Second-Hand Retail on the Rise — How Retailers can Grab a Slice of the $51 Billion Pie
$51 billion — that’s the estimated future value of one segment of the garment industry in particular. And, no, it’s not the portion of the industry that sells new products. $51 billion represents the estimated value of the second-hand apparel industry by 2023 according to a recent study conducted by ThredUp — a major player in the resale industry. While that number represents only a portion of the garment industry, it might just represent the portion with the most potential. After all, according to that same report by ThredUp, the second-hand clothing industry, already valued at $24 billion dollars, grew 21 times faster than the traditional apparel market over the past three years.
With new apparel sales slumping and the trade war ensuing, several companies have gotten to work testing the potential of the second-hand industry — including companies that have never sold anything besides newly manufactured goods, like American Eagle, Macy’s, and JCPenny.
To grab a slice of the $51 billion pie, here’s what retailers are up to:
Patagonia Leads the Way (Of Course)
Okay, you can’t — you just can’t — write about the second-hand clothing industry without mentioning Patagonia. Yes, we know. We often use Patagonia as an example, but that’s for a reason. They’re movers and shakers. And, as a billion-dollar company, they’re making moves in the second-hand clothing industry we can’t ignore (nor should anyone ignore). So, pay attention, people, and get out that notebook while you’re at it.
Simply put, Patagonia leads the way in the second-hand garment industry, especially in terms of its loyalty program. The company created a whole campaign (Worn Wear) around the resale of repaired, second-hand garments.
Here’s how it works: people with used and worn Patagonia gear take their old garments and either ship them into a collection facility or drop them off at a Patagonia store. In exchange, the customer receives Worn Wear credit to use towards the purchase of used or new Patagonia goods.
Of course, that’s good business for Patagonia. Worn Wear keeps customers coming back to purchase new (and used) goods. Offering discounted second-hand apparel and store credit for trade-ins also allows the company to reach customers who feel they might not be able to afford the brand at full-price.
According to Patagonia’s Senior Director of Corporate Development, Phil Graves, “Worn Wear makes our brand more accessible to college kids and others who are looking for lower price points.” Apparently, it’s working. Within the first six months of launching its Worn Wear eCommerce site, Patagonia sold $1 million worth of second-hand clothing. Graves goes on to say that, “It (Worn Wear) was a cool idea to keep our gear in use longer, but now it’s this fledgling e-commerce business that we want to grow in a big way. The goal is to encourage every major brand to have its own re-commerce site behind their apparel.”
If Patagonia’s goal with Worn Wear is to inspire other brands to adopt a similar model, then it seems to be working — at least in part. Through their partnership with ThredUp, Macy’s and JCPenny appear to be taking a page out of Patagonia’s book.
How ThredUp, JCPenny, & Macy’s Are Teaming Up to Sell Used Apparel
With over 56 million women supporting the second-hand goods industry in 2018 alone, resale retailer ThredUp looks to cash in on the opportunity. Much like Patagonia with its Worn Wear incentives program, ThedUp created a trade-in loyalty program that allows shoppers to send their old garment to ThredUp in a “clean out kit.” In exchange for the garment, ThredUp offers customers credit they can use for future purchases.
Here’s the big news though — ThredUp recently expanded that service to large retailers like Macy’s and JCPenny as part of a partnership program it calls “Resale-As-A-Service.” So, when a customer trades in a used item to ThredUp through JCPenny, for instance, the customer receives credit through JCPenny’s loyalty program. ThredUp keeps the traded-in item, repairs it, and sells later on, and JCPenny retains a customer who now has some extra credit to spend with the retailer.
With stock value and quarterly earnings significantly down for JCPenny and Macy’s, both companies also enlisted ThredUp to help set up in-store pop-ups featuring second-hand clothes. The spaces range from 500 to 1,000 square feet and often include brands not typically offered by either retailer. They allow Macy’s and JCPenney to appeal to a greater range of customers and offer shoppers a new in-store experience in the form of hunting for unique items from an expanded range of brands.
As a company that carries more than 30,000 brands of clothing, that’s the value ThredUp offers — access to a wider range of brands at an affordable price and the ability to bring the resale portion of retailers’ businesses up to scale.
According to ThredUp, the top five reasons for existing retailers like JCPenny and Macy’s to get into the resale industry includes:
- Having access to a new source of revenue
- The ability to offer customers a more sustainable option for buying clothes
- Having a way to increase customer loyalty (through incentive programs)
- The opportunity to add new customers
- The ability to increase traffic to both their physical and online stores
Whether or not Macy’s and JCPenney will be able to rescue their businesses by selling used garments remains to be seen. Even then, second-hand goods might give these retailers the boost they need to attract new customers and retain existing ones. For as much potential as they have, however, second-hand clothes aren’t the only items with high resale value and potential.
How Sneakers Thrive in the Resale Game
While sneakerheads already knew it, used shoes might just turn out to be an investment after all. Estimated to reach a value of $5 billion by 2025, resale sneakers represent a new and unique opportunity for the second-hand market.
Leading the way in the resale sneaker industry is StockX, a company that allows customers to buy and sell sneakers in the same way they would purchase shares in the stock market. The process of purchasing sneakers, which takes place on the StockX website, allows customers to sell and bid on limited edition shoes the same as any other auction. When a pair of shoes sells, the seller sends the shoes to one of StockX’s authentication centers, which inspects the shoes before sending them to the buyer. In the process, StockX collects a service fee for facilitating the product transaction.
To give you an example of how lucrative this sneaker exchange can be, a pair of Jordan 1s from Nike, which initially sold for $150 dollars, ended up selling on StockX for $1,000. In another case, an off-white pair of Jordan 1s sold for just over $3,000 dollars on Stock X. Facilitating and processing transactions like this brought StockX’s total sales up to $100 million per month in 2018 — traction that allowed the company to raise $160 million in capital investment through its investors, which include GGV Capital, General Atlantic, and DST Global.
If the success of StockX proves anything, it’s that the resale industry has potential and that it doesn’t need to follow the rules of traditional retail. The company’s founder, Josh Luber, recently declared that the company plans to move away from what he calls the “antiquated concept” of retail prices. In a recent interview with The New York Times, Luber remarked, “To tell all these (footwear) brands that our idea is to get rid of retail prices is crazy, but that’s the slow, big idea behind it.” Whether or not the idea catches on remains to be seen. Regardless, StockX proves that resale has value and that it gives retailers the potential to stretch beyond the confines of traditional retail. Other retailers are paying attention, even those that have never sold limited-edition sneakers like American Eagle.
How American Eagle Intends to Win the Hearts (and Business) of Sneakerheads
Like StockX, American Eagle intends to make the most of the opportunity to win the business of sneakerheads. American Eagle, known for selling affordable and trendy apparel to teens and young adults, recently added resale sneakers to the inventory of its New York Soho location. The resale sneaker portion of the store, curated through a partnership with Las Vegas-based resale sneaker retailer Urban Necessities, includes a variety of brands, including Supreme, Nike, and Adidas with prices ranging from $150 to $50,000.
Okay, so does the average American Eagle customer walk into an AE store intending to drop $50,000 on a flashy pair of resale sneakers? In all likelihood, probably not. For American Eagle, that’s hardly a concern though. They’re not trying to appeal to their current demographic by selling sneakers. They’re attempting to appeal to new groups of customers — the sneakerheads and the Gen Zers in particular. Gen Zers especially place more value on shopping second-hand since it provides a shopping alternative that creates less of an impact on the environment. Besides that, shopping second-hand can be cheaper, unless you’re dropping 50 grand on a resale pair of sneaks.
Even as it appeals to an emerging group of consumers, American Eagle looks to offer its existing customers something new in the retail experience as well. According to Chad Kessler, American Eagle’s Global Brand President, the company doesn’t expect every customer to come in looking for the chance to pick up some new sneakers. But, in Kessler’s words, “I am sure lots of people will be dying to come to the store and check them (the sneakers) out.” At that point, American Eagle hopes those customers might stick around to shop for some of the more affordable items AE is known for. In other words, ‘come for the sneakers; stay for the jeans.’
The Takeaway
With so much potential in the rapidly growing resale industry, how can modern retailers leverage this new trend? Here are a few ways:
- Partner — Take a page out of ThredUp, Macy’s, and JCPenny’s book by looking for ways to leverage the expertise, infrastructure, and resources of other companies interested in the second-hand garment industry.
- Add a resale category/capability — Expand your in-store or online inventory by offering a small collection of resale goods. You can start small and use it as a way to keep your inventory stocked with new goods. Appeal to the shoppers who enjoy the thrill of hunting for unique goods.
- Create Community — Leverage your network of consumers to provide the conduit for exchanges and swaps. Brand-fueled networks may look to eliminate misuser sales; however, long-term brand love will far surpass any short-term loss.
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The above piece was written by the Latitude Supercharge Research Team, which includes Connor Beck and Carter Jensen
Resources and original reporting of the above points covered by the following publications — Fast Company, Patagonia Worn Wear, Retail Dive, Forbes, ThredUp, The New York Times, Business Insider
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Additional Resources
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Supporting Resources
How Patagonia Grows Every Time It Amplifies Its Social Mission
ThredUP: Resale will reach $51B in 5 years
ThredUp Unveils New Platform And $175 Million In Funding As Resale Trend Accelerates
Buy Low-Tops, Sell High-Tops: StockX Sneaker Exchange Is Worth $1 Billion
American Eagle is selling $50,000 sneakers at a New York store to woo Gen Z shoppers
