depth? And kind of what would the timing of that be?
SidThacker: Yes. Look, I think the – we’re obviously acquiring customers every single month, right? And those customers are going to choose to stay with us based on whether they had a great experience or not, whether they’re able to find the inventory they love and whether that inventory is in stock. And so the way we can start affecting this positively is actually providing the customers who stay with us who come to us with a much more positive experience. And that is then going to funnel into word-of-mouth and the organic kind of flywheel that we always expect. Now it’s important to realize that we actually do get a relative – we have a relatively strong track record of reactivating customers and customers come back to us, who are former customers and so on.
So that’s an ongoing process. I think customers have recognized that we provide a really valuable service. There are moments in times when they can be disappointed because we don’t quite have the in-stock that is right for them, and we’re making those fundamental changes to make sure that they have a much better experience.
Jennifer Hyman: I mean one of the strongest parts of our experience for years has been the strong reactivation of former customers. Now why is that? Number one is that customers see that our experience is continuously improving. Number two, this is a business that benefits from word of mouth. So you start to make a positive change and that word-of-mouth benefits your rejoin rate, even more than it benefits your necessarily your new acquisition rate because people are saying, hey, they brought in new inventory. They have a better experience. They’re doing home pickup now, and so those people come back. And we feel very confident that this issue of in-stock was one that was temporary. It’s one that we are already in flight on a lot of the improvements that we’re making those improvements are significant.
A 700 basis point to 1,000 basis point change in-stock rate between one half of the year and the second half of the year is highly significant, and we think that it will have a huge benefit to redoing rates. So we certainly do not exist in a business where if someone churns they don’t come back. We exist in a business where when you improve your experience, you have a high probability of people coming back and giving this another try. The other thing I’ll say is that we are the only one to do what we do. in terms of offering the level of premiumness of the experience, this subscription to the type of Closet in the Cloud that we have, which are the top brands and the top designers in the world, the premium of the actual experience, how quickly you receive the inventory, how easy it is for you to return the inventory.
So it’s a very high-end experience that our customers crave. And we feel that making these in-stock changes will then have payable effects on this rejoin rate that we should expect to benefit from.
Edward Yruma: Great. Thank you.
Operator: Thank you. Next question is coming from Ashley Helgans from Jefferies. Your line is now live.
Unidentified Analyst: Hi, good morning. It’s Blake on for Ashley. Several questions have been answered. I wanted to ask on – just a couple of clarifying questions. On the lower stubs expectation this year versus prior, it seems like the two big buckets there are the lower promos you discussed? And then lower inventory availability. Just wanted to make sure those are kind of the two big items. We’re not missing any others. And then could you rank or just discuss the magnitude of each of those impacts?
SidThacker: Yes, you have the two big items here. We’re not disclosing the exact magnitude of these impacts. I mean some of them are – we think both are really important. And we expect to make significant progress, obviously, on the inventory and stock rate into Q3 and Q4 and into 2024. We’re just – our guidance and subscriber expectations are just reflecting the possibility that those take a while to build, and we’re going to be prudent about that.
Unidentified Analyst: Got it. And then in terms of the impact to subs from lower promotions, I would guess that’s mainly impacting the acquisition of new customers. Wondering about that impact to the acquisition of new customers versus churn from existing?
Jennifer Hyman: I mean promotions don’t really have an impact at all on churn from existing because promotions are given to new customers to join.
SidThacker: I mean we do think that there is a benefit as we acquire more qualified customers, obviously, those customers are likely to stay with us longer, so we should see improvements in churn as we attract those customers. So yes, I think ongoing, there will be a benefit on retention to.
Unidentified Analyst: Okay. So maybe when a customer renews, you’re not seeing them, I guess, the impact from a renewal isn’t as big right now if they’re renewing at a lower promotion rate, would that impact like a renewal customer?
