Beauty Pt 6: Rooting for Resale
This is the final installment in a 6 part series, picking apart the beauty industry; from the macro market trends to the business models to watch.
In this final installment, I wanted to tackle the most disruptive idea I came across- Beauty Resale.
So far there are no startups offering this as a business in the UK beauty industry, but as a broader trend, resale is massive. There are also early signals of existing marketplaces expanding into beauty resale, in the US and in Japan, and I believe these are worth unpicking and watching closely. I think we may be at the beginning of a new wave of consumer behavior and an increasing readiness to buy second-hand.
In this post, we’ll look first at the broader trend, then unpick those early signals, before diving into some of the challenges still to be resolved for this to become mainstream.
Let’s dive in.
The wider resale trend
In resale, there are four main value propositions:
- Find a bargain and pay less— buyer
- Waste less and lower your eco impact — buyer
- Find limited edition or collector’s items that are no longer available to buy direct — buyer/collector
- Make money from unused items — seller
- Make a profit on limited edition items — seller/collector
The resale model picks up on a number of trends, including sustainability, and affordable luxury trends- and is also stoked by the growing number of ltd edition drops and celeb/influencer collections.
No wonder then that it’s growing fast. The Secondhand Market is set to hit $64B in the Next 5 Years. By 2029, it will be 2x the size of fast fashion. It’s being further accelerated by the rising consumer power of more environmentally conscious Gen Z and Millenials, who are adopting second-hand fashion 2.5x faster than other groups, in part because they’ve shed any stigma attached with buying used/second-hand products.
What’s also telling is that resale behaviour isn’t an afterthought when you do a spring clean or Marie Kondo your wardrobe. In 2019, 40% of consumers were thinking about the resale value of items they bought first hand.
And, as we must these days, when we add Covid into the mix, the case for resale only strengthens.Research shows that economic uncertainty is one of the main drivers for consumers making the leap to second-hand shopping and we know that Covid-19 will lead recessions and a subsequent tightening on household spending.
Meanwhile, increasing time at home and financial pressures combine to increase supply, as shoppers take more time to clear out, and try to resell what they may otherwise have wasted or donated.
So which startups are already well placed to capitalise on these trends?
Fashion Resale Startups to Watch
1Thrift+: Startups like Thrift have worked hard to make the seller experience even simpler. Lowering the barriers to donate and clear clothes, they send recyclable paper bags for you to pack at home, and even arrange pickup from your place. They’ve cleverly combined the donation and resale propositions, so all sales through their platform see a three-way revenue split, bringing customers money and the feel good factor. Thrift+ manage the sale and logistics for which they do take a cut. The seller then gets Thrift+ credits to buy more on the marketplace (creating a nice little circular economy) and they can also choose their favourite charity to take the final cut.
It takes all of the hassle and guilt out of the equation when you come to buy your next piece. Founded in 2017, they’ve raised £1.5m so far, £950,000 of which was closed in April 2020.
2 ThredUp: Founded in 2009, and valued at $990m in 2019, with £223.3m raised to date. They started as a second-hand marketplace for consumers. Even before Covid, they were growing fast. In the first 6 months of 2019, they had 578,000 app downloads, up 71% from the same time period in 2018, and were reaching around 19,000 users daily. In 2019, they also added Resale as a service, partnering with some of the big label brands on their site. For the brands, it’s a chance to sell excess inventory, engage the customer with an environmentally friendly in-store pop-up (once stores reopen), and have a piece of the growing resale pie. For ThredUp, it’s a key competitive advantage against players like Poshmark or TheRealReal. To serve this market, they raised additional capital to build a new distribution center with the capacity to process 50 million unique items per year.
3 StockX started as a sneaker resale platform targeting collectors. Today, they want to be the “stock market of things”. Valued at $2.8bn after their last fundraise of $275m in December 2020. Their value proposition revolves around delivering “authentic” sneakers which are hard to pick up first hand during product drops. To deliver this, they created their own 90-day authentication program to train employees. Before, there was no authentication guide for sneakers- so StockX bought real and fake pairs and created their own manuals documenting the differences, creating different difficulty levels depending on how “high end” and varied the number of fakes for a pair of shoes are. They now employ 100+ authenticators in 6 locations (incl London, Netherlands, and US). This lets buyers pick up a pair with confidence, while sellers can maximise on price.
They’ve streamlined the selling experience as they have a catalogue of pictures and product details for all the models they cover, cutting time spent writing descriptions and taking great pics, and minimising sales lost to poor post design. They’ve also expanded to include streetwear, handbags, collectibles, jewellery, and watches and have even partnered with brands like Addidas to create new product drops of limited collections exclusively on the site.
Their ultimate goal is for brands to release products directly onto StockX to allow products to find their true price. This is a proposition that works particularly well with limited-edition sneakers, which often have a higher resale value than theoriginal retail price.
For more deep insights into consumer resale behaviours, I highly recommend the full Thredup reports. You can find their latest here or in the links above.
Beauty resale — early signals
As mentioned, there are far fewer startups who have focussed on beauty as their entry into the resale space. However, there are a few examples of the trend extending into this space.
1Mercari. A Japanese marketplace that went public in 2018 at a valuation of $1.2bn. Like The RealReal and StockX, they do have an authentication service, but this doesn’t currently extend to their beauty ranges. However, a quick search for non-authenticated second-hand products brings up hundreds of pre-owned Chanel blushes, NARS lipsticks, and Estee Lauder skincare items, some with discounts of up to 50%. It’s particularly popular for giving access to brands you can’t buy in Japan.
2 Poshmark. Another peer-to-peer platform, this time, based in America. They added makeup officially in 2019 and expanded their beauty proposition in 2020. They IPO’d in January 2021 at a valuation of $3bn. Like Mercari, they don’t do any authentication, however unlike Mercari, they don’t ‘allow’ the sale of used makeup. Ebay have the same policy, though it’s hard to enforce. As is ensuring products are within their expiration dates. Poshmark have include a ‘Report’ button on every listing, so if users do come across a used makeup product, they‘re asked to report it, but that’s not a great user experience to build trust.
3 Glambot. A member of the 2015 500 Startups cohort. You can find their original pitch deck here. When they left the accelerator they were doing over $1M in annual revenue run rate, growing 30% month over month and enjoying 60% gross margins, though more up to date numbers are harder to find and their user interface doesn’t feel like its seen much of an update in the last 6 years.
Glambot run a different model to Poshmark and Mercari, more akin to a consignment resale platform like The RealReal. They buy barely-used make-up, then employ a stringent cleaning routine, before selling on for a profit. Every piece comes with a sticker to reassure the customers it has been inspected and cleaned by a lab member. However, so far, it’s not a model open to everyone on the seller side. Sell packages must contain at least 15 full-size, qualifying items; international packages must contain 30. This suggests their biggest customer segment is likely to be the influencer or brand ambassador receiving more freebies they can use, as opposed to the casual customer who managed to pick up an extra Kylie Jenner lipstick in the latest limited edition drop. Like StockX, they only accept certain brands which they can authenticate. So far, they also don’t take hair products, body products, nail products or retail sized fragrances, likely because they still need to build out authentication and sanitization guides for these products. They’re also geographically focussed on the US; currently, only offering free shipping for sellers there, making the model less viable for international sellers.
4 Give and Makeup. A charitable project founded in 2010 by Caroline Hiron to bring unused and lightly used toiletries to women’s refuges. They don’t accept items that have been tested with an applicator, or are beyond their sellby, and ask donors to think “Would you donate this to a friend”. They also don’t do additional sanitation themselves, but do rehome lightly used products to those who need them most. They’ve partnered with Glossy Box which is a great way for the subscription box brand to help people rehome the products they use least in each box and feel good about it; somewhat of a sticking plaster on the sustainability issues thrown up by beauty subscription boxes, but a great initiative none the less to reduce waste and have some real impact. For similar initiatives, see Project Beauty Share and Share your Beauty though some of these initiatives are struggling during Covid.
Beauty resale activity is also already happening on sites like Depop, and Ebay too, but it’s largely unpoliced and unregulated and is not the focus for either marketplace in terms of growth.
The Challenges
There are some big challenges still to be solved for beauty resale to go mainstream.
- Authentication: is there a way to authenticate makeup in a StockX style model? Especially for limited edition product drops? This could exist for a limited number of Cult brands, but is challenging in the beauty industry which is incredibly fragmented, with new brands launching and reaching cult status relatively quickly; compared to a more consolidated sneaker market. Potentially though, this be an unfair advantage for a company who already own multiple brands like LVMH and may be best placed to lead the way on IP to authenticate true products.
- Hygiene: Makeup and beauty products pose a lot more challenges in this regard than clothes, furniture or shoes. How do you know if used makeup being contaminated, or can someone create a model to de-contaminate cost-effectively?
- Expiration dates: another unique challenge in the beauty market. Products do expire. Can resale platforms really police this aspect? Or will the market be happy to self-police? The challenge here is if you don’t track when a product was bought and opened, it can be genuinely hard to know whether your mascara has months or days left before it becomes less usable or potentially unsanitary.
- Building consumer trust in second hand beauty: in large part, this will be achieved by solving for the above, but I would argue there is still a behavioural shift before most consumers will be happy purchasing beauty second-hand. Increasing comfort buying other products second hand will definitely support this cause though.
Packaging innovation may help make the hygiene challenge easier, for example dispensers which give you the perfect amount of product each day also make it harder to touch/infect the contents, and even harder to tamper without evidence. However, unless a large corporate owns the resale platform, they’re unlikely to design for easy resale. It’s more likely these kind of innovations happen to improve the customer experience, and as an unintended outcome, benefit the secondary market.
Watch this Space
Certainly a space to watch, I believe it’s a move that will come to the industry, it’s just a matter of when.
In fact, now may be the time for beauty corporations to begin experimenting with the model. If I were a large corporate in the primary market, I’d certainly want to explore how to stake a claim to the secondary one before the unicorn startups start to emerge and own the market. I’m sure Nike or Ebay would love to own StockX, but they may not want to pay to acquire, based on its $2.8bn valuation today.
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I hope you’ve enjoyed this 6 part deep dive into the beauty industry. Let me know which industries you’d like to see unpicked next, or the other models you’re watching!
In the meantime, if you’re curious to see what other trends and business models we uncover, you can join our studio newsletter to stay in the loop with new venture opportunities and market trends on Substack.
