Venture capitalists are pouring money into a clothing business that could be doomed
ThredUP
The old adage "walk a mile in someone else's shoes" never rang more true.
Now, you can not only walk a mile in someone else's shoes, but you can do it while wearing her old J. Crew shirt while holding someone else's old Chanel bag.
Buying used clothes, whether out of thrift or fashion, isn't a new concept. But the last year has seen a number of consignment shops pop up online, catering particularly to stylish women.
These aren't ordinary thrift stores. They're sleek, have attractive interfaces, and have Pinterest-friendly photos ready to go. These online consignment stores sell everything from clothes you'd find at J. Crew to Birkin bags.
ThredUP
Investors are clamoring to get in on this business. Poshmark recently landed an additional $25 million in funding, bringing its total funding to over $70 million, while luxury consignment shop The RealReal recently got handed an additional $40 million, bringing its funding to a total of $123 million in funding, Fashionista reported.
RealReal founder and CEO Julie Wainwright told Fashionista that they're looking to IPO.
The resellers believe it's going to be a huge market. ThredUP, which raised an recent additional $81 million in a round of funding led by Goldman Sachs (it had more than $131 million as of the fall, according to Bloomberg), wrote in a recent report the industry could reach a whopping $25 billion by 2025 by appealing to consumers who are looking for stylish clothes at discounts.
The people who are using online consignment shops — at least for shopping — are the same people you might have found in a Nordstrom Rack or J. Crew Factory in the past.
According to ThredUp's report, 87% of people who bought used clothing online had moved away from a typical discount retailer.
That, ultimately, suggests that proliferation of these online secondhand clothing retailers may have less to do with the promising future of e-consignment shops and more to do with how people don't want to pay full price for clothing anymore — a sale is a sale is a sale.
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But it might just be a lot of sugar coating.
"We've seen this story [in] so many other sectors where there's frothy investment and there's not a lot behind it," Sucharita Mulpuru, an analyst Forrester Research, said in an interview. "That was the case in the flash [sales] case [and] the case in the subscription space. And this seems like one of the next frothy sectors ... and I would never argue it was that big,"
And, she suggested, amid slight growth, they might not even be profitable — "even by their own admission." Despite The RealReal's desire to go public, these are all private companies, so they don't have to disclose all of their financials.
"It's difficult to wade through self-promotion," she said.
The lack of profitability might just be because the nature of the industry.
Mulupuru pointed to several points that make the industry expensive — from photographing everything to writing the product descriptions. "The creative cost of this is really, really onerous," she said.
"How do you make margin in the business? How do you make the unit economics work?" She asked.
The only categories that could be strong, she said, would be luxury — a category that's hard for people to get their hands on as it is. (The RealReal strictly sells luxury goods like Fendi and Chanel bags.)
But even luxury has a problem: because of exchange rates right now, luxury is struggling — and people could even find a Chanel bag on sale, she said. Which begs the question: why buy someone else's' used bags?
And the market might not be as big as some think it is. "The truth is, the universe of people that are willing to do this is not that big — the size of the market isn't that large," Mulpuru said.
ThredUP
But in the meantime, there are undeniable perks to getting involved with the reselling industry that have made it appealing — at least, in the short term. It certainly has a glossy veneer that lends itself to headlines and social sharing.
ThredUP in particular has used social media to its benefit. It has encouraged followers to post their "unboxing" photos for a chance to be featured on the company's Instagram feed. ThredUP has over 37,000 followers on Instagram, proving that there's at least some interest.
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It also offers incentives to consumers. Macy's and Target, for instance, have partnered with ThredUP creating deals wherein consumers can trade in used clothing for store credit. And obviously, selling old clothes is better for the environment than disposing of it, and that's an attractive, easily selling point.
Further, who doesn't want to make a little cash while cleaning up her closet?
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