SKU’d Thoughts 29: How big of an opportunity is the fashion resale market?
Last week during a random conversation about sneakers, a friend mentioned she paid for her rent with proceeds from reselling a pair of sneakers online. And naturally (or unnaturally) this got me thinking about the business of resale (renting, renting to own, reselling), which a ThredUp 2018 report projects will hit $41 billion by 2022.
Consumer behavior has shifted from own to rent in many sectors; think of Zipcar and Uber as a replacement for car ownership and streaming platforms like Amazon Prime and Netflix displacing owning DVD movies. The retail industry, especially the fashion sector, is also feeling the effect of this shift. In fashion, the lifespan of products is being prolonged with the advent of pre-owned, refurbished, repaired and rental business models. Fashion accounts for $20 billion of the previous cited $41 billion in the ThredUp report.
The resale market isn’t new, as Modern Retail describes “people have hawked their already-bought goods via sidewalk sales and thrift and vintage stores” for decades. However, consumer behavior is now refueling a surge in the space. According to McKinsey & Co.’s The State of Fashion 2019 report, the average person today buys 60 percent more items of clothing than they did 15 years ago but keep them only half as long as they used to. This could be attributed to factors like consumers’ desire for variety, sustainability, affordability, and social media. The latter may seem a bit tongue in cheek but social media encourages the notion that once you post an outfit on Facebook, Instagram or Pinterest, you cannot be seen in it again. The McKinsey report notes that one in seven consumers consider it “a fashion faux-pas to be photographed in an outfit twice”. Given the culmination of these consumer behaviors, the resale market is well-positioned to take off.
Previously, startups like TheRealReal (which IPO’d in June of this year), Poshmark, and StockX were the main players in the resale space but some established retailers have taken notice. Neiman Marcus invested in Fashionphile, a resale site that sells pre-owned luxury handbags and accessories for up to 80% below their original price. Express is betting on the rental market, launching “Express Style Trial,” which allows consumers to rent up to three items at any given time for a monthly fee. H&M is developing plans to test a resale program for pre-owned items.
Like any sector, the resale market comes with challenges mainly pertaining to a scalable business model. The RealReal and StockX use a consignment business model. In the RealReal’s case, the consigner ships their item (for free) to RealReal, which then authenticates, prices, photographs and lists them on its site. When an item sells, the consigner gets a percentage of the sale price (50 percent for items priced at $200 or below, and up to 70 percent for products that sell for $10,000 and over) and The RealReal takes the remainder. In its S-1, RealReal showed an accumulated deficit of $281 million and admitted that it’s unsure if it will be able to become profitable in the future. Based on RealReal’s projected outcomes, resale marketplaces that don’t focus on just high-end items will have an even tougher time reaching profitability because of all the logistics costs associated with getting a product listed for a potential sale.
The projected growth of the resale market is an opportunity for startups and major retailers alike. I believe the resale space is still in the experimental phase and companies have to test what consumers prefer to own versus rent. Determining what product categories are optimal for which resale model — rent, rent to buy, or resell — will allow companies to optimize their associated costs and hopefully turn a profit.
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