Re-use and resale is fashioning a billion-dollar industry of its own.
What happens when you combine environmentalism, overconsumption, and social media-driven culture, and then overlay all of that with the eBay influence that introduced us to the ease, profit, and fun of resale? Fundamental change.
Apparel, generally speaking, is out of fashion. In the four decades between 1987 and 2017, spending allocation for fashion dropped from 5.9% to 3.1%, according to a Deloitte report issued in November 2018. What makes matters worse is the once highly influential fashion editors that used to move the needle on “what’s hot” have been replaced by social media-driven, peer-to-peer approval.
Additionally, one cannot overstate the degree to which society’s focus on sustainability has impacted our attitudes about consumption. Some say it’s a direct rebuff of the fast fashion industry which has been blamed for environmental debauchery during its red-hot reign.
It’s estimated that three-fifths of all clothing is trashed in its first year, and that 8% of global greenhouse emissions stem from the fashion and footwear industry. That is over one half of the attribution caused by cars, trucks, trains, and planes.
Retail Resale for All
The virtual inception and growth of the retail resale have moved from an industry once only associated with the lowest ranking consumers among us to a broad-based phenomenon in an incredibly short period. The latter part of the 20th century saw young people venturing beyond the ranks of Goodwill and the Salvation Army in search of retro fashions and the occasional “Gucci find” hidden away in the crowded aisles of urban thrift shops.
In 1995, with the launch of the online phenomenon eBay, an increasingly broad market of both buyers and sellers got into the game. That ultimately led to the seemingly endless online, offline, and omnichannel offerings that have catapulted the retail resale market to previously unimagined heights and influence. eBay currently draws 182 million global sellers to the site and has made it possible for sellers to earn millions while giving their “stuff” a new life.
It Just Feels Good
Executives from The RealReal, ThredUp, Rent the Runway, and Rebag all report that environmentalism has always been a core component of their brands. However, I would argue that the sustainability factor has now become much more front and center of their marketing, than earlier on. They all recognize the importance of building their Millennial and Generation Z core following, who are understandably focused on the burden being left to them by the consumption-obsessed generations’ past.
Besides the fact that social media mavens, Hollywood fashionistas, and a zillion Instagrammers have given permission to regale in retail resale, there are significant psychological rewards that are associated. “It’s a feel-good moment,” says Charles Gorra, the founder and CEO of Rebag, which sells used handbags. “I’m actually doing something. I’m actually being proactive in solving this.”
Threading the Needle
While some trendsetters were already into secondhand when ThredUp launched in 2009, the brand knew they had to change the way the broader market felt about secondhand. Benefiting from the aftermath of the great recession, ThredUp knew its affordability and brand selection made it appealing. But for the customers who found Goodwill and the Salvation Army unpleasant—and eBay too complicated—ThredUp provided a fresh, new alternative.
ThredUp refers to itself as the world’s largest fashion resale marketplace, with 35,000 brands at up to 90% off retail price. The company receives over 100,000 articles of clothing per day. To date, ThredUp as raised over $300 million, after its August $175 million funding round. The investors in the category seem eager to play in what ThredUp projects to become a $51 billion resale market by 2023.
By comparison, off-price—led by TJX and Ross Stores—is on pace to reach $18 billion to $19 billion of incremental sales by 2021, according to a 2017 note on the sector from JPMorgan analysts. Meanwhile, department store sales have dropped $20.4 billion over the past five years.
Offline retail is definitely taking notice. In their urgent attempt to increase customer traffic, both Macy’s and J.C. Penney have committed to launching between 30 and 40 ThredUp pop-ups in their respective stores. In no small way the terabytes of data that ThredUp has gleaned will help tailor the product selection that goes into these stores.
Another diversification play for ThredUp comes with its recently announced venture with J. Crew’s Madewell brand, called “Madewell Archive.” Madewell is essentially shopping ThredUp, selecting, washing, and if necessary, repairing the secondhand denim, and reselling them for $50 per pair in selected stores.
A Posh Mark
While ThredUp combines elements of resale and consignment, depending on the relative value of the goods received; Poshmark is very much a social marketplace. You upload photos of your items, with descriptions and price, in a peer-to-peer social selling effort. This year the company has already paid out over $2 billion to its seller community, twice the $1 billion milestone of the previous year.
Poshmark’s CEO, Manish Chandra was interviewed on CNBC’s Power Lunch on October 28, 2019, and indicated that the platform has over 50 million users. This includes 7 million buyers, and 7 million “seller stylists”. They sell an item every second, out of their inventory of one million items. Poshmark receives uploads of $175 million worth of product every week and 80% of its customers are repeat buyers. Users spend 23-27 minutes. per day on the app, opening it seven to eight times. The social sharing and styling has become an important component of the brand’s stickiness.
Again, the preponderance of data that they collect is seen as key to the platforms underpinning and success. It’s also highly noteworthy that in the last year, Poshmark has cultivated a male audience via a successful co-marketing effort with the NBA, positioning their hottest stars as fashion icons. As a result, sneaker sales from September 2018 through August 31, 2019, rose 88% on the platform.
Getting Real is Hard to Scale
The RealReal, founded between 2009 and 2011, became the first venture-backed fashion consignment site to focus on the personal luxury goods market. A major differentiator in this niche involves guaranteeing the authenticity of the designer brands that they represent. Many of these labels have become notorious for breeding fakes by counterfeiters and because the profit motive is so high, the forged goods have gotten very good.
The San Francisco-based company employs employees an ever-increasing army of authenticators, including gemologists, watchmakers, and brand specialists to laboriously access every item that goes on the site. As such, their costs are considerably higher than the other major players in the retail resale business, but so is their fee structure. Their “take” on their consignment goods averages 37% but can run as high as 60%. This compares to less than 10% for eBay.
The beauty of the business model is that their cost of goods is zero, as they only pay the consignor after the goods are sold. And while their website boasts that they ship goods free of cost to their warehouses, they make an exception when it comes to shipping consigned furniture to their warehouses. My wife and I found that out (to our surprise) after testing out the process.
This summer, The RealReal was thrust into the limelight with its IPO, raising $400 million. While the company is in a growth mode with revenue in 2017 at $134 million and 2018 at $207 million, it has yet to show a profit. With this volume growth has come increased expenses related to the authentication process, which can run hours for some high-end jewelry; hence, it has become a difficult and costly business model to scale.
It’s also worth noting that because every sale is essentially a “one off”, increased sales volume doesn’t necessarily yield greater profit, but it adds to the data management complexity. It will become increasingly imperative for The RealReal and similar retail resellers to employ data science and machine learning in order to overcome some of the complexities of the category and yield greater returns on investment.
Recently, The RealReal has been able to enlist authentication help from some of its key brands. On National Consignment Day (yeah, that’s a thing) in early October, Burberry announced that they are teaming up with The RealReal to promote a more sustainable, circular fashion economy. They cite demand for Burberry products, which has grown 64% year-over-year. With the new relationship comes access to Burberry’s design archives and help with the authentication process; a win-win.
Allison Sommer, Director of Strategic initiatives for the RealReal, stated that 82% of their customers cite sustainability as an important reason for shopping the website. This no doubt correlates with the growing interest of their Gen Y and Gen Z customers.
In 2017, one of fashion’s most influential voices for sustainability, Stella McCartney, established a designer partnership with the brand. This became a watershed moment for the RealReal, increasing the frequency of other brands seeking similar partnerships. Sommer claims, “We absolutely see resale as a built-in part of every single retailer and luxury brand. It should be an assumed part of the shopping experience.”
Remaking Creative Service Jobs
I recently reported in an article for Forbes.com that with the multiple “trend convergence” that is fueling the circular economy, the sky’s the limit as far as what’s next. Taking advantage of peer-to-peer social selling combined with the bottom-up drivers of what’s cool, there is the potential to unearth a high-valued “creative service economy” of Maketailers and Re-Tailors.
These “create-a-job rather than take-a-job” entrepreneurs could foster an entirely new cottage industry that utilizes existing garments—some even generations old—to customize, personalize, and stylize one-off “originals” for anyone. This social media-friendly phenomenon would turn the economic model of manufacturing and supply chain on its head. Additionally, it has the capacity to create high-paying jobs, where the cost of goods is negligible, and the value of social media savvy re-stylists becomes highly prized.
It’s entirely imaginable for “Re-Merch Malls” to bring together resellers, local digital-native crafters, and a new generation of Re-Tailors, who combine fashion design savvy with social media marketing and influencing skills. It also delivers on the “Market of One” promise of personalization that was predicted over two decades ago. Even my grandfather, master tailor Jacob Stein, would be proud.