Re-commerce is Rising but its Stocks are Not

Re-commerce is Rising but its Stocks are Not

When it comes to apparel, a new trend is on the horizon: second-hand items. The early 2000s saw the rise of inexpensive, mass-produced brands like H&M, Primark, Zara, and Forever 21. Prices were low, quality was questionable, and fashion cycles accelerated, forcing consumers to buy more items, more often. But now shoppers are taking a step back and considering the environment, their wallet, and quality when they purchase closet staples and this is pushing billions of dollars into the resale market. In the last three years, re-commerce sales grew 21 times faster than the new apparel market and is expected to double by 2025, reaching $51 billion.

While this is great news for consumers on the lookout for unique items from the past, things aren't so exciting for investors, who now have the difficult task of wading through the many companies attempting to digitize and profit off second-hand shopping. Key players include Poshmark (POSH), ThredUP (TDUP), and Depop, which was recently acquired by Etsy. However, all of these platforms have a problem: they focus on apparel that is too low value, making it difficult to turn a profit while also satisfying sellers. In order for resale platforms to be successful, they need merchandise, and unlike new items that can be sourced from a manufacturer, second-hand items have to be acquired from individual sellers across the nation. Most of the time these sellers look like you and me and are just trying to clean out their closet and make a few bucks. However, this means most platforms can only gain access to merchandise with a relatively low resale value. Poshmark is filled with low-quality items from the previously mentioned fast fashion stores and even ThredUp, which works hard to pursue reputable name brands, is mainly comprised of Urban Outfitters, Madewell, and Anthropology.

Poshmark's average order value is just $33 dollars — combine that with its 20% take rate and cost of shipping and oftentimes smaller sellers don't make any money. This alienates them from the platform. Worse still, Poshmark is a consumer-to-consumer network with no verification in between. Many consumers report receiving items that smell or are damaged, and a number of orders never arrive at all. This would explain the company’s abysmal reviews on TrustPilot, it averages 1.5 stars.

ThredUP attempted to fix this problem by asking sellers to send their clothes to a centralized warehouse to be evaluated and priced, however by doing so they exacerbated the profitability issue. Despite creating state-of-the-art warehouses with a patented conveyor network that can hold tens of thousands of items and a completely automated system that can dress a mannequin, take a picture, and post it to the ThredUp website, gross margins, and seller payouts remain low. The company even uses AI to monitor fashion trends and determine what brands will sell the best but to no avail. According to one seller’s experience, you may end up waiting months for your item to be processed and sold and then only make $0.37. Not exactly a system that screams sustainable long-term growth.

The better option for investors is a reseller specialized in high price items such as luxury, designer goods. Luxury items hold higher resale values, especially accessories like handbags and jewelry, and this value can be held for much longer, allowing them to be resold more than once. Think Supreme, Hermès, Louis Vuitton, Rolex, Tiffany & Co., and Cartier. Cartier's famous LOVE pieces, which include bracelets and earrings, hold up to 94% of their resale value. If. you're lucky enough to own an original Supreme gray logo hoodie, its average resale markup is 286%.

Enter The RealReal, the world's largest online marketplace for second-hand luxury goods and tomorrow’s First Look.

See you then.

Anne MarieAnne Marie

Sign up for free to continue reading.