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6 Reasons Luxury Brands Should Embrace the Resale Market

Luxury brands have long insisted that selling products second-hand weakens brand value and encourages counterfeiting. But getting into the game may be worth the associated risk.
Luxury consigner Rebag's store in Soho | Photo: Paul De Luna
By
  • Lauren Sherman
BoF PROFESSIONAL

PARIS, FranceVirgil Abloh, a prolific user of Instagram Stories, posted on the platform almost continuously in the days after his Louis Vuitton men's debut, often screenshotting and redistributing content from other accounts. But perhaps the most intriguing "gram" of all featured an image from men's re-commerce site Grailed, where one user had put coveted show swag — a T-shirt illustrated across the shoulder blades — up for sale. The asking price? $2,000. Abloh tagged Grailed and drew a big orange arrow pointing to that $2k. The dollar figure spoke louder than words.

Abloh was presumably proud of how much money those giveaway T-shirts could fetch in the secondary luxury market, which is set to hit $6 billion in US sales in 2018, according to Bain & Co., underscoring the value of his take on the Louis Vuitton brand.

Traditionally, luxury brands have turned their backs on the grey space of resellers, insisting that second-hand sales weaken brand value. While the term "investment piece" is casually (and frequently) thrown around, it's actually a rare product that retains its value over time. Most luxury goods depreciate the minute they are bought. (For instance, a monogrammed Louis Vuitton speedy retails for $1,020 in the US. The RealReal sells them for $795.) "It's like cars, as soon as you drive your Oscar de la Renta dress off the lot, it loses a lot of its value," said Aaron Cheris, a partner at Bain & Company.

Then there's the matter of counterfeiting, which luxury brands say the resale market encourages. In March 2018, Chanel brought a lawsuit against New York-based vintage seller What Goes Around Comes Around claiming trademark infringement, alleging that the high-profile second-hand retailer was guilty of selling counterfeit items and marketing its sales of Chanel products as if the brand was associated with them, therefore creating confusion with the customer.

However, some brands are beginning to see the benefits of embracing the secondary market for luxury goods, which accounts for about 10 percent of the overall luxury market, according to Bain. “I think there is indeed merit in luxury goods companies taking a more active role in the second-hand luxury goods market,” said Luca Solca, head of luxury goods at Exane BNP Paribas. “In a vein similar to what happens in the automotive market, this would both release fresh resources for clients to buy new products and contribute to creating a higher-quality second-hand market.”

Solca pointed to movement in hard luxury, citing Richemont's recent acquisition of pre-owned watch market Watchfinder. Some soft luxury players are also testing the waters. In October 2017, The RealReal, a leading purveyor of second hand luxury goods in the US, established a long-term partnership with Stella McCartney. (Customers who consign McCartney's product with the site receive a $100 gift card redeemable at any of the designer's directly owned stores.)

"Some brands still hate us," The RealReal chief executive Julie Wainwright said in June on a panel at the French-American Luxury Exchange, an annual conference. The more progressive brands, she continued, like The RealReal because it supports the "primary sale." Knowing that a product is resell-able may motivate a customer to purchase it in the first place. Companies like Kering are starting to hold more serious talks with resale sites, including The RealReal, to see how they can better work together.

“By standing behind their product’s lifelong quality, [luxury brands] could build a lasting loyalty among their customers by offering a practical and reliable way to recycle their customers’ goods and keep their closets current,” said Pam Danziger, founder of luxury research firm Unity Marketing. “I think practically the only way this would work is to take back older merchandise as an exchange for something new, giving credit for used goods, then selling them along… Such a strategy certainly fits the mindset of the millennials.”

This approach is common in the automotive market. Apple, arguably a luxury brand, also resells its own product.

But what will take to get the luxury industry fully engaged? It will be “tough for individual brands to do this,” Cheris said. “You’d have to get someone to coordinate across multiple brands for it to really work.”

“Selling used merch is a totally different business than the one luxury brands are in now,” Danziger noted. “To make it happen, I suspect a company would have to acquire one of the used luxury marketplaces like The RealReal to gain that expertise.”

Here are six ways the secondary market can help luxury brands:

1. Drive sales of new items. Wainwright says that 80 percent of The RealReal's sellers spend their earnings on new goods. Knowing that there will potentially be an opportunity to resell something in the secondary market also makes new items feel like a better deal. "Buyers that buy new feel like they're paying less because there's more residual value associated with the item," Cheris said.

2. Further reach. The secondary market can help brands reach a wider spectrum of consumers. While lower-priced items like fragrance, cosmetics and small leather goods are often the gateway into luxury brands, the resale market can serve a similar purpose. Once the consumer experiences a luxury brand first-hand, they may be more likely to trade up to a new product in the next cycle.

3. Increase profits. "If resold goods come directly from the brand, it gives the brand an opportunity to recapture some of that secondary market," said Sucharita Kodali, an analyst at Forester Research. Levi's has been selling "authorised" vintage jeans in its own stores since 2017. APC's "Butler" jeans — refurbished denim returned to the store by customers in exchange for a discount on new goods — are priced on par with new denim. Patagonia sells vintage gear through its Worn Wear programme. This approach could help boost brands riding the nostalgia wave, in particular. Take Prada, for instance, whose 1990s nylon pieces are increasing in demand on the secondary market.

4. Enrich storytelling. Consider the case of billion-dollar streetwear brand Supreme: its distribution strategy of limited-edition drops has helped to create frenzy for its products. And nowhere is this emotional value more clearly captured and displayed than in the secondary market, where T-shirts with original retail price tags of $36 can go for well over $1,000, becoming storytelling devices that help to enrich the mythology around the brand. Nike takes a similar approach with its limited-edition product drops. And yet, of the few luxury brands whose products do actually appreciate, none have learnt to leverage the storytelling power of the secondary market quite like savvy streetwear players. "If luxury is predicated on quality and heritage, the secondary market seems useful in proving that point," said Richie Siegel, founder of advisory firm Loose Threads. "I can't think of a single brand that has taken advantage of that."

5. Generate new data. Currently, the data a brand has on the use of its product ends at the cash wrap. If it's able to track a product's life in the secondary market, it can make more informed decisions when conceiving new collections. For instance, if a certain Louis Vuitton limited-edition handbag is fetching a higher price second-hand than the average, Vuitton might make the decision to issue a new version of it.

6. Tighten control. If a luxury brand takes more responsibility for its secondary market — either through direct sales or a partnership with certified resellers — it also has the opportunity to more closely regulate it, potentially resulting in fewer counterfeits, higher prices and better brand protection. "It closes the gap between used and new," Cheris said. "It's a value-added service that is less negative on the market."

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State of Fashion 2023
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State of Fashion 2023