Jenny Lei looked at the towering stack of cardboard boxes in her Hoboken, New Jersey, apartment. She'd spent $30,000 on handbags and needed a new strategy to sell them.

An unemployed UX designer, Lei had taken it upon herself to create the perfect work bag. She spent months designing a prototype before ordering a production run. Four weeks later, she'd only sold 20 totes.

"My plan failed spectacularly," says Lei. "I couldn't afford to not make it work. [A lot] of my savings were sitting in boxes in my living room."

Today, Lei is the 28-year-old CEO and founder of Freja, a New York-based company that sells work totes, shoulder purses and travel accessories. The 4-year-old startup brought in more than $9 million in revenue over the last 12 months, including $2 million in profit, according to documents reviewed by CNBC Make It.

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Lei is Freja's only full-time employee, alongside five contract workers. She credits her company's growth — not easy, in the highly competitive fashion industry — to cultivating loyal customers, drawing them in with minimalistic bag designs and a public commitment to environmental sustainability.

"From the beginning, I thought, 'Does the world even need another handbag brand?' Not really, if I'm going to do things the way that everyone else has," Lei says. "But I thought if I could do it in a way that felt really good to me, and would resonate with a certain group of people ... it was worth the try, right?"

Here's how Lei turned hundreds of unsold bags into a profitable luxury handbag company, despite her lack of fashion experience.

A 'really, really slow' start

In February 2019, Lei was a soon-to-be-unemployed graduate student at Cornell University preparing for a job interview in New York. She tried pairing three different work bags with her outfit, and none of them worked. One was too small. Another didn't offer enough interior organization.

It was like "when your apartment is messy and you can't think straight," Lei says. "What I wear is a big part of my confidence ... It felt like I went in on the wrong foot, when I was already nervous."

After the interview, Lei sat in Bryant Park and sketched out a structured bag with interior compartments for her laptop and portfolio, and a strap long enough to fit over a winter coat. She dipped into her savings — $300,000, gained from a purse dropshipping side hustle she ran during graduate school — to order a $2,000 prototype from a sample maker in Brooklyn.

The result "looked like a kindergartener's art project," says Lei. So when she visited her parents in Guangzhou, China, that summer, she toured factories that specialized in vegan leather. She chose the factory that was the most communicative and transparent about its working conditions, she says.

"As a Chinese person, I wanted Freja to kind of be my way of showing the world this is what 'Made in China' can look like," says Lei.

She ordered an initial run of 300 bags, created a website, started a marketing campaign to collect potential customers' email addresses and wrote blog posts about Freja's values and practices. Sales flopped: It took Lei a year to offload her inventory, she says.

Feeling financially pressured, Lei doubled down — ordering a second run of inventory, which featured a second bag design, and investing more into a harder social media advertising push.

"It was really, really slow for the first two years," says Lei.

Surviving in a cutthroat industry

In 2022, Lei finally sold enough bags — largely through social media ads — to bring in $1.7 million in annual revenue. She spent that money, along with two loans from Shopify, on a broader array of bag designs, hoping to expand her target audience beyond environmentally conscious working women.

The results were near-immediate. Freja brought in $5.3 million last year, becoming cash-flow positive enough to pay off both Shopify loans. The company is on track to finish 2024 with $12 million in annual revenue this year, says Lei.

Yet within the context of the $22.8 billion global luxury handbag market, Freja barely registers as a competitor. LVMH, which owns designer labels like Louis Vuitton, Dior, Celine and Loewe, made $16.85 billion in U.S. dollars in net profit last year. Other established brands, like Sandy Liang and Alaia, sell stylistically similar bags as Freja, too.

The steep competition means that merely surviving is a best-case scenario for most niche fashion brands, says Katie Weir, a consumer and luxury industry strategist at Deloitte. Staying relevant over time "is really, really hard, particularly in this space," she says.

Startups that stick around constantly evolve to keep up with fashion trends and consumer desires, Weir notes. Lei hopes to achieve that by hosting events to build customer loyalty, becoming a small-business mentor to other young women and using a growing array of bag styles to capture a wider audience.

"One thing I kept telling myself was, 'No one is born a designer,' but I can become one in a couple of years if I give it a go," says Lei. "I think now maybe this year I can start calling myself a designer ... I think we've hit a stride."

Conversions from EUR to USD were done using the OANDA conversion rate of 1 EUR to 1.05612 USD on November 19, 2024. All amounts are rounded to the nearest dollar.

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