Shawn Nelson on Building a Retail Company, Adapting to the Trade War, and What Keeps Him Up in the Morning
Shawn Nelson is the founder and CEO of The Lovesac Company, a direct-to-consumer furniture brand with more than 77 retail showrooms supporting its ecommerce delivery model. Lovesac’s name comes from its original Durafoam filled beanbags called Sacs. The company is now disrupting the home decor industry with its patented furniture platform called Sactionals, a washable, changeable, reconfigurable, and FedEx-shippable solution for large upholstered seating. From humble beginnings, Shawn began making Lovesac giant beanbags by hand in1995 out of his parent’s basement. In 1996 he served as a church service volunteer in Taiwan for two years, becoming fluent in Mandarin Chinese, only to return to work in China delivering leadership and team-building seminars in Chinese for Fortune 500 companies in the year 2000. Shawn graduated from the University of Utah with honors and bachelor’s degree in Chinese and later a Masters in Strategic Design and Management from Parson’s, The New School for Design in New York City where he also became an instructor in the Master’s program. In 2001 Lovesac opened its first retail location in Salt Lake City, Utah, with dozens more to follow. In 2005 Shawn won a 1 million dollar investment from Virgin’s Richard Branson on Fox Network’s hit show “The Rebel Billionaire,” and was made acting President of Virgin Worldwide for a time. Raising VC funding and eventually Private Equity financing to drive growth, Lovesac is the fastest growing furniture retailer in the U.S. as of 2018, mostly on sales of Sactionals. Lovesac achieved a successful IPO in June of 2018 and continues on its high growth trajectory. He currently splits his time between Lovesac HQ1 in Stamford, Connecticut, and Lovesac HQ2 in St. George Utah with his wife, 2 dogs, and 4 children. Learn more at www.lovesac.com or on his blog at www.DFLGroup.org.
Business Today (Quang Trinh): What surprised you the most watching Lovesac grow into what it is today?
Shawn Nelson: Lovesac has a long history and what surprises me the most looking back is how much the vision of what is possible has evolved from where we started. When we started, we were just trying to make some really big bean bags for our friends and neighbors who wanted them, and it turned into a little side hustle as we went through college. We certainly wanted the business to grow, but I don’t think we could have imagined that many years later we would sell mostly couches and furniture; and more importantly, [that] we would become a leader in the sustainability movement. If you spend some time on our website, we have this ethos called “Design for Life,” we believe that products can be built to last for a lifetime and designed to evolve as people's life changes. And that philosophy drives everything that we do and all the decisions that we make, and ultimately, Lovesac products would become revered as the most useful, the most sustainable solution in their categories ... our big audacious goal, to quote Jim Collins, is to inspire mankind to buy less stuff, but buy better. That’s a pretty strange thing for a company that sells stuff to say, and maybe even stranger for a company in the couch business, kind of an unlikely conduit through which to hopefully affect the way people think about the thing they buy.
BT: Corporate social responsibility has been an important part of Lovesac, what are your thoughts on Lovesac’s role regarding its community, seeing that you have quite a large audience?
SN: There was a story on the news [about] how the Business Roundtable has finally chosen to redefine the purpose of a business corporation, and it’s very controversial. For many decades, the purpose of a corporation, according to business schools, has been defined as driving returns to shareholders, increasing shareholder’s values. I think the idea of just conscious capitalism where all stakeholders affected by the business are relevant and should be considered. And it’s controversial: there are a lot of people who think it is trivial, and there are people who obviously support it. As I say, our entire purpose now revolves around changing the way people think about the things they buy, but our goal is not to do that by preaching it, our goal is to do it by driving so much commercial success through capitalism that we cannot be ignored; that other businesses looked at us and wanted to copy the way we do our business; maybe in their own categories, because the way we do business works, and because consumers like it, and they will invest in it, and they will support it. That’s what we view as our contribution to society and our community. And for me, it’s a good reconciliation of capitalistic drive, with the side of being responsible and conscious, and that is what we hope to prove.
BT: Lovesac has repeatedly been named one of the fastest-growing retailers in the sector; what do you think are the core elements that contribute to this success?
SN: Number one, you need to invent a unique product, we aren’t just selling a commodity with our brand name on it, and there is a lot of that going on right now. There are a lot of companies that are just basically making very similar products, but they put their brand names on it, their labels on it, and marketing on it, and they have their offers. We actually took the time, invested the energy to invent a new and better mousetrap as it were. Number two, advertising. We have something that is unique, and people don’t know about it yet. And so we invested heavily in advertising, and in all forms, from traditional media, TV, to digital advertising, social media and direct consumer marketing. It’s really those two things combined. The third thing is just the goodwill of our customers. Again, I think we are a company [where] people are proud to own our products. We don’t sell cheap products, we sell really nice products. People support us on social media. We have a big following not only because of the products but also because of what we stand for and what we believe. We are the kind of company that people care and can be proud of, and we try to live up to that.
BT: Over the past year, Lovesac has made an active effort to create a strong social media presence; what do you think is the power of social media to elevate business?
SN: Social media cannot be ignored. It is a huge force in today’s world, in marketing, and in brand-building. One of the strongest principles that we discovered is to listen very carefully and watch and observe not only what kind of posts and what kind of messages resonate with our customers, but also what your customers are doing and saying themselves about your brand. And rather than trying to project necessarily an image on to them about your brand, it is equally powerful to reflect back to them what you see from them. An example is that many of our social media posts are just customers’ images. And rather than projecting to them the glossy and perfect Lovesac lifestyle that we wish was real, we simply share and promote the way people really live, which isn’t always so glossy and so perfect and so aspirational, just more real. And I think being happy in a self-deprecating [way] and being goofy and willing to laugh at oneself, and just [having] fun is something that resonates in most circles.
BT: Lovesac has relied on third-party suppliers from Texas, China, and Vietnam for its products. In the context of the US-China trade war, it is changing up the way that American companies deal with their suppliers overseas. How do you see this geopolitical change is affecting your company, and how Lovesac is going to adapt to this environment?
SN: It is a huge change. At the beginning of this year, we were manufacturing around 75% of our products in China, and already we will be down to only about 44% of our products made in China. By this time next year, we will have manufacturing in Vietnam, Malaysia, India, Indonesia, Thailand, as well as America. So, it is a huge change that is taking place in the world, and we are a part of that change. It is going to have far-reaching repercussions for China and as well as all countries surrounding it that are absorbing [Chinese] manufacturing; as well as our own businesses. Ultimately, our margin will improve, our resilience due to diversity in the supply chain will improve, and it will be a good thing for the business. But in the near term, it can be very challenging, demanding time to navigate.
BT: Lovesac relies on an extensive network of showrooms to connect to your customers and to introduce new products. As the market is constantly changing, there is significant convergence in online and offline retail strategies. How do you think Lovesac is adapting to this shift?
SN: Online business is by far our fastest-growing segment of the business, and we have invented the only high-end Sactional sofa that can be delivered through an online format effectively. And that is something we are leaning into really aggressively. We believe online sales will be the biggest part of our business and allow us to branch out everywhere in America, and someday everywhere on the globe. We believe that we will continue to invent products that are very different from their cohort. We always want to supplement our internet sales with physical showrooms, allowing people to sit on, or touch, or feel and use these new inventions that we continue to bring to market. And they can appreciate [Lovesac’s] quality, and whether they go home and buy on their own iPad or whether they check out on the showroom, we just want them to join the Lovesac family. And so, because we will not cease to innovate, we will not cease to open showrooms and grow our physical footprints. But, we intend to keep it quite small. Right now a typical Lovesac showroom does not exceed 1,000 ft sq, and we have no intention yet of expanding beyond that. Ideally, it is going to be small, efficient, and useful. In reality, people are still analog-beings not digital, you can touch them, you can interact with them; and as long as that is true, there will be a place for an analog world and not a place for just a digital world.
BT: Your company went public last year. It is a bit of an odd question, but do you feel any anxiety, how do you feel about it?
SN: You know, it was exciting. I was very worried leading up to being a public company because you can read so many horror stories about the market not doing well, a CEO being ousted, or the SCC clamping down on some companies, and who knows what. But it was also very exciting. The IPO was a big event, so now we have passed that, and we are just another public company. We had a year-long, really exciting ride when the value of the company doubled and then tripled. And now, we are back to trading at even below where our IPO was, while [having] never missed an earnings, primarily because of the unknowns of these tariffs that are totally beyond our control. So we have experienced the highs and the lows already in one year being a public company. But here is the upshot. We have tens of millions of dollars in cash that was raised very quickly. The company is in no risk of failure or going out of business, even though we struggled for many years with barely enough cash to support the business and always needing to raise money. And now as a public company on the other side of that, we have a very strong balance sheet, we are operating very well, and our results are very good. So regardless of the [confusion around] tariffs and the fears out there that drive out stock price up or down, we have a very healthy company that we are very proud of. And, to be honest, I was not able to build Lovesac on my own piggy bank. I had to raise venture capital and private equity, and through all of those phases, I was always at risk, and to some degree, I was always under the control of those powerful investors. And now, even though there’s always a risk and there are always problems associated with growing the business, as the CEO, I am no longer being controlled by one investor or constituent. In my case, being public feels in some way very freeing than being owned by private equity or the like.
BT: Throughout the years, what gives you the motivation to move forward when you’re faced with adversity when running the business?
SN: One of the things that is preached for a long time and that I believe for a long time is the funny idea that I call “embrace the economic pressure,” that stems back to the earliest day when I maxed out my credit to build the factory and just go for it, when we got a big order. I really never had a choice. I either faced complete financial ruin or just made it happen. And for many years, it is kinda just survival, and that’s why I have never been negative towards encouraging entrepreneurs to go for it and to max out their credit cards or to take the loans or to make the investment and embrace that pressure because that pressure alone might be enough to get out of bed in the morning because you just have to survive. But then, now that we have cash and we have grown, and we have raised the money, and we have stabilized in many ways, we have the time and space to allow this little seedling to grow something bigger and reveal to us where the vision could take us. The vision that I mentioned earlier -- that we actually believe now -- that by putting our couches into the world and allowing people to live with them for many many years, and to experience the washability and changeability and start to wonder when they have their kids spill something on their couch, what do other people do? Do they just live with the stained couch, or do they have to throw the couch away? And we start to think about why cannot other products in our lives be as useful. And we start to think about the thing we buy differently. Ultimately, we truly believe that we can change the way people think about the thing they buy, inspire them to buy less and buy better, and that’s a crazy thing for a company that starts out of survival selling bean bag to their friends in college to evolve into. We are very proud of that, and that is what gets me out of bed in the morning.
BT: If you have any advice for an aspiring entrepreneur, what would it be?
SN: Just do something. What I mean is I met aspiring entrepreneurs all day long that have ideas and business plans, and they don’t know if they have the money and they don’t know where it will lead and they don’t know if it is good enough. Listen. I made a giant bean bag from paper foam that I chopped from a paper cut on my parents’ floor. It is a joke. It should be funny. Then my neighbor wanted me to do it for them. And I have no possible idea that my company will grow into a company that I am sure one day will be worth more than one billion dollars. And so, you just never know what it will lead you, and if you don’t do something, you certainly won’t ever find out.