Resale is Hot, but Online Consignors Struggle to See Profits

The Latest Fashion Trend

To the unfashionable, the latest craze may be more surprising than leg-warmers or bell-bottomed pants. Secondhand stores are increasing in popularity as sustainable practices are becoming more mainstream.

Some market observers anticipate the clothing resale market will double in size within five years to $77 billion. Some predict through 2025 resale will grow 11 times faster than traditional retail. In 2020 an estimated 33 million shoppers were buying secondhand for the first time. In part, this connects to homebound people cleaning out their closets during the pandemic, all while supply chain issues left bare spaces on store shelves. Where new product lines would otherwise be displayed, resale filled the gap.

ThredUP Partners with the Mainstream

Consignment company thredUp (TDUP) is one of the sector’s major players that could benefit from the surging interest in used clothing. In addition to its online store, a partnership is being developed with large retailers like Walmart (WMT), Adidas (ADDYY), and Target (TGT) that want a piece of the resale pie. The mainstream merchants are looking to benefit from the years of operational and logistical expertise thredUp has to offer.

Numerous issues in the secondhand market make it trickier to navigate than traditional retail. Streamlining inventory management and the intake process on unique products is a challenge.

Online Consignors Hammered

While thredUp focuses on more generic offerings, online consignor RealReal’s (REAL) niche is luxury items. Both companies have struggled to maintain healthy bottom lines. In 2021 RealReal posted a $236 million net loss, and it doesn’t predict profitability until 2024. ThredUp has also struggled and reported a loss of $63.2 million in 2021. Both companies saw 2021 share price declines of greater than 50%.

As the “don’t buy new” movement gains momentum, both companies will be eyeing the net effect of increasing consumer demand against competition from more established companies entering the market. Even high-end brand Neiman Marcus is buying in, having snagged a minority stake in Fashionphile, which facilitates the resale of luxury resale items to its customers.

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