Not Every Brand is a Fit for Resale and That is Okay
Not Every Brand is a Fit for Resale and That is Okay
7 MINS READ
Key Takeaways
Premium brands have the most gain (and the most to lose) as resale continues to heat up.
Be prepared to manage the value of your items in the secondary market as it’s an indication of your brand health.
Resale is a two-sided market: items must be acquired from customers’ closets, processed at a cost, and subsequently sold, eventually at a profit. How much profit is available at the end is based on the value of the item, which is highly related to the brand, and the resale business model (some models offer more service and hence incur more costs such as authentication).
Marketplaces, such as Thredup and The RealReal continue to lose between $100M and $150M a year which was in the news this week as they released earnings. WWD covered changes announced by The RealReal (TRR) including existing lower profit categories such as home, art, and kids as well as prioritizing higher price point items. It’s a sensible strategy and if successful the changes may accelerate TRR’s need to reach profitability, likely at the cost of revenue growth.
However as The Fashion Law wrote this week, competition for the most sought-after items is intensifying which will make these items more costly for marketplaces such as TRR. As the article rightly points out this will result in further consolidation of the marketplaces. This is a positive signal for circular models in an age of more production and less wear as brands that produce quality pieces with a strong secondary market demand can capture more of this value.
Enter Amazon.
Amazon recently announced the expansion of its marketplace to sell secondhand, higher-end luxury goods from brands unwilling to sell them new products. WWD continued coverage of the move in their article titled, “Louis Vuitton, Chanel, Hermès Bags Hit Amazon Through Secondhand Distributor.” As they point out, this is a clever move for Amazon and accelerates the need for brands to determine how they respond.
While brands can fight these marketplaces and potentially even slow the acceleration of their products showing up there, ultimately every brand will need to control their items in the secondary market. There is no other meaningful way for brands to minimize fraudulent products and equally importantly, control how their brand is portrayed. This is why they didn’t want to sell through Amazon in the first place. Controlling the supply of items both allows brands to monitor and potentially manage the pricing, merchandising and condition of their items in the secondary market.
Finally, Hypebeast’s, “Can Resale Fix Fashion’s Sustainability Crisis?” does an exceptional job dimensionalizing the scale of the fashion crisis, including fashion’s 120% growth since 2020 and an estimated 47,000 new styles landing every week. While resale is not a silver bullet, this younger customer-led shift is meaningful. Resale does not apply to all brands, as the piece points out, and that’s ok so long as the more premium items sold multiple times replace the less valuable items from ever being sold and hence ever being produced.
Week of November 15th Resources:
Can Resale Fix Fashion’s Sustainability Crisis?
As the resale industry continues to grow so does fast fashion’s output. Per EDITED, “US fast fashion retailers are churning out 120% more individual styles weekly vs. 2020, underscoring the need for retailers to be investing in quality, as well as upcycling and repurposing existing goods instead of adding to the wasteful cycle of disposable fashion.” And, as the resale market continues to boom, it could be argued that brands are noticing how they can become the leader of the secondary market, only if they too keep producing enough products to be eventually resold.
Resale Shoppers to Buy More in 2023, But What About the Seller Side?
The evolving secondary market is seeing reselling platforms, a growing number of brands, and Amazon (which recently partnered with reseller What Goes Around Comes Around), alike, “clamoring to capture their stake of the industry’s nearly $180 billion projected market value in 2022,” according to Morning Consult. But in addition to fighting to compete from a market dominance perspective, companies in this space are also vying for much-needed stock from secondary sellers.
The RealReal Races to Accelerate Profit Timeline
The RealReal continued to post steep losses in the third quarter and is trying to prove it can make money sooner than later. “As we continue to focus on profitable growth, our objective is to accelerate our timeline to profitability and demonstrate the efficacy of our business model,” said the co-interim CEOs in a letter to shareholders. “We believe there are levers in our business that may enable us to reach profitability with lower top-line growth than previously projected.” That includes overhauling the consignor commission structure to “incentivize the consignment of higher-value items,” optimizing pricing by refining the company’s dynamic algorithms, more aggressively cutting costs, and capitalizing on new revenue streams.
Louis Vuitton, Chanel, Hermès Bags Hit Amazon Through Secondhand Distributors
Maje, the French premium ready-to-wear label founded in 1998 by Judith Milgrom, is launching The many luxury brands that have declined Amazon’s requests to sell on their platform are in for a surprise. On Thursday, the e-commerce giant unveiled its latest Amazon Luxury Store: A partnership with reseller What Goes Around Comes Around that places pre-owned and vintage bags from some of luxury’s biggest players — like Louis Vuitton, Hermès, Chanel, Prada, and Gucci — on Amazon’s site.
ThredUp: Consumers open to buying, and receiving secondhand goods this holiday
A majority (71%) of consumers say they want to be less wasteful this holiday season, according to the annual holiday survey conducted by online resale platform ThredUp with GlobalData. Interest in a sustainable holiday is even higher among millennial respondents, as nearly three in four surveyed millennial consumers said they would like to give more eco-friendly gifts this holiday season.
This is How Fashion Can Help America Recycle
The slogan “reduce, reuse, recycle” has been around for decades. But it’s only recently that the fashion industry has begun examining how such actions could improve their sustainability efforts while giving their clothing a second life. America Recycles Day is taking place on Nov. 15 to raise awareness about how to recycle, repurpose materials, and reduce landfill waste. So, whether it’s reselling pre-owned fashion, using deadstock rather than new textiles, or recycling existing fibers, there are plenty of options available to the fashion industry.
Why The RealReal’s Backing Off These 3 Categories
“We believe the update to rates will incentivize the consignment of higher-value items and limit the consignment of low-value items, which are unprofitable,” Levesque noted, also indicating that the luxury consignment firm is in the process of deemphasizing categories like home, art, and kids. The RealReal also wants to optimize its pricing algorithm, take a more aggressive approach to costs and capitalize on potential new revenue streams. The company completed a “modest reduction in our workforce” as part of the cost cuts, with Levesque saying it remains “highly selective” in adding new positions and filling open roles.
How to Make Rental Work
After years of trial and error, rental platforms have found new ways to improve margins and acquire customers, such as focusing on niche categories. Profitability remains elusive, however. The first wave of rental services billed themselves as substitutes for their customers’ entire closets. Rent the Runway, Le Tote, and others promised to dress their customers for the office, a destination wedding, or the club. These days, rental services are targeting niches, some with more success than others. Ultimately, rental’s biggest opportunity, whether for growth or for driving the bottom line, lies in improving logistics. Pinpointing out what products to invest in, how much of it to buy, and how to get it to the customer should be a constant work in progress.
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