How Castlery came back from the brink to disrupt the furniture industry

Bespoke Singapore furniture brand Castlery recently opened its first Australian store in Sydney, which pipped NYC for the honour.

We spoke with the Castlery co-founder Declan Ee about how the brand has thrived while other furniture DTC enterprises from the same era failed. We also discuss the big mistake the business made early on and the great strides it has made in that regard since.

Inside Retail: Going back to the start of Castlery, can you tell me about the decision to launch the brand? 

Declan Ee: When we started in October 2013, there were four of us in a tiny, 84sqm basement, trying to build a global luxury brand. 

At that time, it was the launch of everything bespoke – bespoke tailoring, bespoke cocktails – so we thought we could be a cool little bespoke underground furniture brand. After the first year, we realised that if you want to do something in this space, you either have to be really bespoke, or you’ve got to scale. You can’t be in the middle. That’s when we started to learn more about the industry and why it was so broken.

There was a creative element about the business that attracted us – my partner Fred and I – but there was also a very logical engineering element. He’s an engineer by training, and I’m a lawyer by training and I spent 12 years in banking. The business allowed us to combine both elements because we had to solve very complex problems from product design, assortment, logistics, and customer experience. Every year we just picked a different problem to solve. But pretty soon, we realised that we needed to have a global view to grow properly. 

We grew relatively quickly in Singapore, and we entered Australia in 2017, but at that time, we were still very naive. We didn’t do enough to understand the customer, so we weren’t solving with the customer at the centre. We thought we were, but obviously it wasn’t enough. We nearly shut down the company because we were losing money for three years straight. We opened a second store in Singapore that was not necessary, so there were all these challenges, which I think every entrepreneur goes through. You learn from those moments. 

In 2019, we made the decision to be purely online. Before that, we had a physical space – it wasn’t really a store, it was more like a warehouse with furniture in it. We shut the space and saved money on rent. In hindsight, it was a blessing because Covid hit about nine months later. Before Covid, we had invested in a logistics team and taken the leap of faith to go into the US. We launched in the US about three months before Covid. Honestly, when Covid hit, we thought that was it. And then one month later, it was like, ‘OK, maybe it’s not the end of the world.’ And three months after that, it was like, ‘Wow, let’s go guys.’ 

IR: It sounds like you came so close to closing down, and then you had this unexpected opportunity. How did you capitalise on that?

DE: There were two parts. The first is what happened to consumer behaviour. And the second part is what we did. The definition of home changed during Covid – suddenly, consumers had no choice but to buy online. Something that would have taken five to 10 years to change happened in five to 10 months. 

We leveraged that in a couple of ways. We started to put the customer at the centre of everything we did when we entered the US. When we opened in Australia, we came in with the whole collection. We didn’t do that in the US. We started to think about and research how the target customer lives and the size of the market and we started with a smaller inventory. We started in seven little coastal cities, and with the data, we iterated and built on the momentum. 

When the surge happened, we rode it because we had the volume, we had the demand, and we had more confidence. And we had solved logistics as well, because we built up our logistics team before Covid. Very quickly, we were opening in a city a week, and in two years, we had covered the whole of the US.

IR: When you talk about putting the customer at the heart of the business, what are some examples of ways that you’re doing that?

DE: There are so many. If we think about pain points in furniture shopping, one of the biggest is the transparency of pricing. Is it $12,000, $8000, or ‘Just for you just for today’, $3000? That’s been a big struggle for many markets, so we wanted to have transparency in pricing. 

The second one would be the pain point of fulfilment. For a lot of retailers, the relationship with the customer ends at the transaction, and it’s outsourced. We solved for fulfilment so that you get your goods on time without delay. That was important to us. We were the first in Asia at the time to have order tracking and a lead-time indicator on our website. 

Another big pain point is the whole online digital thing. We have basic things like dimensions and organic customer feedback [on our website], and we’ve just started to have room designer tools where you can drag and drop products to help with visualisation. All of this is about creating a good experience for the customer. 

And then there are very functional things like designing products with storage and performance fabric. Even having a curated assortment with a few 100 SKUs rather than 50,000 and making sure the customer can mix and match and end up with a beautiful home without having to think about 300 different bed frames. 

IR: At the beginning, you were talking about how you’ve used technology to streamline what has traditionally been a very disjointed supply chain. Can you share a few examples of this? 

DE: I can give two examples. One is what I mentioned before: We were one of the first companies to have a lead-time indicator, which requires a very strong technology foundation to link all the warehouses. We even have another system where [suppliers] can track their own inventory that they make for us all the way to the local warehouses. So if my team over- or under-orders, they can see. One of the biggest problems in the furniture industry is inventory, so this allows our close partners to work with us, so we get better inventory management. 

Another example would be optimising our last mile, having systems to see whether orders are on time or not. We can open our BI dashboard, see what is happening, and make decisions based on that. 

IR: You recently opened the first Castlery store outside of Singapore in Sydney, Australia. I understand you were choosing between Sydney and New York, so I’m curious why you chose Sydney, given that the US is your biggest market.

DE: There were a few reasons. New York is very exciting, but as a brand, we felt we could offer something different and useful for the consumer in Australia. I came to the market a few times and saw that Australians are obsessed with property and home improvement, and a lot of them have got great taste. 

I felt that there was a real understanding and connection with the customer – more than in New York, where we were only four years in. New York is a big city and a lot of things were changing after Covid, and I wasn’t sure what experience or solution I could put in New York that could make a difference. But I felt that if I created a beautiful store in Sydney, the consumer would appreciate it. And then the right opportunity came about, and the landlord was very supportive. 

IR: How do you see your store network evolving in the future? Is the strategy to remain mostly an online business supported by a few flagships?

DE: We are staying very focused, so I would say yes. The great thing about being an online brand is you have a heat map of where your customers are, so you can triangulate which areas will be best to have a space and maybe unlock new customers. We’ll do it one store at a time, and we’ll probably get to three or four and then make a decision at that time. I don’t envision us having 25 stores, that’s not in the DNA. 

IR: It’s no secret that a lot of retailers are struggling right now. How are you navigating the current economic climate?

DE: It’s a topic close to my heart because I think there’s a whole generation of people – I won’t even call them customers – who have almost been left behind. There’s a generation that has property, then there’s a new pool that isn’t even thinking about a home yet, and then there’s this group in the middle. When I speak to some of my team members, it’s those people we’re fighting for. So ultimately, we are selling furniture, but what are we solving for? All these seamless customer experiences, all that aside, we’re solving for attainability. We’re making materials like marble – that were unattainable – attainable. That’s what we’re fighting for. If we continue to stay true to that, we will have a market.

IR: Castlery launched in 2013 during the rise of direct-to-consumer (DTC) brands like Warby Parker and Everlane. These were brands being started by people probably in their late 20s or early 30s, who were catering to Millennial customers, who were maybe quicker to shop online, but also had a certain aesthetic expectation. And over the years, we’ve seen some of those businesses fall by the wayside and others evolve. I’m curious whether you see Castlery as part of that cohort, and what you think is the future of DTC.  

DE: It’s an interesting question. We were definitely inspired by that cohort. But being a banker for 10 years, I was very clear that financing model did not work. 

I think what they did well was digital marketing – using Facebook and Google as a channel to acquire customers when it was cheap and nobody else was doing it – and having a very distinct point of view, which appealed to a new generation of customers. But it was obvious very quickly that if we had done that as a furniture company, we would have imploded. If you think about it, most furniture brands that started in 2010 to 2013 actually went bankrupt. Made.com went bankrupt. Interior Define in the US went under and was bought by someone else. Brosa in Australia went under. 

There are many parts – the marketing you need to get right, product development, logistics, your P&L structure needs to be correct, your capital structure needs to be correct, and your cashflow cycle needs to be right. I guess that came naturally because I was in banking for so long. 

The problem is when you fundraise with so many VCs, you are no longer able to take a long-term view because you’re only driven by growth. You have to take short-term bets and that’s when everything starts to go a bit haywire. If [Castlery] was all VC-backed, I couldn’t have said, ‘Let’s slow down, let’s think about what we’re doing, let’s be customer-first.’ 

But because we never went down that path, we could do that. We rejigged everything to improve the cashflow cycle, and that’s all very traditional business. Warehouse management, managing your cash flows, supplier management – it’s very old-school, which is all about relationship building and putting in the hard yards. 

On top of that, you need to tap everything else to make it more efficient. So for example, instead of hiring 22 warehouse managers because I have 100 containers coming in and they have to figure out where to stack each piece, I have a warehouse-management system that matches the rack and tells them where it slots in based on my accounting system. 

IR: So, if you haven’t taken any VC funding, how have you funded the business so far?

DE: We started self-funded and then, at the right time, we’ve taken in a handful of external investors, but pretty strategically. And they all have a long-term focus. 

IR: Looking forward, what are your plans? Do you see Castlery eventually going public?

DE: I always tell the team, whether you go public, you sell, or you become this global brand, the path is the same, right? You’ve just got to do good shit. You’ve got to run a proper, honest business. 

I started my career at Lehman Brothers, so dressing things up […] trying to sell yourself for 40 when you’re only worth five […] it just doesn’t last. I think there’s a satisfaction in building a sustainable thing that has an impact, almost one product at a time. You have people saying, ‘We’ve used your bed for five years,’ or, ‘Your sofa means a lot to us.’ 

You know that they [the products] create memories for that family, and they’re using them for 30-40 per cent of their time every day. I think everybody at Castlery has that view. 

The post How Castlery came back from the brink to disrupt the furniture industry appeared first on Inside Retail Australia.