by Resale and rental is a strange place in the fashion market.
The pioneers who cut out here and into the public markets – including Rent the Runway Inc., ThredUp Inc. and The RealReal Inc. – all struggling with investors, who are no longer willing to settle for growth and who want real profits.
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Still, brands and retailers continue to jump in, pumping more heat into a resale and rental sector that is sometimes seen as a kind of sustainable savior, a one-product logistics nightmare or just a black hole for money.
It may not be all that much, but big companies are definitely still paying attention.
Zara launched a pre-owned platform in 14 European markets in December. And Amazon Luxury Stores recently resold Hardly Ever Worn It in the UK, Germany, France, Italy and Spain.
Rental platform Nuuly drove Urban Outfitters Inc. Operating profits generated $65.5 million in revenue in the third quarter, an 86 percent increase from a year earlier.
“With the strong partnership of our co-brands Anthropologie, Free People, FP Movement and Urban Outfitters as well as over 400 other partner brands, we have curated what we believe is the strongest range of rental clothing on the market,” said David Hayne, CEO Urban technology, to analysts last year.
All these resale and rental efforts are yet to be seen. But the sense is, they are going somewhere.
“We’re kind of in a mess, let’s figure it out [stage]because brands and companies all realize now, yes, it’s a real market,” said Cara Smyth, chair of Fashion Makes Change at Rockefeller Philanthropy Advisors.
“Resale will grow five times faster than the regular retail clothing sector in 2022,” said Smyth. “There is money to be made. There are consumers who are interested in it and it’s a new channel. You can’t set up a new channel in such a short time. We are in this: How are we going to make it work? How we deal with singles [stock keeping units]? There are also a lot of technical parts, some details to make it work.”
And consumers seem ready for it.
The ThredUp platform counted 1.8 million active buyers in the third quarter and luxury specialist The RealReal said its active buyers over the past year had topped 954,000.
ThredUp’s annual Resale Report last year predicted that the global second-hand market would nearly double by 2027, reaching $350 billion. Within that, the second-hand clothing market is seen growing three times faster than the clothing market as a whole.
“There is a market for it. It is a growing market. And it’s really important,” said Adam Davis, who is a managing director at Wells Fargo Retail Finance and works with both retailers and resellers.
“That’s why you’ve seen big brands like Levi’s and Lululemon and Rolex embrace the concept of pre-owned,” he said. “They have their reasons. They want to control their product distribution, they want to build that relationship with the consumer. There’s probably profitability, and then there’s a lower entry point for consumers.”
But when brands embrace reselling, they’re mostly putting a new model into their existing, generally healthy business, which is already turning consumer dollars into profits.
“When you think about retailers, they’re buying from a manufacturer, they’re getting 30, 60, 90 days of payables,” Davis said. “So they’re able to kind of play with the working capital. Some of those [resale] models don’t allow that. So they are paying cash and they have to try to sell this product as quickly as possible.
“The ones that did well have their sku list trimmed for the highest turning items,” he said. “The Louis Vuitton Speedy is going to sell, and you can kill those because you can get them in Japan through some of the brokers … that item turns very quickly. So instead of trying to sell everything, you start shrinking down to focus on the things that really convert quickly.”
Davis said there were private companies that were working on the resale model.
For example, the luxury resale platform Vestiaire Collective was valued at 1.1 billion euros in November and IPO prospects are expected in the not-too-distant future.
CEO Maximilian Bittner recently told WWD, “We are still very conservative in our planning for 2024, but despite that conservative planning, we think we will be approaching profitability towards the end of this year.”
Vestiaire Collective’s revenue grew by 25 percent last year.
“The idea of resale is a great idea among consumers,” said Jessica Ramírez, an analyst at Jane Hali & Associates. “We have many platforms in the United States and Europe. There’s a lot of competition, it’s just a very crowded space.
“A lot of the brands started to bring resale into their own vertical,” Ramírez said. “There have been many changes in the resale market that have made it difficult to achieve success.”
Part of the PR problem for the sector is that some of the higher profile players are struggling a lot.
Rent the Runway, ThredUp, The RealReal and Poshmark, before buying it, had a splashy start, making headlines all. But then they were tripped up by the changing mood in the stock market.
“The VC money dried up, they try to fix it with debt, and then the IPO markets opened up and they were able to go public and that’s how they ended up financing their business,” Wells Fargo’s Davis said . “They’re in the public eye … their cost structures are just completely out of whack.”
That is changing as all the public parties have moved to correct their spending and are focusing more on where their models work best.
But it’s still a long journey and investors don’t need to hang around. Runway Rent’s market capitalization has fallen to just under $36 million, while RealReal and ThredUp are trading closer to $200 million.
Edward Yruma, equity analyst at Piper Sandler & Co. who covers the sector: “I don’t think these companies will be as profitable as we expected a few years ago.”
Part of that is because of the back-of-house operations. In some cases, consumer demand is a problem.
Yruma said shoppers still seem to be looking for value before sustainability.
“While the Millennials and Gen Z are really concerned about the environment, it’s still questionable how that connects to their purchasing behavior,” he said.
The public parties have made progress in the space to cut costs. But Yruma said, “People want to understand when they achieve profitability, but then, what is the long-term profitability of these models? These are show stories for me.”
That means investors are holding back, waiting for pullback signals before jumping in again.
And some believers have lost faith.
“I’ve been a student of the space forever,” said Michael Prendergast, managing director in Alvarez & Marsal’s consumer and retail group. “I always thought it was very cool. It’s interesting, but it’s not sustainable.”
That’s not sustainable in the way it’s environmentally friendly, but it’s sustainable in terms of business — at least as it’s currently structured.
“The most attractive thing is this wide range of skus across brands and exclusivity in product,” Prendergast said of the sector. “That’s fine, but the problem is when you’re running a retail business, what are the main things you need? You need sales. You need efficiency. You want operations that turn around and have a very supportive supply chain.”
Prendergast said he had something like the perfect resale consumer experience – once. He went to a store and found the perfect Moncler jacket at 25 percent of what he would have paid new.
“This is the best thing ever,” he thought, as he tackled a resale. But then, he went back to the store several times and “didn’t find anything else.”
“They have some real issues with diversity planning, demand planning and what I would call consistency in skus,” he said. “The back end is very complicated for these companies.”
That sets the stage for continued market evolution and, perhaps, further collaborations and combinations as the players feel their way to better businesses.
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